Finance and Economic

The nameplate outside George Paz’s windlowless office, no bigger than any other at Express Scripts, carries his name, but no title.

The mustachioed chairman and chief executive eats in the company cafeteria, and parks his Audi sedan in an unreserved, lower-level spot. He knows a surprising number of his employees on a first-name basis, stopping occasionally to chat them up.

Even with Thursday’s announcement that Express Scripts plans to buy a leading rival, Medco Health Solutions, Paz eschews the spotlight

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Greece was pulled back from impending default Saturday, when eurozone finance ministers signed off on a vital loan installment. But the country’s international creditors are showing more concern over whether it can service its debt in the long run.

Athens will get a euro12 billion ($17.39 billion) tranche of its existing euro110 billion rescue package by July 15, in time to meet several bond repayment deadlines this month and next, the finance ministers of the 17 countries that share the euro said in a statement Saturday evening. The eurozone and the International Monetary Fund will also continue to prop up Greece’s struggling economy in the coming years, with a second package of aid loans to be finalized by September.

While the renewed commitments save Greece from immediate collapse, even its international creditors _ long the biggest optimists on the country’s prospects _ are warning that getting down a debt of 160 percent of economic output will be a difficult balancing act.

“The Greek government debt will remain for many years at a high level and, therefore, subject to possible adverse developments that cannot be predicted,” the European Commission, the EU’s executive and one of the three institutions in charge of Greece’s bailout, said in a report published Saturday.

Especially lower than expected economic growth “would put the debt trajectory on a clearly unsustainable upward path,” the commission said.

In an illustration showing several scenario’s for Greece’s debt load, growth of just 1 percentage point below expectations would leave Greece’s debt around 170 percent of gross domestic product past 2020, with the graph pointing firmly upward.

The report, the basis for the ministers’ decision to release the July aid installment and prepare a new bailout, is the most pessimistic assessment from the commission yet. Private analysts and economists have long questioned the sustainability of Greece’s debt. However, the European Union, the European Central Bank and the IMF have so far, at least publicly, upheld their belief that Greece’s situation is manageable.

The Commission still maintains that it is “not unrealistic to assume” that Greece can cut its deficits to the targets set out in its bailout program, and thereby slowly chip away at its debt. But the report puts a sizable question mark over the country’s ability _ and willingness _ to implement the reforms its creditors say are necessary to get the economy growing again.

“Solvency depends on the political and social conditions which allow or not the implementation of the required policies,” the report cautions.

The warning has a clear ring to it, following weeks of sometimes dramatic back and forth between Greek authorities and the country’s international creditors, which culminated earlier this week in the narrow passage of unpopular new austerity measures through parliament amid violent demonstrations in Athens.

“Given the length, magnitude and nature of required reforms, political and social consensus remains a prerequisite for success,” the Commission said in its report, repeating calls from European leaders on Greece’s opposition to start supporting the bailout program.

For the first time, the Commission’s report also contains a section on debt restructuring _ including a scenario for a 40 percent haircut, a forced reduction in the value of Greek bonds.

The EU has so far ruled out any haircuts on bonds, and in its report the Commission maintains that the negative consequences of a restructuring would outweigh any gains from debt restructuring.

A 40 percent haircut would devastate Greek banks, wiping out the capital cushions and triggering massive deposit flight, the Commission warns. Restructuring Greece’s debt also risks “creating a permanent shift in investor sentiment and lead to self-fulfilling prophecies for other vulnerable Member States,” _ shorthand for already bailed out Ireland and Portugal, as well as weak states like Spain or Italy.

The report highlights that Greece’s destiny will likely be decided by what happens within the country as well as by outside conditions it has little influence over, such as global economic growth that would provide it with a better market for exports.

Those factors are likely to overshadow any decisions on a second bailout package, which merely buys Greece more time, and the exact nature of private-sector involvement, the main open issue in the debates on a new bailout.

