Saturday 7 December 2019

Europe lashes Moody’s downgrade of our debt to junk reporters

The European Commission has lashed the decision by rating agency Moody’s to downgrade Ireland’s debt to junk status which has led to a sharp spike in the interest demanded to buy Irish debt today.

“It contrasts very much with the recent data, which support a return to Gross Domestic Product (GDP) growth this year, and the determined implementation of the programme by the Irish government, which has taken strong ownership of it,” it said in a statement.

“Thanks to the determined action, the Irish programme is fully on track.”

The yield on 10-year government bonds rose by almost half a percentage point to just over 14.1pc this morning.

Moody's last night reduced Ireland's government debt ratings by one notch, to Ba1 from Baa3, saying there was a 'growing possibility' that the country would need more bail-out aid in late 2013, when the current EU/IMF programme is due to end.

The agency said a key factor in the downgrade was the increasing possibility that investors holding government debt would have to take part in any new rescue deal, and would be likely to suffer losses as a result.

And a spokesman for the Department of Finance last night described the Moody's decision as 'a disappointing development', saying it was at odds with the views of other rating agencies.

Referring to the timing of the announcement, the spokesman said it was difficult to see how it reflected an agreement reached by euro zone ministers to increase the flexibility and scope of the current EU rescue mechanism.

Despite the downgrade, there were rising hopes that a Europe-wide solution to the crisis engulfing the euro will take shape later this week in a bid by eurozone leaders to stop the Greek debt crisis spreading to countries like Italy and Spain.

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.

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.

Also in Business