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EU Commission slams Moody’s over Portugal downgrade

The European Commission criticised Moody’s credit agency on Wednesday for downgrading Portugal’s debt to junk status, saying the “questionable” decision contradicted the EU’s own assessments.

“The timing of Moody’s decision is not only questionable but also based on absolutely hypothetical scenarios which are not in line at all with the economic programme” adopted by Lisbon, said Amadeu Altafaj, commission spokesman for economic affairs.

“This is an unfortunate episode and raises once more the issue of the appropriateness of behaviour of credit agencies and of their so-called clairvoyance,” he told a news briefing.

Moody’s warned on Tuesday that Portugal may need a second bailout and slashed its sovereign debt to junk status, just as Lisbon implements austerity measures in return for 78 billion euros ($112 billion) in EU-IMF aid.

“I deeply regret the decision of one rating agency to downgrade the Portugese sovereign debt, and I regret it most in terms of its timing and magnitude,” said European Commission president Jose Manuel Barroso.

The agency’s remarks “do not provide for more clarity, they rather add another speculative element to the situation,” he told reporters at the European parliament in Strasbourg.

The former Portuguese prime minister urged his compatriots to plough ahead with tough budget cuts, saying “there is no reason to be distracted or demotivated if they stick to the course.”

The Moody’s annoucement came one day after another agency, Standard & Poor’s, poured cold water on eurozone plans to involve private investors in a new bailout for Greece, warning that it could amount to a default.

Brussels questioned the credibility of the agencies on Wednesday by accusing them of failing to scrutinise the risky financial decision taken by US finance giant Lehman Brothers before its collapse in September 2008.

“You should look at the ratings that these agencies were giving to Lehamn before the (global financial) crisis,” said another European Commission spokesman, Olivier Bailly.