You can always gauge the temperature of the eurozone crisis by the blame game. Last week, the cacophony briefly subsided when everybody who mattered accused the rating agencies of engaging in an anti-European conspiracy. This was the day after Moody’s downgraded Portugal to junk. The fury of the reaction tells me that the process is in real trouble, once again.

The most interesting aspect of Moody’s rating was not the downgrade itself, but the reasoning. Moody’s expects that Portugal, like Greece, will need another loan. Moody’s also expects that the politics will be just as messy. Will not the Germans again seek private-sector participation as a condition? Of course they will. Moody’s concluded, rightly in my view, that the messy European Union politics constitutes a reason for concern. Having observed this crisis from the start, I agree. This is as much a crisis of policy co-ordination as it is a debt crisis.

Shortly before Moody’s downgrade, Standard & Poor’s pronounced that the French proposal for a debt rollover would, if implemented, constitute a selective default. If you add together S&P and Moody’s comments, you get a sense of the disturbing dynamic that lies ahead. Say, the eurozone governments decided to force Greece to default on part of its debt, and the rating agencies were to attach a selective default rating to Greek government bonds. If you expect, as Moody’s does, that Portugal will end up in the same position as Greece – having to request a follow-up loan – then the same private-sector participation rules would also apply to Portugal. Portugal would also receive a selective default rating at some point. Ireland will probably also need a second programme. I am not surprised at all that bond markets have been revaluing Spanish and Italian bonds. Neither country is in danger of defaulting, but their ratings will be dragged down to junk level if the periphery defaults.