Wednesday, March 24, 2010

Portugal downgrade - more PIGS going to slaughter

Fitch dropped Portugal to AA- with negative outlook. "GDP per capita and trend growth are significantly below what is typical for AA rated country reducing it a ability to tolerate a global economic downturn." This was surprise but not unexpected.

This downgrade is the reason why Germany has been reluctant to bail-out Greece. There is more bad news behind the Greek debt problem. You will have to offer similar terms to other countries. It would be better to save the funds for a bank bail-out then using guarantees to help a specific country. The assumption is that the IMF has the funds to help countries. Let the world organization assist countries and use funds to protect your on industries.

A combination of weak growth and sovereign problems makes the EU an unattractive place to invest.

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