Eurozone finance ministries are currently trying to come up with a way of getting banks and other private creditors to contribute to a new aid program. Since a forced restructuring _ or any move that would trigger a negative reaction from rating agencies _ has been ruled out, banks will likely commit to reinvesting some of the money they get back when their existing Greek bonds expire in new debt at somewhat lower interest rates.

However, several analysts have already pointed out that such a scheme would be very costly for Greece and will not reduce its overall debt load.

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Stocks climbed for a third straight day on Monday, the longest stretch of gains the market has had in nearly a month.

Major indexes opened mixed but moved higher in midday trading, putting the market further away from its longest weekly losing streak since 2002. Last week stocks eked out tiny gains, giving the Dow Jones industrial average and the Standard & Poor’s 500 index their first rises after a six-week slump.

The downturn, which began in early May, brought the S&P 500 close to its average level over the prior 200 days. So long as the index doesn’t sink far below that level, many technical traders see it as a sign to start buying stocks again. The S&P is now 6 percent below the 2011 high it reached on April 29.

“In the short term, stocks have been oversold, and you’re going to get some sort of bounce, whether justified or not, just for technical reasons,” said Paul Simon, chief investment officer for Tactical Allocation Group, which has $1.5 billion in assets under advisement.

The S&P 500 index is up 7 points, 0.6 percent, at 1,278. The Dow Jones industrial average is up 71 points, or 0.6 percent, to 12,076. The Nasdaq is up 16, or 0.6 percent, to 2,632.

European leaders failed over the weekend to agree on releasing more financial aid to Greece, saying the country must first agree to more budget cuts. Greece’s recent efforts to slash spending have led to street protests and political turmoil in Athens. The Greek government faces a confidence vote on Tuesday.

Prime Minister George Papandreou’s newly-reshuffled government is expected to prevail in the vote, and officials say they expect Greece to get its next installment of emergency loans in July. If Greece were to default, it could trigger losses for the banks that hold Greek bonds and more turmoil in financial markets personal loans for people with bad credit.

Investors are also looking ahead to the Federal Reserve’s two-day policy meeting, which begins Tuesday, and the next round of corporate earnings reports that begin in July, said Oliver Pursche, president of Gary Goldberg Financial Services.

“There’s a little fatigue about hearing about the same problems, and there’s no shock factor anymore,” he said. “So now you’re going to start looking ahead. Earnings season is going to start in three weeks or so.”

Analysts expect operating earnings per share for companies in the S&P 500 index rose 14 percent in the second quarter. They also expect the Fed to keep interest rates at nearly zero, a record low.

Fertilizer producer Agrium Inc. raised its forecast for second-quarter earnings after record crop prices pushed up demand for its products. Its stock rose 2.8 percent.

Nabors Industries Ltd., a driller for oil and gas, warned that its pressure pumping and international businesses have been weaker than it expected. The stock lost 2.2 percent.

PNC Financial Services Group Inc. fell 1.9 percent after saying it would buy the U.S. retail operations of Royal Bank of Canada for $3.45 billion. The deal will make PNC the fifth biggest U.S. bank with 2,870 branches. The deal follows Capital One Financial Corp.’s $9 billion purchase last week of ING’s U.S. online bank.

Greece has been at the center of Europe’s debt worries, but other countries are also facing troubles. Moody’s warned that it may cut Italy’s credit rating because of its mounting debt and sluggish growth prospects.

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The Obama administration declined to brand China a currency manipulator while saying the world’s fastest-growing economy is making “insufficient” progress on letting the yuan rise.

The U.S. “believes that progress thus far is insufficient and that more rapid progress is needed,” the Treasury Department said yesterday in a report to Congress on foreign- exchange markets. The yuan’s real exchange rate remains “substantially undervalued” and the department “will continue to closely monitor the pace” of appreciation.

