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Ratings agency claims Eurozone credibility limited by decision NOT to punish Portugal

Fitch, one of the world’s foremost ratings agencies, has come out with a statement today that perfectly encapsulates the minefield of European politics. While the decision not to impose financial penalties on Portugal for a slide in excessive deficit targets has been welcomed nationally as “good news”, Fitch claims it “limits credibility in the Euro zone” – although it has had to admit that it “will be good for growth”. In fact, it has gone as far as to say: “Stimulus could be relatively strong.”

Thus the note sent to media groups today highlights the conflicts within the European project.

Yesterday, it was the IMF watchdog (the independent evaluation office) which said that over-emphasis on austerity actually plunged weaker economies like Portugal into unsustainable debt, without allowing them the tools to grow (click here).

But the conflicts look set to persist, with Fitch and all other ratings agencies bar one (DBRS) pegging Portugal’s prospects still at so-called “rubbish” status, which classifies investment as speculative.

As to the feeling over EC chiefs’ capitulation over the imposition of sanctions, Dinheiro Vivo explains Fitch’s position “is in line with other institutions”, like Germany’s business-focused IFO which has “accused the Commission of feeding ‘conflict and destabilisation’ in the European project of the single currency”.

DBRS sounds new warning over Portugal’s excessive deficit

Canadian agency DBRS has also dented Portuguese euphoria over the decision not to impose sanctions, saying any further conflicts with the EC “could be bad for ratings”.

As Portugal’s access to ECB ‘easy money’ hinges on DBRS’ positive rating, the truth is the country is far from ‘out of the woods’.

Dinheiro Vivo explains that suspension of vital European funds in 2017 “remains a possibility, especially if there is non-compliance over the Pact (meaning, especially if Portugal does not rein in its budget in line with European targets).

Talking to DBRS economist Adriana Alvarado, the financial website explains that Portugal’s positive rating with the agency will be put to the test of a new evaluation coming up in October, “in the middle of the debate on the 2017 State Budget”.

natasha.donn@algarveresident.com