Irish credit rating downgraded

The Irish Republic has had its
credit rating downgraded by a leading ratings agency, Standard and Poor’s
(S&P).

S&P fears that the growing cost
of propping up the country’s troubled banking sector will further weaken the
government’s finances.

It now thinks that the Irish
government will spend $101 billion helping the banks, $12.6 billion higher than
previous estimates.

The country’s own debt agency
described the analysis as “flawed”.

It claimed that S&P’s outlook
was based on an “extreme and unrealistic” scenario of the cost of recapitalising
the banks and questioned its calculations.

S&P cut the rating one step to
from AA to AA-, its lowest since 1995.

This follows clearance earlier this
month for an additional injection of  $12.6 billion into Anglo Irish Bank.

The agency now forecasts that net
government debt – the sum of all borrowing – will rise to 113 per cent of GDP
in 2010. That would be a substantial increase on the 64 per cent  level recorded in 2009.

It would also make it one of the
highest in the eurozone and well above its projections for Spain (65 per cent)
and Belgium (98 per cent).

The rating could be cut again if
the costs of the bail-out rise or the economic recovery become more sluggish,
S&P warned, but could rise if the position unexpectedly improves.

S&P’s AA rating means it
considers a borrower to have “a very strong capacity to meet financial commitments”.

But a lower rating can make it more
expensive for governments to borrow money on the markets – vital for countries
needing to finance large deficits, such as the Irish Republic.

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