A world in economic crisis

Ireland – Moody’s cut rating to junk bond status

Posted in Ireland, Moody's credit rating by Aussie on July 13, 2011

Once again we see the ratings agency Moody’s acting in a manner that is probably not in the best interest of a country in trouble. This time it is Ireland and Moody’s has taken the step of cutting its rating to junk bond status. This is devastating news for Ireland. The BBC News has the story on this subject:


Moody’s said its decision was based on the “growing possibility” that Ireland would need a second bail-out before it can return to capital markets.

The current European Union and International Monetary Fund support programme is due to end in late 2013.

It comes at a time when markets fear the debt crisis in the eurozone could spread to Italy and Spain.

Ireland, Greece and Portugal have all been downgraded by ratings agencies several times in recent months.

I think that I have to agree with the Greek Foreign Minister regarding the behaviour of the ratings agencies, because their decisions do impact severely on the ability of these nations to borrow, an ultimately to repay their debt. The change in status means that the interest charged on borrowings is raised to higher and higher levels. How does that help to repay the debt?


2 Responses

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  1. integrity1st said, on July 13, 2011 at 12:13 pm

    Hi there. My question would be, what is the alternative? just leave its rating alone if it legitimately should be downgraded?

  2. Aussie said, on July 15, 2011 at 9:33 am

    the question then, is it legitimately downgraded?

    I am not sure that the downgrading is legitimate, especially if it is Greece that is causing the problem.

    On the other hand, there might be a good reason to expect that Ireland will default.

    As it stands, the higher interest rate that is being imposed for further borrowings is unhelpful. It means that more money has to be provided to pay back the interest before the principal itself is being paid off.

    If you have ever been on the receiving end of interest rates increasing month after month as you try to pay off the mortgage, then you might understand. Ditto for the credit card when one gets in a situation of the interest compounding despite the payments being made.

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