Portuguese American Journal

Portugal demands European response to Moody’s rate cuts

President Aníbal Cavaco Silva considered Moody’s attribution of junk status to long-term Portuguese bonds as unjustifiable and wants a “European response” to the rating agency’s rule.

A presidential aide told Lusa news agency, Cavaco Silva, a former economics professor, saw “no minimal justification” for Moody’s rate cut on Tuesday.

Cavaco Silva believes that “risk assessment and financial ratings” involving European Union member states “merit a European response,” the aide said.

The president, he added, was pleased by the overwhelming condemnation the move had received from “the European Union, European and international institutions, and several European governments.”

German Finance Minister Wolfgang Schauble had expressed “surprise” at Moody’s axing Portugal’s bond rating to junk, saying the European Union must “break” the power of ratings agencies.

“We’re as surprised by the decision of this ratings agency as anyone else. We don’t understand what the basis for this evaluation is,” Schauble told Lusa, remarking that Portugal had a new government that was not only “fulfilling its bailout timetable, but anticipating it.”

“For this reason, from our point of view, there’s no justification at this moment, so early, for Moody’s to take such a decision,” he added.

Schauble said the European Union will work to “break the oligopoly of the ratings agencies,” recalling he had referred to such a need several times in recent weeks. “Efforts are being made in that direction,” he added.

European Commission Economic Affairs spokesperson Amadeo Altafaj Tardio also considered the timing of Moody’s decision to cut Portugal’s sovereign rating as “extremely unfortunate,” just days after the government announced further austerity measures.

He said, “This case in particular seems to go completely against the determined start of implementing Portugal’s program when they even announced more measures than were anticipated during the negotiations,” — and he added — “It was an unfortunate episode that once again raises the question of the rating agencies’ behavior.”

In Strasburg, the President of the European Commission, former Portuguese Prime Minister José Manuel Durão Barroso, regretted Moody’s decision to lower Portugal’s rating to “junk status” saying the European Commission is “quite disappointed” with Moody’s as there were no “new facts” to justify the downgrade.

American based rating agency Moody’s cut Portugal’s sovereign debt July 5, from Baa1 to Ba2, to junk status.

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