Can we blame Moody’s Monday downgrade of Ireland — from Aa1 to Aa2 — on this man?
July 18 (Reuters) – Ireland may not have the political will to bring its budget deficit in line with EU rules as planned by 2014, the chairman of the smaller governing coalition member Green Party was quoted as saying on Sunday.
Investors and European leaders have praised Ireland for austerity measures culminating in 4 billion euros ($5.2 billion) of spending cuts imposed in last December’s budget for 2010.
Green Party Chairman Dan Boyle told the Sunday Tribune it was “probably a heresy” for a government party to question whether the deficit could be cut to 3 percent of gross domestic product by 2014 from more than 14 percent in 2009.
“It is certainly doable if you want to be draconian every year,” Boyle was quoted by the newspaper as saying. “But is it politically feasible and is it socially possible?”
Boyle said he still expected the cabinet to deliver the 3 billion euros of savings planned for the 2011 budget in December and then the government could “take stock”.
Ireland’s Greens have so far supported the country’s budget reforms, but they did last year debate exiting their alliance with the ruling Fianna Fail party because of the difficulties involved in fiscal austerity, and controversies over the bank rescues and the National Asset Management Agency (Nama).
Much of Ireland’s budget deficit is due to the cost of bailing out its banks — especially the over €10bn rescue of Anglo Irish — and creating that Bad Bank fund.
Anyway, fast forward less than 24 hours later, and Moody’s has just put out this statement:
Frankfurt, July 19, 2010 — Moody’s Investors Service has today downgraded Ireland’s government bond ratings to Aa2 from Aa1. The main drivers for the downgrade are:
1. The government’s gradual but significant loss of financial strength, as reflected by the substantial increase in the debt-to-GDP ratio and weakening debt affordability (as represented by interest payment to government revenue).
2. Ireland’s weakened growth prospects as a result of the severe downturn in the financial services and real estate sectors and an ongoing contraction in private sector credit.
3. The crystallization of contingent liabilities from the banking system, as represented by a series of recapitalization measures and the need to create the National Asset Management Agency (NAMA), a government-created special purpose vehicle that is acquiring impaired loans from banks.
Moody’s has changed the outlook on the ratings of the government of Ireland to stable from negative as the rating agency now views the upside and downside risks as being evenly balanced at the current rating level. Moody’s has also affirmed Ireland’s short-term issuer rating of Prime-1 with a stable outlook. Ireland falls under the Eurozone’s Aaa regional ceilings for bonds and bank deposits, which are unaffected by the Irish government’s downgrade.
Moody’s has also downgraded to Aa2/stable outlook from Aa1/negative outlook the rating of Ireland’s National Asset Management Agency (NAMA), whose debt is fully and unconditionally guaranteed by the government of Ireland.
Moody’s expects Nama’s recapitalisation outlay to amount to almost €25bn, or 15.3 per cent of Ireland’s 2009 GDP. And while the agency is pretty convinced that the Irish government won’t swallow hefty permanent losses (for some reason it specifies 25 per cent of 2009 GDP) there is this rather scary bit:
. . . Moody’s expects that Anglo Irish Bank may need further support.
Err, happy Monday morning Ireland — from Moody’s.
Related links:
Ireland to bail out Anglo Irish again this year – Reuters
Banks face bigger NAMA losses – Irish Independent
Some Anglo Irish candour – FT Alphaville
An e-NAMA-ous property gamble - FT Alphaville