by CHRIS GRAEME [email protected]
Ratings agency Standard & Poor’s decision on January 13 to downgrade Portugal’s rating by two levels to ‘BB’ received a strong reaction from the Portuguese Government.
The revised level, considered ‘speculative junk’ by investors, was slammed as “unfounded” by the minister of finance Vítor Gaspar.
The S&P downgrade followed the examples of ratings agencies Moody’s and Fitch last year and came after S&P had warned before Christmas that it was considering the move.
S&P justified the downgrade on account of Portugal’s “weak political climate” and its forecasts that the country will end 2012 in recession and a GDP of 106%.
But the minister of finance said its criteria were unfair, over focused on economic issues and failed to adequately take into account “national realities.”
Vítor Gaspar said the agency didn’t take into account the political consensus over the ‘troika’s’ measures, widespread structural reforms, serious efforts at budgetary consolidation, and economic estimates for 2011 which pointed to a less severe recession.
S&P also downgraded the ratings of eight other European countries, including France and Austria, which both lost their prized triple ‘A’ rating, and Spain, Italy and Cyprus, which were all downgraded by two levels.
Malta, Slovakia and Slovenia also saw their ratings drop by one level. Reacting to the news in Europe, German Chancellor Angela Merkel said that “Europe still had a long road ahead in order to restore market confidence”.
The European Commissioner, Olli Rehn, regretted the decision and said that the cut in ratings was “no accident”.
The decision to slash ratings was publicised on the same day that negotiations between the Greek government and the banks were suspended, leading to fresh fears that Greece will have to default and leave the Euro.
S&P also justified its round of cuts on the fact that the “efforts made by European leaders in recent weeks might not be sufficient to meet the systemic pressures within the Eurozone”.
According to the agency, “the results of the European summit on December 9, and the subsequent declarations from European leaders, did not represent a sufficiently strong move forward to solve the Euro’s problems”.
S&P also states that the agreement made on that date did not respond to one of the key causes of the crisis: the gulf between the peripheral and central European Union countries over issues such as competitiveness and growth.
It is also arguing for “a process of reform which is not solely based on budgetary austerity measures which runs the risk of being self-defeating, given that this will reduce consumption and, as a result, tax receipts. Europe also needed to go for a concerted growth strategy.
