Moody's said the outlook for the island was negative and rated it Baa1 (see 'Background'), skewed to the downside. In Moody's view, Cyprus had failed to implement its own austerity programme.
Asked to comment, a Commission spokesperson said today that she had not seen the rating agency's announcement, but explained that "the normal rule" was for the EU executive not to comment on announcements by rating agencies.
However, the recent downgrading by Moody's of Portugal was slammed by Commission President José Manuel Barroso and other top EU officials. German Finance Minister Wolfgang Schäuble likened Portugal's downgrading to "terrorism" and called for limits to be imposed on the rating agencies' "oligopoly".
Asked why the Commission was less critical this time, the spokesperson launched into a lengthy explanation, in essence saying that the EU executive did not comment on credit ratings by agencies, unless specifically decided otherwise.
Cyprus's government and opposition parties agreed to an initial austerity package on Friday which includes spending cuts and privatising the island's stock exchange, officials quoted by Reuters said.
"The government and political parties today agreed on an initial economic package. The dialogue will continue for the adoption of additional measures," government spokesman Stefanos Stefanou told reporters.
He declined to go into specifics, but party officials present at a meeting between President Demetris Christofias and party leaders said it would include civil service spending cuts and privatising the bourse. The amount Cyprus would generate from the measures was not disclosed.
Blast hurts economy
The package comes in the aftermath of a deadly blast which ripped through Cyprus's main power station on 11 July, wiping out 53% of electricity production.
It was unclear whether the envisaged austerity measures took account of the economic impact of the blast, estimated by economists to be at least one billion euros. Finance ministry sources say initial estimates suggest Cyprus will register zero growth this year, from a previous assessment of 1.5%.
Earlier in the week, Central Bank governor Athanasios Orphanides warned that Cyprus could be forced to seek a bailout unless tougher economic austerity measures were taken immediately.
The package unveiled on 1 July by the government suggested dismantling three semi-governmental corporations, reducing civil service staff numbers by 1,000 each year and making changes to pension contributions by civil servants.
Cyprus is already under market pressure due to its links to debt-laden Greece, and yields on bonds issued to international investors have surged in recent months.
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