• Storm clouds brewing over the Portuguese capital (Photo: fnkftw)

Portugal downgraded amid fears of snap election

16.03.11 @ 09:26

  1. By Leigh Phillips

BRUSSELS - Portugal has seen its rating downgraded by Moody's, with the credit rating agency arguing that the country's debt and tepid growth made it a stronger credit risk.

On Tuesday (15 March) the firm pushed Lisbon down two notches, from A1 to A3, and suggested that further downgrades are in the offing.

The move, which will hike the costs of the country's borrowing, comes as the right-wing opposition officially announced it will not support the government's plans for further austerity.

The capital unveiled the measures, which target healthcare, pensions and welfare benefits, on Friday ahead of a summit of eurozone leaders in Brussels.

The move was intended by centre-left Prime Minister Jose Socrates to both soothe markets and convince its fellow eurozone premiers and presidents of his commitment to meeting deficit reduction targets.

Lisbon has said it will ratchet down its deficit to 4.6 percent of gross domestic product this year and to three percent in 2012, down from seven percent in 2010.

The government is in a minority in the house, with parties to its left refusing to support austerity, and requires the support of the opposition right wing to push through the cuts.

The Social Democrats, which are a conservative party despite their name, have backed three previous rounds of austerity.

However, the latest move produced a firestorm of opposition, provoking the country's largest anti-cuts demonstration since the beginning of the crisis.

Spooking the government, the demonstration, some 300,000-strong according to police and half a million according to campaigners, in an echo of marches and rallies on the other side of the Mediterranean, was organised rapidly on Facebook by a pair of students outside the traditional trade union and left-party channels.

Failure to push through the measures could result in the fall of the government and a snap general election. The Social Democrats have a comfortable lead over their rivals.

Socrates warned on Tuesday that the stalemate could provoke a crisis leading to the country heading to Brussels for a bail-out.

"I am doing what it takes to avoid a political crisis," he told Portuguese television. "I'm sure such a crisis would put into question the confidence of the international markets and would cause us to have to request foreign intervention."

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