March 29, 2011
Portugal and Greece were downgraded by Standard & Poor’s, which said the European Union’s new bailout rules may mean that both nations eventually renege on their debt obligations.
S&P cut Portugal for the second time in a week to the lowest investment-grade rating of BBB-, three steps below Ireland. Greece’s rating fell two grades to BB-, three levels below investment grade. S&P cited concerns that both countries may be forced to restructure debt after seeking European aid and that governments will be paid back before other creditors.
The moves increase pressure on European policy makers trying to stem the sovereign-debt crisis almost a year after Greece became the first euro member to seek a bailout. Even as Portuguese Prime Minister Jose Socrates repeatedly denies his country needs help, investors are increasing bets that it will be forced to follow Greece and Ireland into seeking aid.
“The downgrades intensify the pressures facing peripheral economies, Portugal in particular,” said Neil Mackinnon, a London-based economist at VTB Capital Plc and a former U.K. Treasury official. “It increases the likelihood of bailout.”