Ireland Downgraded by Standard and Poor’s
S&P lowered Ireland’s long-term sovereign credit rating to AA- from AA and kept its outlook on negative, suggesting the ratings agency could cut again.
Like several developed countries, Ireland bailed out some of its largest banks in the wake of the 2008 financial crisis. Anglo Irish Bank was nationalized. The government recently got European Commission approval to inject another 10 billion euros into Anglo Irish Bank, on top of the 14.3 billion euros it already provided. That’s sparked concern Ireland may have to spend more on new support for other banks.
The total cost of Ireland’s support for its banking sector may now reach 90 billion euros ($114 billion), or 58% of GDP, S&P estimated. That’s up from a previous forecast of 80 billion euros."The rising budgetary cost of supporting the Irish financial sector will further weaken the government’s fiscal flexibility over the medium term," S&P’s Cullinan said Tuesday.
In the wake of the new bailout of Anglo Irish Bank, S&P now reckons Ireland’s net general government debt will climb toward 113% of gross domestic product in 2012.
That’s more than 1.5 times the median for the average euro-zone country and well above debt burdens the ratings agency expects for similarly-rated euro-zone sovereigns. S&P expects Belgium’s debt-to-GDP ratio to reach 98%, while Spain’s may climb to 65%.