The report, originally due in April, follows Treasury Secretary Timothy F. Geithner’s push for a stronger yuan. Lawmakers including Senator Charles Schumer, a New York Democrat, say the exchange rate gives China an unfair advantage in the global marketplace. In talks this month between the world’s two largest economies, China agreed on the upward direction of the currency, while differing with the U.S. on the pace.

“We have differences on the degree of appreciation,” Deputy Finance Minister Zhu Guangyao said May 10 in Washington. China’s economy will expand 9.6 percent in 2011 and 9.5 percent next year, according to International Monetary Fund projections released last month.

The Treasury Department backed away from the “nuclear option” of calling China a currency manipulator, said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. The Group of 20 nations are “going to have something to say on the global imbalances later this year, so it is better to decide these matters in a world forum rather than for the U.S. to take unilateral action.”

Congressional Criticism

Rupkey said in e-mailed comments that the “late afternoon release before Memorial Day weekend appears well-timed in order to miss congressional criticism. Nice timing, as a war of words helps no one.” The report was released at 4 p.m. yesterday.

The Treasury said “no major trading partner” of the U.S. met the legal standard of improperly manipulating its currency. “Exchange-rate flexibility must play an important role in rebalancing China’s economy towards domestic demand-led growth,” the department said.

China has allowed the yuan to appreciate by 5.1 percent against the dollar from June 2010 through the end of April 2011, or at a rate of about 6 percent per year in nominal terms, the Treasury said. Since inflation in China is higher than it is in the U.S., the yuan has been rising against the dollar at an annual rate of about 9 percent on a real, inflation-adjusted basis.

Yuan’s Increase

By acknowledging the yuan’s increase since last year while criticizing the “limited progress,” the U.S. “once again takes a calibrated approach to Chinese currency policy,” Eswar Prasad, a senior fellow at the Brookings Institution in Washington and a former IMF official, said in an e-mail.

The yuan completed its second consecutive weekly gain on speculation that policy makers will tolerate appreciation to tame inflation. The People’s Bank of China set the currency’s reference rate 0.04 percent stronger at 6.4898 per dollar yesterday, the highest level since July 2005.

The yuan strengthened 0.02 percent this week to 6.4917 per dollar as of the 4:30 p.m. close in Shanghai, according to the China Foreign Exchange Trade System. It was little changed yesterday and touched 6.4858 on May 26, the strongest level since 1993. The yuan isn’t allowed to move more than 0.5 percent either side of the central bank’s daily fixing.

Hampers Progress

“China’s consistent, large reserve accumulation prolongs a substantial undervaluation and hampers progress toward global rebalancing,” the Treasury said. “It is in China’s interest to allow the nominal exchange rate to appreciate more rapidly, both against the dollar and against the currencies of its other major trading partners.”

China purchases foreign currencies to suppress the value of the yuan. It accumulated $3.04 trillion of foreign-currency reserves as of March, an increase of 24 percent over a year earlier. Its reserves are the world’s largest, accounting for 31 percent of the total.

The Treasury “continues to make the right call on China’s currency policy,” Erin Ennis, vice president of the U.S.-China Business Council, said in a statement yesterday. The council thinks the Obama administration “approach of employing multilateral and bilateral engagement with China is the most useful way to make progress on the exchange-rate issue.”

Stronger Yuan

The council’s members as of April 21 included Apple Inc. (AAPL); Chevron Corp. (CVX); Citigroup Inc. (C); JPMorgan Chase & Co. (JPM); and Bloomberg LP, the parent of Bloomberg News, according to the group’s website.

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Singapore raised its growth forecast for 2011 after the island’s economy expanded the most in Southeast Asia last quarter, sustaining pressure on the central bank to allow the currency to appreciate.

Gross domestic product will increase 5 percent to 7 percent this year, from an earlier forecast of 4 percent to 6 percent, the trade ministry said today. The economy expanded 22.5 percent in the three months through March from the previous quarter, compared with a preliminary estimate of 23.5 percent.

