Ireland should take downgrade ‘with grain of salt’

IRELAND should take its credit rating downgrade to “AA” by Standard & Poor’s “with a grain of salt” and stick to its laudable plan of fiscal consolidation, says Jim Flaherty, Finance Minister of AAA-rated Canada.

These words of support are very timely for Ireland, which yesterday saw its borrowing costs soar, following the S&P downgrade.

Ireland now has to pay 5.4% interest on any 10-year overseas loan, second only to Greece in the eurozone.

Mr Flaherty did, however, warn against having a “chummy relationship” between the Government and the banks.

“Ireland has a solid plan,” Mr Flaherty said yesterday.

“The rating agencies were part of the problem that caused the crisis. I am not a big fan of Moody’s and Standard and Poor’s and so on when they start to pontificate on certain issues. After all, they were responsible for rating some of the securitisations on Wall Street that contributed greatly to the crisis we’ve been facing for the past few years, so I take it all with a grain of salt from the rating agencies.

“Governments must have a plan and the gumption to push through with that plan. Ireland has led the EU in taking steps towards fiscal consolidation, steps that require restraint.”

Canada is similar to Ireland in that the government used taxpayers’ money to bail out its motor industry.

Like Ireland, it introduced tax credits for R&D and it plans to reduce taxes on business to 25%. However, Canada largely sidestepped the global banking crisis, which helped it retain its S&P AAA credit rating.