MercoPress. South Atlantic News Agency

Portugal on notice for possible credit rating cut in next three months

The Euro zone crisis is forecasted to resume in 2011

Portugal was put on notice that its credit rating could be cut and fellow Euro zone debtor Spain had to pay more to issue new debt, suggesting the currency bloc's crisis will rage unabated in 2011.

China, the world's new economic powerhouse, urged European policymakers to demonstrate as a matter of urgency that they can contain the Euro zone's debt problems and pull the bloc around.

Ratings agency Moody's said it may cut Portugal's credit rating by one or two notches within three months, citing weak growth prospects as the government seeks to cut its debt, and climbing borrowing costs, although it said its solvency was not in question.

“The likely deterioration in debt affordability over the medium term and ongoing concerns about the economy's ability to withstand fiscal consolidation ... mean its outlook may no longer be consistent with an A1 rating,” said Anthony Thomas, Moody's lead analyst for Portugal.

Portugal has appealed to China and Brazil to support its sovereign bonds but the cost of insuring Portuguese debt has again risen and the Euro slipped.

Spain cleared its final debt sale of the year, but predictably had to pay a higher price and analysts warned of tough times ahead in 2011.

However a pre-Christmas market lull has taken some of the heat off peripheral Euro zone debt but ratings agencies are flagging that the crisis will surely flare up again in 2011.

Already this month, Moody's has put Spain and Greece on review for possible downgrades and cut Ireland's rating by a savage five notches, while Standard & Poor's said it may cut Belgium's debt rating next year. Analysts said markets were pricing in even more doom for the euro zone's weaker members than the ratings agencies.

The president of the European Council, Herman Van Rompuy, insisted the EU stood ready to do more if needed to ensure the stability of the Euro zone area.