Moody's cuts Ireland rating to junk status

Tuesday 12 July 2011 23.29
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Economy - Moody's has warned of further downgrades
Economy - Moody's has warned of further downgrades
Jerzy Buzek - Addressed Seanad this afternoon
Jerzy Buzek - Addressed Seanad this afternoon

Credit agency Moody's has tonight downgraded Ireland's debt rating to the junk status of Ba1.

Moody's said it reduced the rating by one notch because there was a 'growing likelihood' that Ireland will need more bailout aid in late 2013 when the current bailout ends.

The Department of Finance has criticised the 'disappointing development' saying Ireland had done all it can can 'to put our house in order'.

The agency warned of further downgrades as the economy struggles to pull out of the financial crisis.

Last week, Moody's lowered Portugal's debt rating to junk status, sparking fierce criticism from EU leaders and calls for a ban on rating agency decisions for countries under internationally-approved rescue packages.

'The main driver of today's downgrade is the growing likelihood that participation of existing investors may be required as a pre-condition for any future rounds of official financing, should Ireland be unable to borrow at sustainable rates in the capital markets after the end of the current EU/IMF support programme at year-end 2013.'

However, a Department of Finance spokesperson was highly critical of the downgrade.

'It is important to point out that Ireland's rating with all of the other major agencies - Standard & Poors, Fitch and DBRS - remains within the investment grade band,' the spokeperson said.

'This is a disappointing development and it is completely at odds with the recent views of other rating agencies. Just last week, Fitch & DBRS noted our economy's return to growth in the first quarter, the progress in reducing our budget deficit and said that there was no reason to alter their views on Ireland at this time.

'Given the timing of the Moodys announcement it is difficult to see how their decision reflects the agreement reached at last night's Eurogroup meeting to enhance the flexibility and the scope of the EFSF, and to lengthen the maturities of, and lower the interest rates on, loans to countries in receipt of financial support.

'The Irish economy is on track to return to positive growth this year. GDP expanded by 1.3% in the first quarter, which is encouraging.

'We have met all the quantitative fiscal targets set so far under the EU/IMF Programme, most recently for end-June, and on foot of a EUR6 billion consolidation effort, are on track to achieve the deficit reduction target for the year as a whole.

'We are continuing with the process of restoring our domestic financial system to health so it can contribute to our economic recovery. Recapitalising the domestic banks by end July, with a not insignificant contribution from the private sector, will represent a key milestone.

'As part of our institutional fiscal reform commitments, we have recently established the Irish Fiscal Advisory Council.

'We are doing all that we can to put our house in order and the progress that we are making is there for all to see.'

In a statement, the NTMA said Ireland was delivering on the terms of the bailout.

'The situation in the euro area is evolving rapidly,' it said.

'In their statement of Monday 11 July, the Eurogroup set out a range of measures to safeguard the euro area's financial stability.

'These include enhancing the flexibility and the scope of the European Financial Stability Facility, lengthening the maturities of the loans and lowering the interest rates. These are positive developments for Ireland.'

Buzek defends corporation tax rate

Earlier, President of the European Parliament Jerzy Buzek said the European Union should not be putting pressure on Ireland to change its corporation tax rate.

On the second day of his official visit, Mr Buzek said the majority of his colleagues in the European Parliament supported a cut in the interest rate on Ireland's bailout loan.

He said Ireland's EU/IMF bailout interest rate should probably be 1% less, but he said this depends on the agreement of all the relevant agencies.

Mr Buzek also said that 'tremendous goodwill' remained towards Ireland in the European Union.

Addressing the Seanad this afternoon, he said the EU should not be putting pressure on Ireland to change its corporation tax rate.

He said Ireland will get out of its difficulties and that addressing competitiveness was the key to achieving that.

The head of the European Parliament said Europe as a whole needed to stimulate growth and that gaps in the internal market needed to be closed.

He insisted that there was no crisis in the eurozone, just problems affecting some members of the euro.