Ireland’s credit rating downgraded

As the Irish Times notes

Credit agency Moody’s has downgraded Ireland’s government bond ratings to Aa2, blaming banking liabilities, weak growth prospects and a substantial increase in the debt to GDP ratio.

However, Moody’s lead analyst for Ireland Dietmar Hornung said it was a “gradual, significant deterioration, but not a sudden, dramatic shift”, and the agency believed Ireland has “turned the corner”.

The general government debt-to-GDP ratio was at 64 per cent at the end of last year, up from 25 per cent before the financial crisis took hold, and is continuing to rise.

“Today’s downgrade is primarily driven by the Irish government’s gradual but significant loss of financial strength, as reflected by its deteriorating debt affordability,” said Mr Hornung.

Meanwhile, RTÉ reports 

The Taoiseach has criticised what he called the pervasive negativity in the media about the Irish economy.

Commenting on the downgrading of the economy by Moody’s, Brian Cowen said the National Treasury Management Agency had made clear we are a very stable economy.

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  • Munsterview

    “……Commenting on the downgrading of the economy by Moody’s, Brian Cowen said the National Treasury Management Agency had made clear we are a very stable economy…..”

    I wonder has Taoiseach Brian Cowen of Fianna Failure suggested to Moody’s lead analyst for Ireland, Dietmar Hornung that he should consider committing suicide, as Bertie Ahern did to those of us who were critical of financial policy and pointing out the obvious, before the collapse ?
    The only ‘stable’ tag that applies here is the one with the open door !

  • Anon

    It’s nice to see Ireland rewarded by the markets for its early and painful austerity drive.

    Exactly what has the state got for the money put in th ebanks, exactly?

  • Mack

    If it wasn’t for the banking guarantee we’d probably still have a AAA credit rating.

    You are nicely conflating the twin crisis facing the state in formulating your question, the banking debts (€440 bn of current liabilities) weighing much more heavily than the potential future debts which may be incurred because of the fiscal deficit.

    The answer to your question is probably a banking system that has protected every citizens deposits and still has functioning atms.

    A more pertinent question might be, is there a cheaper way to secure the same?

  • Peter Fyfe

    My thinking as well, have we not al been told what a great example Ireland’s cuts were? Now they are being punished for the drastic drop in economic growth brought about by the cuts. So what is it were the cuts a good thing or not? They do not seem to be restoring confidence while at the same time strangling an economic recovery. What exactly did Ireland get from the cuts in the end?

    One friend from Blanch’ tells me he never has a problem getting a seat on the train into work now, I suppose at least their is an upside for somebody 😉

  • Drumlin Rock

    Look at Iceland’s rating, that was the other option.

  • Mack

    A more challenging question for you, might be –

    Why did employment levels in the USA fall further and faster than Ireland, despite an $800bn stimulus package in the former, but steps to reduce the structural deficit in the later?


  • Mack

    Incidentally the FT are blaming the Greens for suggesting they may not have the stomach for further action to correct the structural deficit.

    Can we blame Moody’s Monday downgrade of Ireland — from Aa1 to Aa2 — on this man?

    Ireland may not have the political will to bring its budget deficit in line with EU rules as planned by 2014, the chairman of the smaller governing coalition member Green Party was quoted as saying on Sunday.

  • Peter Fyfe

    Higher public sector employment, more union power, the financial services industry stopped growing at such a pace but a lot of the jobs are still there. Even with the hits the Banking sector has taken, is it enough to convince the likes of the financial services (custodians, administration), Pharmaceuticals or IT industry (Microsoft, Intel) to get up and leave a well educated population who’s wage demands slowed down while they still get to claim very low levels in corporation tax by setting up bases here? I don’t see any suprise in employment levels not taking a major hit in ireland. As for the US, I don’t know enough to comment on it.

    And somebody should tell Moody’s just how irrelevant the green’s are to making decisions. If only they had researched them CDO’s as well as they researched the inner workings of the Green Party, people might be a wee bit better of. I do know the crisis is not down just to CDO’s but they played quite a part in hiding so much bad debt from view.