Singapore’s expansion has fueled a surge in the cost of living that helped propel opposition parties to a record share of the vote in this month’s election. The report spurred a third straight day of gains in the local dollar, bringing the advance against its U.S. counterpart to 13 percent over the past year as policy makers use currency appreciation to temper inflation.

“Domestic and external demand remains strong and we’ll probably continue to see more gains in the Singapore dollar this year,” said Kit Wei Zheng, a Singapore-based economist at Citigroup Inc. “Consumer price inflation may have peaked but pressures in the pipeline will remain elevated.”

The Monetary Authority of Singapore said last month it would allow further gains in the currency in the third tightening of monetary policy in a year. Global central banks are raising interest rates, removing excess cash from their financial systems or allowing their currencies to appreciate as rising oil and commodity prices fuel inflation.

Best Performer

The Singapore dollar is the best performer in Asia outside Japan in the past 12 months. The currency rose 0.5 percent to S$1.2377 against its U.S. counterpart as of 9:49 a.m. local time.

The island’s expansion came even as the GDP of Japan, the island’s seventh-biggest trading partner, shrank at a more-than- estimated 3.7 percent pace in the first quarter, according to a government report today.

Singapore’s government has boosted financial services and tourism to reduce its reliance on exports. Companies from Singapore Airlines Ltd. (SIA) to hotel operator Shangri-La Asia Ltd. have benefited from record tourist arrivals. Genting Singapore Plc (GENS), one of the two casino operators in the city, turned to a first-quarter profit of S$305.4 million ($247 million) in the three months ended March 31 as sales almost tripled to S$922.6 million.

“The global recovery story remains largely intact and Singapore is a beneficiary of that expansion,” Selena Ling, head of treasury research at Oversea-Chinese Banking Corp. in Singapore, said before the report. “While inflation has probably peaked, the economic environment may get a bit more challenging in coming quarters payday advance.”

Singapore, located at the southern end of the 600-mile (965-kilometer) Malacca Strait, benefited from improving overseas demand for manufactured goods as the global economy recovered from the 2009 slump.

The Southeast Asian nation’s economy grew a record 14.5 percent in 2010. Singapore’s economic performance will probably stay at “high levels” for the rest of 2011, spurring inflationary pressures even as the island tightens monetary policy, the central bank said last month.

Labor Market

A “tight” labor market will add to business costs, the trade ministry said today. Cost pressures may build up further and impact business activity, Kwek Mean Luck, a deputy secretary at the Ministry of Trade and Industry, said in Singapore today.

Prime Minister Lee Hsien Loong’s government is distributing cash to its citizens and giving out utility rebates to limit the effect of price increases. The country held elections this month, and the ruling People’s Action Party was returned to power with the smallest percentage of popular votes since independence in 1965 as citizens complained about the rising cost of living.

Inflation may have peaked and a stronger currency has helped damp price gains, central bank Managing Director Ravi Menon said yesterday. Singapore’s monetary policy remains appropriate and the central bank still expects inflation to average 3 percent to 4 percent this year, Ong Chong Tee, deputy managing director at the Monetary Authority of Singapore, said at a press briefing today.

Property Curbs

Central banks in Vietnam, India and Malaysia raised borrowing costs this month to curb price increases. Malaysia reported yesterday that inflation accelerated to a two-year high.

In Singapore, where demand for private homes and mortgages has boosted earnings for companies including lender DBS Group Holdings Ltd. and real-estate developer City Developments Ltd., policy makers have introduced measures to curb property speculation.

The revised economic expansion in the first quarter compares with the 22 percent median forecast of nine economists in a Bloomberg News survey. Compared with a year earlier, the economy grew 8.3 percent last quarter, the ministry said. That’s higher than the growth rates of Malaysia, Indonesia, Vietnam and the Philippines, and exceeds the 2.7 percent pace estimated for Thailand in a Bloomberg News survey.

