S&P LOWERS IRELAND RATING AND WARNS OF MORE CUTS TO COME - Credit rating agency Standard and Poor's has lowered its rating on Ireland's debt, saying the country is set to borrow more than expected in order to put more money into its banks. Its report on Ireland, issued late last night, was written before RTE's David Murphy's broke the story about further bank recapitalisations and the calling of the EU/IMF fund at €85 billion. The agency said it would lower its long-term sovereign credit rating on Ireland to A from AA, and it has also put Ireland on 'credit watch' - which means a further downgrade is possible. It says this is because it thinks Ireland will borrow 'over and above' its previous projections to fund further bank capital injections into Ireland's troubled banking system.
Justin Urquhart-Stewart, of Seven Investment Management in London, says that Ireland has to start looking forward on how to grow its economy and stop looking at the mistakes made in the past. He says the country has some positives on its side, including its increased level of competitiveness as its labour costs have gone down substantially. But he adds that the increase of debt in the country was extraordinary and warns that it is just not sustainable.
The analyst says the main problem facing Ireland is the country's 'hobbled' banks. He says a country needs its banks to pump money around the economy the same way a person's heart pumps blood around a body. To get the banks into shape, he says surgery is required so the core healthy operation remains. He says they can't be sold off because no-one will buy them, but the 'bad' bits should be allowed to fold.
Mr Urquhart Stewart says that euro is still facing significant issues, including the risk of contagion to Portugal and Spain. He says reform of the euro is vital and says he would favour a two tier system.
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MORNING BRIEFS - Spain's cost of borrowing jumped to a new high yesterday during a debt auction and stock markets were hit across Europe because of worries about the euro zone debt crisis.
*** The markets closed before news broke of the future increase in the State shareholding in AIB and Bank of Ireland which will virtually wipe out existing shareholders. Shares in Bank of Ireland closed down almost 23% at 30 cent; AIB fell 19% to 33 cent while Irish Life & Permanent ended down 10% at 75 cent. Overall the ISEQ index closed almost 3.5% lower. European stock markets closed at their lowest levels in six weeks.
*** The euro dropped to its lowest level against the dollar in two months yesterday. This morning it is trading at $1.3395 cents and 84.68 pence sterling.