  • Anon


    Iceland are in serious trouble, but surprisingly probably as well or better than Ireland in terms of GDP drops


    Different labour markets; can’t compare small open economy to huge one; counterfactual – you don’t know how many jobs would have been lost without the stimulus; Ireland avoided public sector job losses a smcuh as it cold. Who knows? It’s not a sensible comparison.

    Consumer deposits could have been protected and othjer sectors take a haircut. They invested in a private entity,. Why is the state paying them out? The guarantee was a reasonable gambit but it should have been let expire. I genuinely don’t understand what the state’s return si for this money.

  • Mack

    Peter –

    Then why was tackling the structural deficit (the legacy of inappropriately reducing taxes and increasing spending on the basis of credit bubble revenues during the boom) the wrong strategy? Especially given that banking losses are going to push the debt-to-gdp ratio into the stratosphere?

    What would the alternative be? To wait until we had debt-to-gdp ratios well in advance of 100% and we faced a bond market strike? The austerity imposed would be much more severe under such circumstances…

  • Mack

    @Anon –

    Very few public sector job loses in the USA. But you’ve got to question the efficacy of the American stimulus plan when employment falls so hard so soon. Clearly the something is protecting Irish workers from the worst of the downturn. Irish austerity, with a bigger banking bust, isn’t quite as bad as American stimulus!

    And again the same question as to Peter – what is your preferred strategy wrt the structural deficit. Should the government have stayed as you where until forced into action by the markets? The pain at that point might have been much worse, particularly for some groups (See my after the storm post to get an idea of who would come of worst in such a scenario.)

    I agree on the banks.

  • Peter Fyfe

    I know a happy medium has to be found and cuts do need to happen at quite a level, it is just a downgrading at this stage questions how effective the measures have been. Is this not a sign the situation is worsening with very low levels of economic growth threatening ireland’s ability to repay the debt. Was the cut too much? I was not arguing against cuts, just questioning whether they could have been less. That’s why I won’t even consider talking about Iceland as they were in a much worse and quite different situation.

    That pulls us on to the question of what to invest in which no democratic government can answer as at it will always be the wrong answer for the electorate. We know capital investment would help us in the future more than not cutting a teacher’s or a gardai’s wage but nobody who has to get elected will make that decision.

  • Peter Fyfe

    Sorry Mack, I apologise for not been clearer first time, but my question was more about the magnitude of the cuts and where they happened that I would examine. I would know it would not be an easy task to manage it perfectly. I agree completely wages were out of hand, it gets to me a bit they were not brought down further but that’s a question of politics not economics as we well know. We should be investing in Capital spending projects at the expense of some percentage of some person’s wage rather than stopping so abruptly. Surely our builders can not only build homes?

  • anon

    Irish GDP drop is almost at depression levels, and still going. The US is technically growing again. I’m pretty sure Irish unemployment is higher than US unemployment. Ireland has had core deflation, and may slip back into it. Another round of spending cuts? How many more before people think maybe its a deflation spiral? The US jobs situation is a bit worse than predicted officially, but not far out of whack and in line with some predictions. The stimulus wasn’t even half of the output gap; its was never meant to give a 5% unemployment rate, so what exactly is your point?

    Second – are Irish workers cheaper than Americans? Fair chance we are getting some of their jobs.

  • Mack

    Unemployment rates simply measure people entitled to unemployment benefit – very easy to exclude people who have lost their jobs. Some recent surveys suggest the real unemployment rate hit 28% or so in some areas of the USA. Regardless employment levels fell from 72% to 58.5% in the USA and from 67% to 60.5% in Ireland. I’ve posted links before, busy now, but I can again if needed..

  • Munsterview


    Agreed re the USA, Wealth Daily is consistently disclosing a far gloomier picture of the economy : most states face a 20% cut, some go up to 40% and if my recall is correct there is one facing a whooping 60% cut in spending! I have seen these figures somewhere or the other in the recent past.