Singapore’s manufacturing will be bolstered by new plants in the chemicals industries and higher production by biomedical companies, while economic growth will spur lending and insurance, the trade ministry said in a statement today.

Growth Risks

Risks to growth include “continued concerns of sovereign debt sustainability in Europe, further increases in global oil prices arising from the political turmoil in the Middle East and North Africa region, and a prolonged disruption of industrial activities in Japan,” it said.

Neighboring Malaysia, Singapore’s biggest trade partner, reported yesterday growth slowed to 4.6 percent last quarter as manufacturing and services moderated.

“Local manufacturers could be affected should the disruption supply from Japan persist into the second half of 2011,” the Singapore trade ministry’s Kwek said.

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Banks must endure financial fitness tests these days, with the results not always pretty or predictable.

This concept isn’t such a bad idea for average citizens either.

The darkest stories of recession involve lost jobs, lost homes and lost hope. It is not uncommon for others, those who avoid dire straits and experience some sense of relief, to overlook their financial responsibilities.

According to financial advisors, Americans too often are unaware of what they spend; most of their savings earn no interest; they pay too many bank fees; they carry too much credit card debt; they don’t invest for retirement; and they have no emergency fund set aside.

Remember: Just because you’re receiving a regular paycheck and no one’s knocking on the door to repossess your car, doesn’t mean that you and your family are financially fit.

“If you exercise a lot but eat horribly and are always stressed, you’re not going to be physically fit because a lot of things must work together,” said Kim McGrigg, manager of community relations for the Money Management International credit counseling agency in Denver. “The same goes for your finances, since you must examine savings balances, liabilities and future goals to see that everything is properly coordinated.”

Give yourself a test: Track your spending and income over a three-month period. Write down all money spent, including cash, using a small notepad or electronic device. Calculate your cash flow, listing all income sources in a basic budget. Don’t include anything as incoming until you are sure of it.

Record all expenses, and not simply obvious mortgage or car payments but also those you track through receipts and credit-account payments. Important additional expenses are food, transportation, medical costs and clothing.

Totaling your incoming and outgoing expenses produces a cash-flow statement. If you had an operating surplus of several thousand dollars, your net worth should have increased by at least as much. A negative income statement isn’t good. There should also be room for conscientious saving and investing.

“People treat ATMs like candy machines and keep going back again as the handful of money disappears,” observed Barbara Steinmetz, certified financial planner with Steinmetz Financial Planning in San Mateo, Calif. “I had one client with $15,000 worth of ATM withdrawals in one year and had no clue whatsoever what she had spent all that money on.”

You may think you are richer than you are.

“It’s not really helpful to make $100,000 a year when you find out that you spend $200,000, for what you make is the input and what you spend is the output,” warned Harold Evensky, CFP with Evensky & Katz in Coral Gables, Fla. “Start with liabilities, striving to minimize or eliminate consumer debt such as credit cards and car loans because they are very expensive, non-deductible forms of debt.”

There are “new kinds” of bills that consumers must cope with, such as for cellphones and cable television, McGrigg noted. Shop for the best deals and carefully go over the breakdown on your statements to see whether you need everything for which you’re being billed. If you receive a cable package in which you don’t watch most channels, weed out what you don’t want and trim that bill, she advised.

“I have clients who simply don’t open their mail every day, just thumb through to see if any envelopes look interesting or important,” said Steinmetz. “They may wait a week or more to open many of them, but you should open them right away because it is all about taking responsibility for your financial life.”

The most common financial mistake is spending beyond one’s means, and in second place is not saving to build up a nest egg, according to Evensky. Don’t focus on the total number of dollars needed at retirement when figuring how much you should save, but simply get started right away even if it is just $50 a month. If you save money now and save continuously, you will never have a chance to miss that money, he believes.

