Ireland joins junk sovereign debt club
Moody’s decision, announced on Tuesday, means Irish government bonds have been branded as non-investment grade.
The US-based rating agency, as in the case with Portugal, explains the move saying that Dublin “is likely to need further rounds of official financing”. Moody’s says Ireland might need a second bail-out in late 2013 when the current $113 billion (85 billion euro) EU-IMF support program ends.
The agency also expects that there is an increasing possibility that private-sector holders of the Irish debt would be asked to take part in talks on a second rescue program.
Dublin finds the downgrading frustrating, incoherent and out of step with other bond rating agencies, said a spokesman for the Finance Ministry as reported by the Irish broadcaster RTE.
"Moody's problem is not with Ireland, Ireland's problem is with Europe," Irish Prime Minister Enda Kenny told parliament on Tuesday.
The European Commission reacted along the same lines.
"Yesterday's decision by Moody's to downgrade Ireland's credit rating is in the president's view incomprehensible, and in the commission's view of course," said a spokeswoman for the European Commission chief Jose Manuel Barroso as cited by the Irish Times newspaper.
"The Irish government has shown determination and decisiveness in its implementation of the economic adjustment programmed and Ireland's banks are being recapitalized and its financial system more broadly is being repaired, which is of course an essential step to get the real economy back on its feet," added Barroso’s spokeswoman.
On July 7, Moody’s junked Portugal’s sovereign debt, which sent the eurozone into turmoil. EU officials said the region had grown too dependant on external rating agencies, which missed the bus of the late-2000s recession. German Finance Minister Wolfgang Schaeuble called for an end to the American rating agencies' "oligopoly."
Paul Nuttall, a Member of the European Parliament for the North West of England, says Ireland, Portugal and Greece are too bound with Frankfurt and the European Central Bank to take any steps to restore national economies.
“This thing is contagious,” the MEP told RT. “This thing will move right across the continent, specifically into the Mediterranean. The big issue now facing the European Union is Italy. Italy is the third largest economy in the eurozone. And the eurozone is the eighth largest economy in the world. I think the eurozone can actually cope with Greece and Portugal – but if Italy goes, the whole thing could cave in.”
The people in Brussels see the crisis as an opportunity, points out Nuttall, – an opportunity to create “a United States of Europe”. This topic will be pushed through at Friday’s session in Belgium, believes the MEP.
Moody’s downgrading of Ireland shows the failure of the policy of punishing the Irish people for the billions in gambling debts caused by European and Irish bankers, says Joe Higgins, a Member of the Irish Parliament. The cuts in the public sector have not helped to resolve the economic crisis, and this has given the ratings agencies an excuse to say the country’s economy is failing, believes the MP.
Higgins believes the ratings agencies do a disservice rather than assist.
“These rating agencies like other institutions in the financial market have no credibility. In reality, they are part of the problem, not part of the solution. They were up to their necks when the speculative area was being created in the United States and Europe,” says Higgins.