The ratings agency Moody’s has downgraded Irish debt to ‘junk’ status with the prospect it will need a further bailout from the European Union and International Monetary Fund.
Moody’s downgraded the rating for Ireland from Ba1 to Baa3, making it non-investment grade debt.
This downgrade came shortly after bond yields for Italian and Spanish government debt hit record highs and political leaders in Europe accepted that Greece would have to default.
Was this ratings downgrade for Ireland really justified?
The Irish economy has returned to GDP growth this year and an austerity programme is being implemented from Dublin. Other ratings agencies do not appear to agree with this latest assessment by Moody’s.
The EU is clearly unhappy with the decision to move Irish debt to junk status.
In addition to questioning the timing of the move, it has called the decision “incomprehensible”.
Here in the UK, decisions made by ratings agencies do have an impact on investors and savers. This particular downgrade has unsettled investor sentiment across Europe and will no doubt continue fuelling fears of contagion from the debt crisis in Greece.
Ratings agencies can wield too much power, and their action (or inaction, as we witnessed during the global financial meltdown) can have far-reaching consequences.
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