“An emergency fund is important, but remember that there is no magic answer,” said Evensky. “If you have a very secure job, maybe two to three months in emergency funds that could cover staying in your house and paying necessary bills is OK.”

Having adequate life, liability, house, auto and health insurance is also crucial, he said. Even though no one ever wants to think about it, such protection can make a big difference to your family.

Pay yourself before paying your bills, counseled McGrigg. The easiest way to build up an emergency fund, for example, is to deduct money every time you get paid and put it away before you have a chance to spend it. Most banks can do this automatically for you so that you never even get your hands on the money, she said.

“Another mistake is opening lots of new credit card accounts, especially store accounts just to save 10 to 15 percent on that first purchase,” McGrigg concluded. “Taking out credit on a whim or while standing in line is not a good idea, especially if you have larger financial goals.”

Because goals are what being financially fit is all about.

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The signing ceremony for a deal to end Yemen’s political crisis was postponed indefinitely Sunday after the Yemeni president refused to sign it personally, a Gulf official said, signaling the possible collapse of the agreement.

Ahmed Khalifa al-Kaabi, a media official for the six Gulf Arab nations sponsoring the agreement, told The Associated Press that their foreign ministers would meet in the Saudi capital, Riyadh, on Sunday to try to find a way to salvage a deal.

The standoff between Yemeni President Ali Abdullah Saleh and the hundreds of thousands of street protesters demanding his immediate departure after 32 years in office threatens to pull the impoverished and fragile nation into greater disorder and destabilize the rest of the Arabian peninsula.

The Gulf Cooperation Council, an association of Yemen’s oil-rich neighbors, offered a deal that calls for Saleh to step down within 30 days and for the ruling party and the opposition to come together in a national unity government. In exchange, Saleh would get immunity from prosecution.

The GCC comprises Saudi Arabia, Kuwait, United Arab Emirates, Qatar, Oman and Bahrain.

Yemen’s opposition parties, which had initially agreed to the deal, said they would not sign it if Saleh refused to do so personally.

For their part, representatives of the those staging anti-Saleh demonstrations since early February have rejected the deal outright, demanding that Saleh immediately step down and face trial for the killings of protesters and corruption.

They say the established opposition political parties taking part in the talks do not represent them, and even if a deal were reached it seemed unlikely that it would end the protests.

The ceremony was expected to be held in Riyadh on Sunday or Monday.

In what appeared to be a last-minute bid to salvage the deal, Saudi Arabia’s King Abdullah spoke to Saleh by telephone on Sunday, according to a brief Yemeni government statement paperless payday loans.

The deal’s collapse would raise the prospects of more bloodshed in a nation already beset by serious conflict and deep poverty and which is home to al-Qaida’s most active offshoot.

At least 140 people have died in the government’s crackdown on the protests, which have nonetheless grown in number week after week. The violence has prompted several top military commanders, ruling party members, diplomats and others to defect to the opposition.

Still, Saleh has clung to power and has the key backing of Yemen’s best trained military units, which he placed under the command of one of his sons and other close relatives.

Al-Kaabi’s citing of Saleh’s refusal to personally sign the deal indicated the GCC blamed him for the deadlock.

Government officials said Saleh had told GCC Secretary-General Abdullatif bin Rashid al-Zayani on Saturday that he intended to ratify the deal after sending a close aide and a senior ruling party official to sign it.

The officials spoke on condition of anonymity because they were not authorized to speak to the media.

The opposition, whose leaders have said before that they have little trust in Saleh’s word, feared he was leaving himself room to stay in power.

Leaders of the street demonstrations said they planned to step up their protests to force Saleh out.

Tens of thousands of protesters were out Sunday in a number of Yemeni cities, including Aden and Taiz in the south, to demand that he step down.

“We will not pay attention to any mediation or foreign intervention,” said protest leader Abdel-Hadi al-Azazi in Sanaa, the capital. “We will continue to march and protest until the uprising’s goal is achieved _ the ouster of the regime.”