    I also have US family relatives who have a number of business, they have had to downsize. They are Republicans and Tea Party attenders so I have a finger on that pulse.

    Recently they advertised a financial position at a bare bones starter salary for one of their companies and got hundreds of replies. The fifty or so they choose from had all ten or more years experience and some years back would have required more than twice the salary offered, given their qualifications and experience. Over half the applicants were also Out Of State.

    That is perhaps a good indication of how things are in Colorado and surrounding States in Middle States, Middle Class America !

  • I missed this as funnily enough I was scanning Mr Republic Economy’s writings for it. Perhaps hoping no one up here would notice?

    Anyway as I wrote a few months back the one thing the UK has in all of this is time. Not that I’m suggesting we’re in any great shape. Just more malleable.

    It seems the old ‘Republic as a recovery miracle model for the rest of the world’ has disappeared from the headlines along with the US’s green shoots.

    Not entirely unpredictable.

  • Brian

    The stimulus package was bundled with waste and money to Obama’s special interests groups as well as other earmarks, so it’s safe to say that $800 billion isn’t as much as one would think. In that amount there was massive payouts to states to help with their budget crisis as with medicaid gaurantees.

    Regardless, the US economony has had small growth in recent quarters. It never dropped (in GDP if not employment) as much as ROI.

    As for cuts in states, I would very much be surprised if there were any states cutting above 30%. The state where I reside (Virginia) has made some substantial cuts, but nowhere close to 25%, and now has a budget surplus for the fiscal year.

  • Munsterview

    Lads and Lassies, could we pull back from the Four Green Fielsd for a little while and take a gander at what is happening in the Real World and see why we are in the brown stuff to stay for many a long year to come…….. unless China bails us out of course!
    This is taken from the current Wealth Daily that came in at 6pm this evening, read and enjoy !


    China’s energy future: full steam ahead

    It seems like no matter how much the Chinese put on their collective plate, it’s not enough.

    This fact is never more apparent than in the energy markets, where The Dragon remains unquenchable.

    After all, China is no different than any other nation in the world when it comes to energy… It needs massive amounts of power to keep it all going. Without it, its “economic miracle” would wither on the vine.

    Simply put, China needs energy in the same way that its babies need rice. As the Chinese economy grows, power consumption must grow right along with it.

    And unlike the U.S., where energy usage peaked in the latest bubble, China’s per capita energy usage still has a ton of room to grow. That’s because by comparison, the average Chinese consumer burns five times less energy annually than the average American does, leaving nothing but upside as the Chinese workforce consistently consumes more.

    It’s a pattern that will continue, even if the economy begins to “slow.”

    (Keep in mind that 8% annual growth for them would be considered a downturn. Meanwhile, the U.S. economy will likely remain stuck in the ditch for some time growing by just over 3%.)

    In effect, we’re seeing two ships, passing in the night: One that peaked on the madness of cheap money, and the other that’s just getting warmed up.

    Believe me — there’s only one setting on the Chinese throttle, and it’s full steam ahead…

    Even after China reported last week that its second quarter growth had moderated, Premier Wen Jiabao said, “Only through sound and relatively fast economic growth can we ensure employment. We should expand domestic demand while stabilizing overseas demand.”

    In other words, an overheating economy or not, China’s going to keep the pedal to the metal. And that’s after GDP growth fell from 11.9% to 10.3% in the second quarter. If we only had those problems, the Dow would be north of 20K by now…

    As I said before, it takes more energy usage to make it all happen. And that’s why no one should be surprised to hear that China is now the world’s biggest energy consumer — a title the U.S. held for over a hundred years.

    According to new data from the International Energy Agency, China consumed 2,252 million tons of oil equivalent energy last year — about 4% more than the U.S.

    It was only 10 years ago that China consumed half of what the U.S did.

    “The fact that China overtook the U.S. as the world’s largest energy consumer symbolizes the start of a new age in the history of energy,” said IEA Chief Economist Fatih Birol on the latest energy milestone.