Merkel backs Ireland after junk status downgrade

GERMAN chancellor Angela Merkel rushed to Ireland’s defence yesterday after the bond downgrading to junk by Moody’s, while the move was described as incomprehensible by European Commission president Jose Manuel Barroso.

It was unclear last night if an emergency summit of EU leaders would be called in Brussels tomorrow to finalise a second aid programme for Greece and take further steps to stabilise the euro. But Taoiseach Enda Kenny warned that leaders would have to “grasp the nettle” to stop the contagion.

A spokesperson for Ms Merkel said Germany strongly backed the Irish government and had great confidence in Ireland’s reform programme.

German finance spokesman Martin Kotthaus criticised the ratings agencies. Their role and how they reach their decisions would be taken up by finance ministers, he added.

The timing of the downgrade was questioned by Mr Barroso, who made similar remarks when the US-based ratings agency downgraded Portugal last week, hours after the Portuguese parliament committed to more cuts than agreed under their austerity programme.

“Its timing, as the second quarterly review mission is preparing to announce its findings, is, to say the least, questionable,” his statement said, adding that the Government had shown determination and decisiveness in implementing the programme.

“Ireland’s banks are being recapitalised and its financial system more broadly is being repaired, an essential step to getting the real economy back on its feet,” he added. “Exports are growing strongly and the country is regaining competitiveness. All of this is set to underpin a return to growth this year which will begin to bring down unemployment.”

The downgrade, analysts said, did not reflect the agreement by eurozone finance ministers on Monday to cut the cost of loans, extend their maturity and provide funds from the European Financial Stability Fund to countries to buy back their loans on the secondary markets.

“This latest move by Moody’s is cynical and manipulative coming just two days before the EU/IMF, in their latest quarterly review, are expected to give Ireland the thumbs up in meeting all its bailout targets,” said stockbrokers Bloxhams.

“The bottom line is that the credit ratings agencies have far too much power.”

Some finance ministers were anxious to have EU leaders meet quickly to agree to the package of changes they committed to at Monday’s meeting and to deal with the spread of the crisis to Italy and Spain. However, this looks unlikely to happen this week.

Taoiseach Enda Kenny told the Dáil there was no point holding a meeting unless EU leaders were going to take the kind of action necessary.

“Moody’s problem is not with Ireland,” he said. “Ireland’s problem is with Europe ... if a council meeting is to be held on Friday, it must be one that will grasp the nettle and set out Europe’s response to the contagion which is clearly causing anxiety and concern.”