Borrowing costs at record highs on back of ratings fears

IRELAND’S borrowing costs hit record highs yesterday after two creditrating agencies warned its debt is at risk of further downgrades, piling pressure on the Government to bring the budget forward.

Ireland is battling to convince investors it can afford to shore up its banking sector and cut the biggest budget deficit in the European Union with a weak economy and growing risks of a political crisis.

“I cannot pretend that the current rating is totally secure,” Chris Pryce, a senior analyst with Fitch, which currently has Ireland at AA- with a stable outlook, said.

The Government is hoping a final bill for dealing with nationalised lender Anglo Irish Bank, expected later this week, will clear up fears that the cost will vastly exceed a current estimate of €25 billion.

“We will be... providing a manageable way forward on how that will be dealt with over the longer term,” Taoiseach Brian Cowen said.

“We are determined to do what’s necessary to achieve international confidence and build domestic confidence.”

The ratings agencies’ warnings, including Moody’s decision on Monday to slash its ratings on Anglo’s lower-grade debt, sent Irish credit premiums and the cost of insuring Irish debt from default to new highs. The news also drove the premiums on bonds from other economies on the eurozone periphery to new highs.

The OECD’s chief economist said he did not see Ireland heading towards a Greek-style crisis.

Ireland is funded until mid-2011 but the rising borrowing costs are unsustainable over the medium term and are putting mounting pressure on Mr Cowen as he heads into a new parliamentary term, with his coalition and deficit-cutting mandate shaky. Some analysts have said Mr Cowen needs to speed up the budget announcement. “The costs are rising because of policy inaction on behalf of the incumbent Government,” said Ciaran O’Hagan, bond strategist with Societe Generale.

“The French budget is being published tomorrow, the Irish budget is being published in December. They are going to give a pre-budget statement in the second half of October, that’s a month away.”

Mr Pryce said the Government’s wafer-thin parliamentary majority, was a worry but Mr Cowen still had time to reassure investors. He said: “Further downgrades may be avoided.”

But Mr O’Hagan said the credibility of theAnglo bill was dependent on the outlook for the housing market, where prices are in some cases half their peak and still dropping. “Even if the Government does come out with a number, the only thing that will make it believable is if there is some sort of prospect of stability for the housing market.”


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