Portuguese debt downgraded by Moody's
While the downgrade of Portuguese sovereign debt to A1 was not wholly unexpected by economists there is no doubt that the two notch downgrade has spooked investors within Europe. There are growing fears of further financial difficulties within the Euro zone with Spain and Ireland also mentioned as potential problems in the short to medium term. So what impact will this have upon the European economy as a whole?
There is no doubt that weakness in any element of the European economy will impact upon not only confidence but also economic activity within Europe. First we have the Greek issue, now we have the Portuguese issue and there are problems in other areas of the European Union. The EU has also made it very clear that a collapse in European Union economies would see the pain shared between the European Union as a whole and investors in these specific areas. As a consequence, it is likely that investors will begin to shun potential problem areas such as Portugal and concentrate upon the stronger areas of Europe.
We are also likely to see the Euro come under significant pressure in the short to medium term and no doubt we'll hear doomsday predictions of a breakup of the European Union, again.
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