Odd that Brazil (former Portuguese colony) has a higher credit rating than Portugal; how times change!

Somehow I think the European Commission President Jose Manuel Barroso needs a) to get his facts correct. One rating agency, Fitch, is majority held by a French Company. Yes, S&P and Moody’s clearly American; and b) the point of a downgrade is to make it more difficult to issue debt.
The cost of insuring all weaker euro zone states' debt against default rose after Moody's announced the downgrade of Portugal to junk on Tuesday.

German Finance Minister Wolfgang Schaeuble called for limits to be placed on the rating agencies' "oligopoly."

The European Union's executive body is drafting proposals to regulate rating agencies; there has been political talk, but no action so far, about creating a European agency.

Michel Barnier, the EU official in charge of regulation, said later he could examine how to suspend the rating of countries that are getting bailout funds from the EU and International Monetary Fund. These are Greece, Ireland and Portugal.

Moody's said Portugal may need a second round of rescue funds before it can return to capital markets, just as European governments and banks are haggling over a second 120 billion euro ($172 billion) bailout for Greece, which has a much higher debt ratio.

Ireland, the other euro zone country to have received a bailout, said on Tuesday it may have to make additional spending cuts next year to meet deficit reduction targets in its 85 billion euro bailout plan due to an economic slowdown.

A Reuters analysis last week found that Dublin may also need a second bailout because it is unlikely to grow fast enough to make the envisaged full return to market funding in 2013.

Moody's cited the EU's crisis management, and specifically the attempt to make private creditors share the burden of all future rescues, as one reason for its steep downgrade.

The demand that banks and insurers share the risk is driven by growing public hostility in north European creditor nations to any further bailouts for south European states seen as having lived beyond their means.

Rating agencies have warned they would be likely to treat any "voluntary" rollover of Greek bonds as a distressed debt exchange and declare it, at least temporarily, to be a selective default.

French banks have offered a plan under which banks would roll over about half of Greek debt that matures in 2011-14, putting another 20 percent into a "guarantee fund" of zero-coupon AAA bonds, and cashing out the remaining 30 percent.

German Deputy Finance Minister Joerg Asmussen put Berlin's alternative proposal for a debt swap extending existing bonds' maturities by seven years back on the table on Wednesday, even though the European Central Bank has warned against it.

Underlying the debate is an increasingly prevalent view in financial markets -- disputed publicly by EU governments -- that Greece, and possibly also Portugal and Ireland, will have to restructure debt sooner or later and force significant losses on bondholders.

The more widespread that assumption becomes, the harder it will be to negotiate further official funding for Greece.

The IMF's new managing director, former French Finance Minister Christine Lagarde, warned the crisis could be comparable to the collapse of Lehman Brothers nearly three years ago unless action is taken to stave off a Greek default.

"It goes to show that this whole crisis isn't over just yet. Even if they cough up some more money for Greece, and that looks like it's a done deal, it's not over," said Jay Bryson, global economist at Wells Fargo Securities.

"I would think it's bad news for Spain and Italy as well."