Downgrade for Portugal debt threatens investments

Portuguese Prime Minister Jose Socrates speaks during a press conference.

JEREMY HOBSON: Things just got worse for Portugal. The rating agency Moody's has just downgraded the country's government debt again. In order to borrow money the country now has to pay investors an interest rate of almost 10 percent.

How bad is that?

Here's Marketplace's Stephen Beard.


STEPHEN BEARD: Portugal is in deep trouble. The current government failed to win support for its deficit cutting measures. That triggered a general election scheduled for this summer. And the uncertainty has pushed up the cost of borrowing for the government. It now has to pay an interest rate of almost 10 percent.

Dominic Swords of the Henley Business School says the burden is becoming almost unbearable, just as the government has to raise more money:

DOMINIC SWORDS: They're going to find of that is much higher than they've been paying last month. And that means they're going to have to borrow even more.

And that will damage their creditworthiness further. If the rating agencies downgrade Portuguese bonds again, many investment funds will be unable to buy them, making a bailout almost inevitable.

In London I'm Stephen Beard for Marketplace.

About the author

Stephen Beard is the European bureau chief and provides daily coverage of Europe’s business and economic developments for the entire Marketplace portfolio.

Comments

I agree to American Public Media's Terms and Conditions.
With Generous Support From...