08 MAR 2011
• Ratings agency warns of more cuts if Greece pulls back from reforms
• EU leaders fear offering bailout to Portugal will leave Spain exposed
Phillip Inman, Graeme Wearden and Helena Smith | The Guardian
Portugal took a step nearer a humiliating multibillion-pound bailout by the European Union on Monday after Greece saw its credit rating slashed to a new low and speculation grew that eurozone leaders will fail this weekend to agree measures to prevent a repeat of last year's sovereign debt crisis.
The ratings agency Moody's cut Greece's credit rating by three notches to B1, which analysts said was deep into "junk" territory, sending the cost of insuring the country's debt soaring.
The downgrade, which was attacked as reckless and "completely unjustified" by the Greek government, highlighted the collapse in confidence among international investors who fear peripheral eurozone countries such as Greece, Portugal and Ireland cannot afford to repay their debts.
Greece, like Ireland, has already been forced to accept a rescue package put together by the EU and the International Monetary Fund. Portugal is widely regarded as the next country in need of a bailout as it struggles to refinance its debts while still in recession.
Deutsche Bank credit analysts said: "There seems to be an increasing view from EU leaders that the need for a complete overhaul of the current rescue framework is no longer required. For us, this is increasingly leaving the peripheral situation as a potential macro shock in the months ahead."
EU leaders fear offering a bailout to Portugal will leave Spain exposed as it is wrestling with massive bank debts.
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Time not on Greece`s side as debt decisions needed fast