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Western Europe: Portugal’s sharp edges

Mario Centeno has the unenviable task of being the face of fiscal responsibility in a government elected on an anti-austerity ticket. The finance minister must cut his way through international criticism, privatization and the struggles of the local banking system.

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Try telling Portugal’s genial finance minister, Mario Centeno, that the world only needs two or three ratings agencies. At the end of April, the blade that had been dangling uncomfortably close to Portugal’s economic neck was re-sheathed when the Toronto-based DBRS affirmed its triple-B rating on the sovereign.

The DBRS announcement was not wholly unexpected. Nor did it amount to a ringing endorsement of the economic roadmap adopted by Portugal’s anti-austerity government, which took office last November when the Socialist Party put together a fragile coalition with the Communists and the Left Block (Bloco de Esquerda). 

“Portugal faces significant challenges, including elevated levels of public sector debt, ongoing fiscal pressures, low potential growth, and high corporate sector indebtedness,” noted the DBRS report. 

These caveats did not make April’s update any less welcome in Lisbon, where bankers say that DBRS takes a longer-term view than the larger agencies and appears to have more faith than its peers in the durability of the European project. 

It seems remarkable that the cost of an EU sovereign’s access to funding could depend on the pronouncement of a ratings agency headquartered in Toronto with a global market share of about 2%. 

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