Why The Moody's Downgrade Of Portugal Is Having Such A Profound Effect Today

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That title felt dirty to write: A Moody’s downgrade actually having an effect? Surely that can’t be.It’s impossible to say what’s really causing investors to dump Eurozone stocks and bonds today — it could be as simple as the fact that the underlying crisis is still around.

But when Moody’s downgraded Portugal it made a key point, which is that the nature of the likely Greek bailout — which will see private investors take a hit via rollover — is a likely template for future bailouts of other PIIGS.

To put it simply: The days of pure government bailouts are over.

So, seen in this light, if you hold Irish debt, or Portuguese debt, or Italian debt, suddenly you have to factor into the fact that next time one of these countries needs a bailout, you’re now more likely to be on the hook for losses than you were before. And from an overall economic standpoint that’s a good thing, but in the short term, anything other than pure taxpayer bailouts does not make the market happy.

See also: The 10 countries whose odds of default just jumped >

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