Portugal's Credit Rating Slashed to Junk

People walk in the Av da Liberdade, the main avenue in Lisbon, Portugal. Photo by EPA/BGNES

Portugal joined Greece as the second euro zone country rated non-investment grade by Moody's after it was downgraded to junk status.

Moody's Investors Service justified the move with the growing risk that the country would need a second bail-out before it was ready to borrow money from financial markets again.

Moody's was concerned that if there was a second bail-out, private lenders might have to contribute.

Portugal's government said on Tuesday a four-notch ratings cut by Moody's to junk showed the vulnerability of the economy amid a debt crisis, but added that the ratings agency did not take into account strong political backing for austerity and a recent additional tax.

It said that sticking to a program of macroeconomic adjustment presented by the government last week "is the only way to reverse the course and restore confidence" in Portugal. It also reaffirmed commitment to deepening and speeding up austerity measures that the country vowed to implement under its 78-billion-euro bailout program.

Discussions are under way about the possibility of banks that have lent money to Greece waiting longer to be repaid.

Moody's said that prospect would scare private investors and make it even harder for Portugal to borrow money commercially again.

It said the talk of a private bail-out was "significant not only because it increases the economic risks facing current investors but also because it may discourage new private sector lending going forward".

Portugal, Greece and the Irish Republic were all given bail-out loans to give them time to repair their economies so they could borrow money normally again.

But Greece has already had to start negotiating a second bail-out.

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