Dublin: Crisis In Europe: Ireland’s Bonds Cut To Junk Status By Moody’s Agency

12 Jul

NEWS UPDATE:

The Department of Finance has criticised Moody’s decision to downgrade Ireland’s debt to junk status.

 Department of Finance - No reason for Moody's to downgrade Ireland

Department of Finance – No reason for Moody’s to downgrade Ireland

The decision to downgrade Ireland’s debt to junk status by the ratings agency, Moody’s, has been criticised by the Department of Finance.

A spokesman for the department said it was completely at odds with recent views of other credit rating agencies.

The downgrade immediately prompted the euro to fall against the dollar.

Moody’s said it took the decision because Ireland was likely to need a second bailout.

It indicated private investors would have to suffer some losses ruling out a return to the markets.

It said while there had been strong commitment to consolidation, there was continued weakness in the economy.

The spokesman for the Department of Finance said there was no reason for Moody’s to downgrade Ireland.

He added it was difficult to see how the decision reflected the agreement of eurozone ministers on Monday.

The National Treasury Management Agency said Ireland has sufficient funding to cover requirements until the end of 2013.

Authorities pointed out Ireland had not been downgraded by other rating agencies, which is something they hope will not change.

———-

Ratings agency Moody’s on Tuesday cut Ireland’s bonds to junk status and warned of further downgrades as the eurozone economy struggles to pull out of a financial crisis.

Moody’s Investors Service said it reduced Ireland’s government debt ratings by one notch, to Ba1 from Baa3, saying there was a “growing possibility” that the country will need more bailout aid in late 2013 when the current European UnionInternational Monetary Fund support program ends.

Moody’s also cited the “increasing possibility” that private sector holders of Irish debt will have to take part in any talks on a second rescue program “in line with recent European Union government proposals.”

“The outlook on the ratings remains negative,” the US-based international firm said.

The agency’s move came amid mounting worries that Greece could default on its debt despite a massive EU-IMF rescue. EU governments were scrambling to fight debt contagion choking Italy and Spain and endangering the euro.

Moody’s reiterated its criticism published Monday on proposals for banks to share the Greek burden.

“The prospect of any form of private-sector participation in debt relief is negative for holders of distressed sovereign debt. This is a key factor in Moody’s ongoing assessment of debt-burdened euro area sovereigns,” it said.

Moody’s acknowledged that Ireland “has shown a strong commitment to fiscal consolidation and has, to date, delivered on its program objectives.”

But it highlighted “that implementation risks remain significant,” particularly due to the continued weakness in the Irish economy.

It also blamed “the shift in tone among EU governments” on the conditions they would require to offer further support to the deeply troubled countries of the region, which include Greece, Portugal, and possibly Spain and Italy.

Eurozone finance ministers have been locked in talks in recent weeks over a second bailout package for Greece, with much of the debate centered on whether private holders of Greek debt, mainly banks, should be forced to take a loss on the bonds.

NEWS UPDATE:

DUBLIN (Reuters) – The European Commission said on Tuesday it regretted the decision by Moody’s Investors Service to downgrade Ireland to junk status, the first credit ratings agency to do so despite Dublin so far meeting its goals under an existing EU-IMF bailout.

“The European Commission regrets the decision of Moody’s to downgrade Ireland today,” Amadeu Altfaj, a spokesman for the Economic and Monetary Affairs Commissioner Olli Rehn, said in a statement.

“It contrasts very much with the recent data, which support a return to GDP growth this year, and the determined implementation of the program by the Irish government, which has taken strong ownership of it … Thanks to the determined action, the Irish programme is fully on track,” he said.

(Reporting by Carmel Crimmins)

 

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