Hopes rise of euro deal after 'junk' status blow
Kenny to join EU leaders in crisis summit
Ireland was last night downgraded to 'junk' status by international ratings agency Moody's -- but there were rising hopes that a Europe-wide solution to the crisis engulfing the euro will take shape later this week.
This country has never had such a low credit rating before and the Moody's decision will heap pressure on Europe's leaders to design a new package of measures to help the likes of Ireland, Portugal and Greece.
Europe's main leaders will gather for an emergency summit in Brussels on Friday to try and solve the continent's woes once and for all. Taoiseach Enda Kenny is expected to attend.
In announcing the downgrade, Moody's said Ireland was likely to need a second bailout programme by the end of 2013 and this could mean bondholders would take a hit. As a result, Ireland has now been categorised as being as risky as Greece or Portugal.
This means that investors are less likely to put their money into Ireland and the country's banks will find it even harder to attract deposits and loans from other banks.
The Department of Finance described the rating cut as a "disappointing development" and said it was "completely at odds" with the recent views of other rating agencies.
A spokesman said the Irish economy was on track to return to positive growth this year.
"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," he added.
Moody's said that while Ireland had made progress in tackling its debts, "risks remain significant".
While Irish bonds are likely to be sold today on the markets because of the decision, the other two agencies -- Standard & Poor's and Fitch -- still have Ireland above junk status.
Moody's said it was downgrading the rating to Ba1 from Baa3 with a negative outlook.
In a statement, the National Treasury Management Agency said "the situation in the eurozone is evolving rapidly".
It added that the country had enough cash from the IMF/EU to get through to the end of 2013.
Moody's said that Ireland continued to suffer from economic weakness and there were signs that Europe wanted to involve bondholders in future solutions, meaning that bondholders would lose out.
News of a fresh meeting emerged after a second day of turmoil, in which Italian and Spanish bond yields hit record euro-era highs before suspected interventions by the central bank settled nerves.
European markets tumbled for a third consecutive day, although deep early losses were pared back by the close of play after efforts were taken to stop the bond vigilantes targeting Spain and Italy.
In a concerted effort to allay concerns, Italy's government sped up approval of its austerity plan and the EU opened the door for a complete overhaul of the region's bailout fund, which has so far focused on handing out rescue loans to countries on the brink of collapse in return for high interest rates and painful austerity measures.
European leaders now "risk totally losing control of the situation", Gary Jenkins, head of credit at Evolution Securities said.
Meanwhile, the IMF executive who designed Ireland's bailout programme, Ajai Chopra, has been in the country since Monday putting the finishing touches to the third review of the €85bn rescue plan.
Ireland's progress will be complimented by the Washington-based body at a press conference tomorrow, with Ireland reaching most of the IMF/EU targets ahead of time.
Talks mainly centre around banking issues and there remain sticking points about how the banks are going to deleverage and reduce their loan books, particularly with the assistance of NAMA.
The IMF/EU/ECB 'troika' want the banks to sell off loans or move them into NAMA, allowing the banks to reduce their loan-to-deposit ratios.
But the current talks are looking at how this can be done, particularly when deposits are not growing.
Mr Chopra was leading a large IMF delegation yesterday and while he is expected to talk extensively tomorrow about the lack of a European response to the debt crisis, he will praise Ireland's efforts in making cuts and raising taxes.
Meanwhile, the State will have to shell out €116bn to pay for the pensions of all existing civil servants, Public Expenditure and Reform Minister Brendan Howlin told the new Dail Select Committee that scrutinises spending in this area.
The figure, which is more than twice what the Government spends in a year, is not included in the calculations for the national debt, Mr Howlin admitted.