Moody's gives junk ranking to Ireland

Source: Agencies | July 14, 2011, Thursday |

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MOODY'S cut Ireland's credit rating to junk late Tuesday, warning that the debt-laden country would likely need a second bailout - just the latest move amid heightening concerns about Europe's ability to address its debt crisis and prevent it from spreading.

Moody's move comes a week after it slashed Portugal to junk status with a similar warning about the need for a second round of rescue funds. It reflects the credit rating agency's view that any further financial assistance from Brussels will require private investors to share part of the pain, possibly through a debt rollover or swap.

European finance ministers have acknowledged for the first time that some form of Greek default may be needed to cut Athens' debts, and if that materializes, Ireland's rating, never before in junk territory, could be set for a further round of cuts.

Investors fear a Greece default could ripple through Europe's banking system, putting pressure on stretched public finances in other eurozone countries. Italy, the eurozone's third largest economy, looks especially vulnerable with a debt-to-output ratio second only to Greece, and markets fear political bickering may derail a plan to slash spending and rein in the deficit.

Moody's one-notch downgrade on Ireland weighed on stocks and the euro, which hit its lowest level against the US dollar in four months.

The Irish government, which wants to return to debt markets in 2013 when its EU-IMF bailout runs out, offered a vexed response.

"This is a disappointing development and it is completely at odds with the recent views of other rating agencies," the finance ministry said in a statement. "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."

Moody's now rates Ireland Ba1, one notch below former financial market pariah Colombia and two notches below Brazi.

Ireland's rating is still one notch above Portugal and six above Greece. Both Standard & Poor's and Fitch Ratings have Ireland at BBB-plus, three notches above junk.

"It's amazing to me that Ireland was still investment grade," said Suvrat Prakash, interest rate strategist at BNP Paribas in New York.

"A lot of people assume these rating agencies... move with a lag so there could be more downgrades to come."

Economy

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Moody's gives junk ranking to Ireland

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