Moody’s just effectively spit in the face of EU commissioner Michel Barnier who wants to prohibit rating debt of countries in rescue programs.
Please consider Ireland Cut to Junk Rating by Moody’s
Ireland joined Portugal and Greece as the third euro-area nation to have its credit rating reduced to below investment grade as European Union finance ministers struggle to contain the region’s sovereign debt crisis.
Moody’s Investors Service cut Ireland to Ba1 from Baa3, citing the probability that Ireland will need additional official financing and for investors to share in losses before it can return to the private market to borrow. The outlook remains “negative,” Moody’s said in a statement yesterday.
In Spain, Finance Minister Elena Salgado said the nation might need to endure even deeper spending cuts in 2012 than those currently planned. Ireland, which had a top Aaa rating just over two years ago, has suffered after a real-estate boom collapsed, fueling bank bailouts and a surge in the country’s debt.
“The downgrade underlines the need for something more radical in terms of a European solution,” said Austin Hughes, chief economist at KBC Ireland Plc in Dublin, which publishes a monthly index of consumer sentiment. “You really need Europe to come up with a solution rather than pushing it into the future. A solution needs to be found sooner than later.”
Ireland’s government criticized the Moody’s downgrade, Dublin-based broadcaster RTE reported, citing a finance ministry spokesman. Ireland has met the targets so far under its bailout program and the downgrade is a “disappointing development,” the spokesman was cited as saying.
The irony in this mess is that Ireland benefits from that downgrade. If yields keep rising, and they are likely to do just that, the EU will cut Ireland’s interest rate, Ireland will default, or (most likely) both, and cost to taxpayers will drop.
The best thing for Ireland is to default. Any action that takes Ireland towards that outcome benefits Ireland and Irish taxpayers to the detriment of stupid banks that made stupid loans to Ireland in the midst of a huge property bubble.
The sooner Ireland defaults, the better off it will be. Thus, Ireland should be thankful for this downgrade.
Mike “Mish” Shedlock
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