subject: Ireland downgrades credit ratings [print this page] Ireland's economic troubles seem to have worsened, with the downgrading of its debt by a credit agency. This comes after the Irish government had invested heavily to keep the country's banks afloat, following escalating troubles since 2009, and has led financial analysts to deem the country the second highest risk in Europe, after Greece.
Standard & Poor's downgrading of the national credit rating from A+ to AA- means Ireland will face higher repayments of debts, but what does this mean for Ireland's consumers? It has been reported that sales figures have already plummeted in high street stores, as cautious citizens await details of the country's new budgetary plan before parting with their hard-earned money.
The consumer spending index has fallen from a two-and-a-half year high of 67.9 to 52.4 per cent, as confidence in the economy was shaken by news headlines, which have been dominated by financial woes in recent times. Ireland's banks are also likely to need another major surge of government funding, with finance minister Brian Lenihan revealing that 46 billion euros would be required overall to nationalise the Allied Irish Bank.
Credit unions in the country were also felt to be 'underprovisioning' by up to 40 per cent, according to financial regulators, which could negatively affect a consumer's credit rating and have long term effects on borrowing.
Not all debt managers agree with Ireland's credit downsizing, however, with the National Treasury Management Agency in particular having spoken out against the move, which it feels to be based on extreme estimates of repayment costs that do not reflect the real-world situation. Nevertheless, the negative outlook that accompanied S&P's downgrading of Ireland also means that further downgrading could be inevitable over the next few years, as the country faces ever greater problems supporting its financial institutions.
The government is expected to spend 90 billion euros overall to support the banking system, an increase from prior estimates of 80 billion, which could also make it increasingly difficult for banks to support themselves without a state guarantee once the crisis is abated. These new injections of capital will push Ireland's current debt to 113 per cent of GDP by 2012 - more than 1.5 times the median of other euro nations.
With Ireland's current AA- rating being the fourth highest investment grade, the country is likely to call for increased international assistance to help its struggling economy emerge from the recession.
