Irish Debt Questioned By Moody’s
Wednesday, the Irish government announced that because Moody’s gave Ireland the junk status, it will be much more difficult for the country to return in 2012 the funds it has already received “through debt markets” and to generate economic growth despite the government’s many efforts.
Ireland decided to return on market funding in 2012 (just like Greece) considering this plan as part of the bailout received last year from the European Union and the International Monetary Fund.
Late on Tuesday, Moody’s said that Ireland wanted to follow Greece by asking a second bailout and because of that the Irish bond yields achieved high records in early trade. As a result,Dublin will have some difficulties in funding itself “affordably” on different markets.
Oliver Whelan, analyst of the National Treasury Management Agency, said that the move made by Moody’s complicated even more the situation of Ireland and, as a result, this country will find it difficult to access the markets in 2012.
Ireland,Greece and Portugal are trying to generate enough growth in order to be able to start the long process of reducing the public debts that have become higher and higher each year. Richard Burton, Economy Minister said that what Moody’s did on Monday was to “hurt the government’s effort on that front”. He also said that for some investors “Ireland is now taken off their radar” and they will not be interested anymore in Irish borrowings. That’s bad news for the entire country. As a result, the recovery process will be even more difficult.
Moody’s action comes after last week it “slashed”Portugal to the same junk status and said that Portugal will also need a second bailout. This move made by Moody’s reflects the concerns related to any additional financial assistance provided by Brussels that will involve “private investors to share part of the pain” with the help of a debt rollover or swap.
Oliver Whelan also said that it is unlikely that those in the private sector will want to involve in offering a second bailout for Ireland. He also added that the government will continue its EU/IMF program.
The European finance ministers know that “some form of Greek default” will be needed to cut its financial debts. If that will happen, Ireland will have to be ready for other necessary cuts.
Wednesday, the cost of insuring Irish debt against default increased up to 1,015 basis points (22 bps on the day). Things don’t look too bright for Irish people.11