The war of words broke out after S&P cut its rating for Ireland by a notch to AA- after the markets closed on Tuesday night and placed the country on a “negative outlook”, indicating that another rating cut could be on the cards.
The agency expects debt to peak at 137 per cent of GDP, compared with the 97 per cent estimated by the Irish government. S&P also estimates that the cost of bailing out the nation’s banks will surge to €50bn – more than double the government’s own predictions.
John Corrigan, chief executive of Ireland’s National Treasury Management Agency, insisted that the analysis failed to take into account the value of its investment in AIB or Bank of Ireland. There was further disagreement over the ratings agency’s inclusion of the liabilities of the National Asset Management Agency (NAMA) — which is buying up Ireland’s bad property loans — in the debt figure. “They have invented a new standard that doesn’t conform with Eurostat or IMF measures. It results in a very exaggerated figure. Where you see faulty analysis you have to challenge it,” Corrigan said.
But S&P fought back, saying in its original document: “We understand that NAMA has been organised in such a way as to keep it off the Irish government’s balance sheet under Eurostat’s accounting rules. We take a different approach and have treated similar off-balance-sheet arrangements to support national financial systems in other countries as direct obligations of the government.”
The downgrade pushed up the cost of borrowing for the Dublin government as yields on ten-year bonds rose from 5.5 per cent to 5.7 per cent. That took the premium that investors demanded to hold the bonds rather than German bunds to the highest level since the Greek financial crisis.
Yields on ten-year gilts also dropped to a record low of 2.79 per cent as investors fled to the safety of British government bonds.