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Portugal could face downgrade, Moody's warns

Ahlevah

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LONDON (MarketWatch) -- Ratings agency Moody's Investors Service on Wednesday placed Portugal's government bond ratings on review for possible downgrade, citing the recent deterioration of the country's public finances and "long-term growth challenges" to the economy.

In the event of a downgrade, the country's Aa2 ratings would fall by one or, at most, two notches, the agency said. Moody's said it expects to complete the review within three months.


Moody's warns Portugal could face downgrade - MarketWatch

Euro supporters, you're on notice: When the inevitable downgrade comes, don't blame America, greedy capitalist speculators, ratings agencies, the IMF, or Goldman Sachs.
 
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Moody's would merely be following the decision already reached by Standard & Poor's. IMO, some of Portugal's debt-related challenges are of a magnitude that warrants reduced credit ratings i.e., structural budget deficit of nearly 8% of GDP and an enormous current account deficit of around 9% of GDP. That current account deficit is projected by the IMF to grow to 10.2% of GDP in 2011.
 
IMO, some of Portugal's debt-related challenges are of a magnitude that warrants reduced credit ratings i.e., structural budget deficit of nearly 8% of GDP and an enormous current account deficit of around 9% of GDP. That current account deficit is projected by the IMF to grow to 10.2% of GDP in 2011.

That doesn't bode well for Portugal's ability to maintain the Euro as its currency, does it? And Portugal is only one leg of the problem. I'm wondering how any of these PIIGS will be able to reflate their economies to recover from or avoid a deflationary depression when they're tied to this currency:

Tuesday’s fall in the euro to its lowest level against the dollar in a year was accompanied by a sell-off in weaker eurozone bond markets, such as Greece, Portugal and Spain.

The febrile atmosphere in markets was exacerbated by rumours that Spain, the eurozone’s fourth biggest economy, is seeking an International Monetary Fund/European Union multi-billion loan similar to Greece.

FT.com / Capital Markets - Bail-out fails to calm eurozone debt crisis fears

For its part, Spain needs to refinance more than €200 billion before the end of the year. All I can say is good luck on that one.
 
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That doesn't bode well for Portugal's ability to maintain the Euro as its currency, does it? And Portugal is only one leg of the problem. I'm wondering how any of these PIIGS will be able to reflate their economies to recover from or avoid a deflationary depression when they're tied to this currency:



For its part, Spain needs to refinance more than €200 billion before the end of the year. All I can say is good luck on that one.

I agree with your point, the euro is definitely hurting these countries. However, I would fear abandoning the euro could result in hyperinflation for those countries. Its pretty much a bad situation all the way around.
 
it is what it is

I'd call it "living beyond one's means." Let Greece be a lesson to all of us. We need to get back to basics, starting with spending only on what we can reasonably afford.
 
Euro supporters, you're on notice: When the inevitable downgrade comes, don't blame America, greedy capitalist speculators, ratings agencies, the IMF, or Goldman Sachs.

Moody's has actually warned the US of a possible downgrade as well a few months back. What is happening in Europe is not automatically that far off here.
 
I'd call it "living beyond one's means." Let Greece be a lesson to all of us. We need to get back to basics, starting with spending only on what we can reasonably afford.

yes, and stop putting the killer squeeze on industry, ie, job creation, via health care, cap and trade...
 
I agree with your point, the euro is definitely hurting these countries. However, I would fear abandoning the euro could result in hyperinflation for those countries. Its pretty much a bad situation all the way around.

The Euro is not hurting these countries.

The countries are hurting themselves

Over spending and taking on too much debt is the problem for them, not the Euro.


The solution will be cut backs in spending and the standard of living. It will also mean lower wages, and finding ways to increase productivity. Devaluing the currency is just the easiest way to do so, and generally prevents the structural reforms that are required to truely make the economy better in the long run.

The Euro initially helped these countries and if they took adavantage of it in a more constructive manner, it still would be.
 
The Euro is not hurting these countries.

It is in the sense that these countries will find it more difficult to avoid a deflationary death spiral. You have countries with a common currency but which do not have their economies completely integrated, so the European Central Bank can not respond to economic crises the same way, say, the U.S. Federal Reserve can. It's difficult to inflate when you have countries like Germany that don't want or need it, that is when one country's economy is expanding or at least holding its own while another is in free fall.
 
It is in the sense that these countries will find it more difficult to avoid a deflationary death spiral. You have countries with a common currency but which do not have their economies completely integrated, so the European Central Bank can not respond to economic crises the same way, say, the U.S. Federal Reserve can. It's difficult to inflate when you have countries like Germany that don't want or need it, that is when one country's economy is expanding or at least holding its own while another is in free fall.

For Greece to experience a deflationary death spiral the EU would have to as well. Being a common market if the costs of labour, land etc went into a deep deflationary period, the companies that do business in the EU would locate business's in Greece to take advantage of the lower costs of doing business. Investor's or people looking for second homes would buy up greek property.

Realitically the last thing Greece needs is to reflate, it needs to restructure. It needs to collect taxes in a different more efficient manner, It needs to lower the level of public sector employement(specifically the costs of it)
 
Being a common market if the costs of labour, land etc went into a deep deflationary period, the companies that do business in the EU would locate business's in Greece to take advantage of the lower costs of doing business. Investor's or people looking for second homes would buy up greek property.

Any business that would have its revenues largely concentrated in the local economy would not see things this way. A business that is a purveyor of services or doesn't plan on exporting its wares would have to weigh the pros and cons of locating in a society in which real incomes and overall economic activity are declining. And any manufacturing exporter that locates in an inefficient nation like Greece would be butting heads with productive Germans or cheaper Eastern Europeans. Besides, companies considers a whole gaggle of factors when making a choice as to where to locate, such as regulatory and legal issues and taxes.
 
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