Moody’s has warned it may cut Ireland’s credit rating again, saying additional austerity measures are needed given the huge bill for cleaning up its banks, a weak economic recovery and rising borrowing costs.
Ireland’s deeply unpopular government says it could cost up to €50bn (£43.4bn) to unravel banks’ property losses, driving the cost of Dublin’s borrowing to almost three times that of Germany and prompting renewed jitters about debt elsewhere in the Eurozone.
While Moody’s emphasised there must be additional fiscal rigour to begin repairing the country’s battered finances, the ratings agency worried that prolonged austerity could cripple domestic demand with a knock-on impact on government revenues.
In the latest sign of growing distress in the real economy, Ireland’s services sector shrank for the first time in six months in September following a sharp drop in domestic orders. The purchasing managers’ index survey came on the heels of data last week indicating the manufacturing sector was also back in recession.
“It’s important to anchoring fiscal expectations that the government comes up with a credible plan to bring the deficit below three per cent of GDP by 2014, and in that context additional measures are to be expected,” said Dietmar Hornung, Moody’s lead sovereign analyst for Ireland.
•Meanwhile, Allied Irish Banks (AIB) said yesterday it will sell a 22 per cent stake, currently valued at around $2.2bn, in New York regional lender M&T Bank Corp in a public offering.
The Irish government will take a majority stake in AIB next month to help it fill a capital hole of €10.4bn caused by the bank’s fatal courtship of property developers during the go-go years of the “Celtic Tiger” economy.
City A.M. Reporter