Ireland's Debt Downgraded to Junk Status

Chuck Stone wrote: »

We'll survive. It's a bit like how a drunk needs to hit rock bottom before he initiates true change.

SamHarris wrote: »

Um... Are we going to start "electing markets" soon?

SamHarris wrote: »

So you mean the banks will fail and we wont have to pay for their debt? I think we already bought it, silly us. I am very confused by this post...

ei.sdraob wrote: »

Liam the markets are not dictating anything, they are pointing out the obvious > Ireland is Bust

You and few others are falling for the spin coming out of politicians who are trying in last few weeks to blame everyone but themselves (ratings agencies, "speculators and insurance derivatives) all while ignoring that the real issue here is the lack of a plan, vision and action from politicians which is causing more and more uncertainty all coupled with news from Ireland and Greece that the previous plans are not on track, and now Italian politicians showing more incompetence

Europe’s best-performing sovereign debt fund manager over the last decade, Sandor Steverink, correctly predicted Portugal’s downgrade last week and says Ireland will soon follow.

Then it’s time to buy, he says.

Steverink, who is co-head of a team managing €26billion at Dutch insurer Delta Lloyd, plans to buy Irish bonds once the ratings companies cut the debt to junk as Moody’s Investors Service did with Portugal last week.
I don't agree that the hype is deserved, this is a great time to buy Irish debt.

ei.sdraob wrote: »

Liam but you are falling for the spin and loosing sight of the real issue of political incompetence.

Blaming the markets is also foolish, do you blame maggots on a rotting corpse for killing the person or do you blame the politicians who pulled the trigger on the shotgun? All the markets do is act on information available when placing their trades, the markets have "influence" only because politicians have run the country into the ground and still have no plan on how to get out of the hole.

ei.sdraob wrote: »

@Liam the various parties made mistakes and would have paid dearly for it, instead the government stepped in and decided that failure is not an option. And now here we are...

Thats like saying socialism is an extreme and has no range of variations in between, there's a wide range of points on the 2D (left/right + authoritarian/liberal compass) but thats a whole other thread altogether.

Permabear wrote: »

This post had been deleted.

Liam Byrne wrote: »

Show me where I "absolved" anyone! :mad: Go on - back up your ridiculous claim!

Liam Byrne wrote: »

And what of the incompetence of the ratings agencies and the investors?

ei.sdraob wrote: »

Calm down, i am trying to point out that the more believable explanation is political shortcomings and lack of direction
not some elaborate conspiracy plan as is the accusation coming from certain politicians.

Scofflaw wrote: »

Markets are not natural forces - they can be regulated, they can be broken, and they can be overpowered, and, most importantly, they consist of human beings and organisations with interests and politics, just as any other industry does.

It's slightly bizarre that people who are in all other respects trenchantly opposed to the pernicious influence of vested interests, and equally opposed to the unaccountability of power in all other respects, are apparently willing to ignore entirely the vested interests that exist in financial markets, and to elevate the movements of the market to a pedestal well above the accountable.

Scofflaw wrote: »

So, what has significantly changed in the last week about Ireland's position to warrant this downgrade, according to those who believe that market logic is ineluctable? And, surely, if the ratings agencies were omniscient, the very existence of ratings would mean that market participants such as Delta Lloyd could never hope to make speculative profits?

cordially,
Scofflaw

RATIONALE FOR DOWNGRADE

The main driver of today’s downgrade is the growing likelihood that participation of existing investors may be required as a pre-condition for any future rounds of official financing, should Ireland be unable to borrow at sustainable rates in the capital markets after the end of the current EU/IMF support programme at year-end 2013. Private sector creditor participation could be in the form of a debt re-profiling — i.e., the rolling-over or swapping of a portion of debt for longer-maturity bonds with coupons below current market rates – in proportion to the size of the creditors’ holdings of debt that are coming due.

Moody’s assumption surrounding increased private sector creditor participation is driven by EU policymakers’ increasingly clear preference — as expressed during the negotiations over the refinancing of Greek debt — for requiring some level of private sector participation given that private investors continue to hold the majority of outstanding debt. A call for private sector participation in the current round of financing for Greece signals that such pressure is likely to be felt during all future rounds of official financing for other distressed sovereigns, including Ba2-rated Portugal (as Moody’s recently stated) as well as Ireland.

Although Ireland’s Ba1 rating indicates a much lower risk of restructuring than Greece’s Caa1 rating, the increased possibility of private sector participation has the effect of further discouraging future private sector lending and increases the likelihood that Ireland will be unable to regain market access on sustainable terms in the near future. This in turn implies that some Irish government bond investors would need to absorb losses. The increased risk of a disorderly and outright payment default or of a disorderly debt restructuring by Greece also increases the risk that Ireland will be unable to regain access to private sector credit.

The downward pressure that this creates is mitigated in Ireland’s case by the strong commitment of the Irish government to fiscal consolidation and structural reforms, and by its success, so far, in achieving the fiscal adjustment required by the EU/IMF programme. To date, Ireland has met all of its objectives under that programme. In the first half of 2011, the primary balance target was exceeded, with tax revenues on track and lower-than-anticipated government expenditures. However, Moody’s cautions that implementation risks related to the overall deficit reduction aims of the three-year programme are still significant, particularly in light of the continuing weakness of domestic demand.

Apart from Ireland’s adherence to fiscal consolidation, Moody’s also acknowledges the Irish economy’s continued competitiveness and business-friendly tax environment. The considerable wage adjustment that occurred in the course of the crisis reflects the Irish labour market’s flexibility. Taking Ireland’s economic adjustment capacity into account, Moody’s expects that, after a period of prolonged retrenchment, Ireland’s long-term potential growth prospects remain higher than those of many other advanced nations. While the government’s debt-to-GDP burden is expected to be high compared to similarly rated sovereign credits, Ireland has managed elevated levels of indebtedness in the past, and has shown political cohesion while enacting difficult structural adjustments.

WHAT COULD CHANGE THE RATING UP/DOWN

Moody’s would consider a further rating downgrade if the Irish government is unable to meet the targeted fiscal consolidation goals. A further deterioration in the country’s economic outlook would also exert downward pressure on the rating, as would further market disruption resulting from a disorderly Greek default.

Moody’s also notes that upward pressure on the rating could develop if the government’s continued success in achieving its fiscal consolidation targets, supported by a resumption of sustained economic growth, is able to reverse the current debt dynamics, thereby sustainably improving the Irish government’s financial strength.