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Bank of England official Andrew Haldane said financial stability may be threatened by capital flows from developed countries that are too quick and substantial for emerging nations to absorb.

“The global flow of funds could become an increasingly powerful generator of global financial instabilities,” Haldane, the bank’s executive director for financial stability, said in a speech delivered today in Bretton Woods, New Hampshire. “Pressures could mount on policy makers to protect against the rising tide of capital flow-induced instability, including through capital restrictions and macro-prudential measures.”

Haldane said a “big fish small pond” problem arises when investors in developed countries shift funds to smaller economies and less-developed markets. To illustrate the scale, he said a drop of 0.1 in an index of investment “home bias” for advanced countries in 2007 would have reallocated about $4.5 trillion to foreign markets. That compares with a market capitalization of $6.8 trillion of emerging economies among the Group of 20 nations.

This dynamic could be seen last year, when investors abandoned developed markets for faster-growing emerging economies no credit check payday loans. The resulting equity inflows “were large” compared with the size of the markets, and officials responded with capital-flow restrictions and other measures, Haldane said.

‘Home Bias’

The trend may increase as developed-nation investors increasingly reduce their “home bias,” while advances in the depth of financial markets in emerging economies prove “rather gradual.” Haldane’s projections show the average capital inflows, relative to market capitalization, to the G-20 emerging economies will reach 8 percent a year through 2050, more than the peak seen recently, including 2010.

“If capital markets operated efficiently, these portfolio flows need not cause waves in emerging credit and asset markets,” he said. “In practice, frictions in the functioning of these markets mean that asset-market spillovers seem very likely to persist.”

“In other words, the splashes from the big fish risk causing waves every bit as great, and potentially greater, than those seen recently,” he said.

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SAN FRANCISCO

Moody’s downgraded Portugal’s debt rating for the second time in less than a month Tuesday and warned that the debt-laden euro country may suffer another cut soon because of heightened political, budgetary and economic uncertainties.

The agency said it has cut its rating on Portugal’s bonds by one notch to Baa1 from A3 and placed the rating on review for another downgrade. If Portugal’s debt rating is cut by a further three notches to Ba1, then its bonds would be considered junk.

Moody’s said the range of difficulties, including the upcoming general election on June 5, increase the risk that Portugal will be unable to achieve the outgoing government’s ambitious deficit reduction targets over the coming three years and put the public finances into shape.

Moody’s also said the recent agreement to replace the current bailout fund with the European Stability Mechanism from 2013 also acted as a trigger for the downgrade as it contemplates the possibility of a debt restructuring within the euro area.

Though the election following last month’s resignation of the previous government complicates how Portugal can tap the EU’s current bailout fund, Moody’s reckons other countries in the eurozone would provide Portugal with help if required in the interim period.

However, once the election is out of the way, Moody’s said it expects the new government will “likely approach the facility as a matter of urgency faxless cash advance.”

Approaching its partners may become inevitable if Portugal’s ability to tap bond market investors dries up. The country faces a couple of key tests over the coming months. As well as having to repay a euro4.5 billion loan in April, it has an almost euro5 billion bond repayment two months later.

Moody’s said it’s “very unlikely” that the long-term debt markets will reopen to the Portuguese government or to the Portuguese banks to any meaningful extent until the government can take action to dispel doubts over its commitment and ability to implement its adjustment program.

The downgrade further illustrates the difficulties Portugal is facing if it is to avoid joining Greece and Ireland in seeking a financial rescue package. With the country’s borrowing costs seemingly hitting a record euro-era high on a daily basis, investors think it’s becoming increasingly unlikely that Portugal will be able to deal with its problems on its own.

By early morning, the yield on Portugal’s ten-year bonds were up a further 0.04 percentage point to a prohibitive 8.63 percent.

Moody’s said it believes that the government’s current cost of funding is “nearing a level that is unsustainable, even in the short-term.”

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