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July 13, 2011 at 09:18 AM
Debt woes continued to plague the euro zone as Moody’s on Tuesday downgraded Ireland’s governement debt to junk status, while on Wednesday the European Union considered some form of Greek default to avoid spreading the contagion throughout the region.
Moody’s also anticipated that Ireland would require a second bailout—something that is still under discussion for Greece, with no decision yet by Eurogroup finance ministers on how it is to be done.
Reuters reported that Moody’s issued the warning in anticipation that an additional bailout package would require participation by private investors, whether through haircuts or some other means.
The irony is that, if Greece receives another bailout on those terms—ministers have been considering extensions of bond maturity or an exchange of existing bonds for new, longer-term ones, which ratings agencies have said they would consider forms of default—the likelihood is that Ireland will suffer further cuts to its rating. It has never been rated as junk prior to this.
The Irish government reacted angrily, with its finance ministry issuing a statement that said in part, “This is a disappointing development and it is completely at odds with the recent views of other rating agencies. We are doing all that we can to put our house in order and the progress that we are making is there for all to see.” While Ireland’s borrowing costs are at a level once thought impossible, thus far it has met all its bailout targets. However, that fact has been overshadowed by events in Greece.
