Ir­ish debt down­graded by Moody’s as EU es­chews cri­sis

The Pak Banker - - International3 -

DUBLIN/ BRUS­SELS: Rat­ings agency Moody's gave an em­phatic thumbs-down on Fri­day to Europe's ef­forts to re­solve a debt cri­sis, slash­ing Ire­land's credit rat­ing as EU lead­ers took no new ac­tion to pre­vent mar­ket turmoil spread­ing.

Moody's cut Ire­land's rat­ing by a stun­ning five notches dur­ing a Euro­pean Union sum­mit meant to re­store con­fi­dence in the euro zone by cre­at­ing a per­ma­nent fi­nan­cial safety net from 2013 and vow­ing to do what­ever it takes to pro­tect the euro.

Moody's cut Ire­land's rat­ing to Baa1, three notches above junk, with a neg­a­tive out­look from Aa2 and warned fur­ther down­grades could fol­low if Dublin was un­able to sta­bi­lize its debt sit­u­a­tion, caused by a bank­ing crash af­ter a decade­long prop­erty bub­ble burst.

"While a down­grade had been an­tic­i­pated, the sever­ity of the down­grade is sur­pris­ing," Dublin-based Glas Se­cu­ri­ties said. The blow to in­vestor con­fi­dence came as the 27 lead­ers failed to agree any spe­cific mea­sure to stop con­ta­gion spread­ing from Greece and Ire­land, which have re­ceived EU/IMF bailouts, to other high­d­eficit coun­tries Por­tu­gal and Spain.

"The re­cent events have demon­strated that fi­nan­cial dis­tress in one mem­ber state can rapidly threaten macro­fi­nan­cial sta­bil­ity of the EU as a whole through var­i­ous con­ta­gion chan­nels," a fi­nal sum­mit state­ment said. The lead­ers spurned calls for im­me­di­ate prac­ti­cal steps such as in­creas­ing the size of a tem­po­rary bailout fund or al­low­ing it to be used more flex­i­bly to buy bonds or open credit lines be­fore trou­bled coun­tries are shut out of the credit mar­kets. Bar­clay's Cap­i­tal an­a­lyst econ­o­mist Fabio

such

as Fois called it "an­other missed op­por­tu­nity to calm the mar­kets." Ger­man Chan­cel­lor An­gela Merkel, who led op­po­si­tion to those op­tions, sought to re­as­sure cit­i­zens and mar­kets, declar­ing: "We are do­ing ev­ery­thing to make the euro se­cure."

Merkel said the ex­ist­ing EU res­cue fund was suf­fi­cient, and she was im­pressed by re­forms an­nounced by Spain and Por­tu­gal.

On the side­lines of the sum­mit, non-euro mem­ber Bri­tain won sup­port from France, Ger­many and other coun­tries for a drive to freeze the com­mon EU bud­get in real terms over the next decade to take ac­count of na­tional spend­ing cuts. Prime Min­is­ter David Cameron said the EU's big three would is­sue a joint let­ter on Satur­day call­ing for a lean bud­get in the seven-year spend­ing plan af­ter 2013, ris­ing only in line with in­fla­tion "to stop this bud­get get­ting out of con­trol." "It is un­ac­cept­able to spend more and more and more through the EU bud­get," he said, play­ing to Eu­roscep­tics in his Con­ser­va­tive Party who have been dis­ap­pointed that he has not done more to con­front Brus­sels. -Afp

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