The downgrading of Portugal's credit rating has made it even harder for it to climb out from under its massive debt. Apart from complaining, there appears to be little European politicians can do to limit the damage.
Portugal is struggling to pay down a massive debt
European politicians have expressed frustration after one of the leading credit rating agencies downgraded Portugal's debt to "junk" status this week.
Moodys announced on Tuesday that it had slashed its credit rating for Portugal by four notches, from Ba1 to Ba2. It said that the downgrade reflected "the growing risk that Portugal will require a second round of official financing before it can return to the private market [to raise funds.]" It also expressed concern that Portugal wouldn't be able to meet the debt-reduction targets set out in its current European Union and International Monetary Fund-sponsored bailout.
European leaders said the move was unwarranted and would only make their efforts even more difficult to help Portugal, Greece and Ireland climb out from under billions of euros in sovereign debt.
Barroso thought Moody's decision was 'unfair'
"I deeply regret the decision of one rating agency to downgrade [Portugal]," European Commission President Jose Manuel Barroso told the European Parliament in Strasbourg. The former Portuguese prime minister said it was unfair for Moodys to raise doubts about the country's efforts at a time when "it has just started to implement" its austerity measures.
German Finance Minister Wolfgang Schäuble said he was surprised by Moody's announcement and went even further in defending the Portuguese government's efforts to get to grips with its public debt.
“Portugal is ... not only completely on course but even ahead of the curve, so there really is no factual justification for such an assessment at this early point," he told a news conference in Berlin.
Whereas the average citizen in most countries likely doesn't closely follow moves by credit ratings agencies, in recent months, the Portuguese have become the exception to that rule. The downgrade appears to have left them feeling as frustrated as their politicians.
"Many ordinary Portuguese are quite bewildered. How can this be when a new government has just taken office, it has just announced its program? It’s even announced that people are going to have parts of their Christmas bonus taken away in a new income tax levy," Alison Roberts, Deutsche Welle's correspondent in Lisbon said. "It is quite baffling to the ordinary Portuguese."
Debt rollover plan fails to impress
Moody's downgrade of Portugal's credit rating followed a statement by another of the three main credit-rating agencies, Standard & Poor's, on Monday, in which it shot down proposals for a debt rollover in a possible second Greek bailout, saying that would be tantamount to default.
Both Moody's and Standard &Poor's are based in the US, and even though the majority owner of the third major agency, Fitch Ratings, is French - with headquarters in both New York and London - this week's events have European politicians wondering whether that is part of the problem.
Merkel played up the role of European institutions
"It seems strange that there is not a single rating agency coming from Europe. It shows there may be some bias in the markets when it comes to the evaluation of the specific issues of Europe," told members of the European Parliament.
German Chancellor Angela Merkel responded to the Standard & Poor's statement by Moody's announcement by attempting to play down their importance.
"It is important that the troika (EU, IMF and European Central Bank) do not allow their ability to make judgments to be taken away," she said. "I trust above all the judgment of these three institutions."
On Wednesday, her finance minister described the "big three" credit rating agencies as an oligopoly that needed to be broken.
On the defensive
In light of such statements, the head of Standard and Poor's Germany, Torsten Hinrichs, appeared on German public television on Wednesday to defend his company's record.
"There are about 100 ratings agencies in the world. The importance given to the big three stems from the fact that they have proven to be accurate in their ratings" over a period of many years, Hinrichs said.
Apart from public posturing it's not clear what European politicians can actually do to limit the influence of the US-based ratings agencies.
Following a meeting with his Greek counterpart, Stavros Lambrinidis in Berlin on Wednesday, German Foreign Minister Schäuble called for the creation of a European-based ratings agency.
"That won't be possible overnight, but it has to be the objective we should all work hard towards," he said.
Author: Chuck Penfold (dpa, Reuters, AFP)
Editor: Nancy Isenson