Ireland’s credit rating cut again

| June 8, 2009 | 0 Comments
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Standard & Poor’s (S&P) has again downgraded Ireland’s credit rating by one notch to AA, from AA+ amid fears that the Government is set to incur a bigger than expected cost for supporting banks.

At the end of March, the agency downgraded Ireland’s credit rating from AAA to AA+ amid debt fears and put Ireland on a “negative” outlook, which meant further downgrades were possible.

Following today’s decision, S&P said: “The fiscal costs to the government of supporting the Irish banking system will be significantly higher than what we had expected.”

In April, Ireland’s Government unveiled an emergency budget after admitting that the country’s budget deficit was spiralling out of control.

At the time of the budget, Finance Minister, Brian Lenihan, said the country faces a “very grave national crisis” after the country’s deficit nears 13% of GDP - quadruple the level allowed by the European Union.

The emergency budget included a hefty increase in taxes and spending cuts, with Mr Lenihan announcing that new tax measures would raise €1.8 billion in 2009, while €1.5 billion is hoping to be saved by the spending cuts.

In addition, there was further bad news for the country after ratings agency, Moody’s downgraded ratings on a dozen Irish banks in April.

According to Moody’s, the financial strength of the banks could be further compromised by losses on property loans.

The country had experienced a property boom since the late 1990s, with multinationals arriving to take advantage of one of the lowest corporate tax rates in the euro zone.

However, the ailing housing market has had a major impact on the economy and property prices have plunged by more than 40% since their high in 2006.

Finally, Nobel Prize-winning economist Paul Krugman, said the Irish economy will take almost five years to recover.

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