Fitch Ratings: Political concerns weigh on new Government

The appointment of the new Fine Gael-led minority administration has removed most but not all uncertainty, Fitch Ratings said yesterday.

One of the world’s ‘big three’, Fitch had unusually for a credit rating firm warned during February’s election campaign about the danger of political instability facing the country if there were to be a hung Dáil.

It nonetheless had upgraded Ireland’s debt pile to ‘A’ with a stable outlook.

Yesterday, the rating firm said the election result “reduces but does not eliminate uncertainty” entirely, even as Fine Gael secured the agreement for a minority-led administration with Fianna Fáil and the Independent Alliance.

Fitch said that one possibility would be that in future years that support would grow for “radical” politicians outside the Fine Gael and Fianna Fáil fold.

It said any assessment on the effects of mortgage rate cuts and the slow recovery in profitability and the capital built up in the banks ultimately “would depend on the extent of any reduction” in rates.

“Possible intervention in the mortgage market could be negative for Irish banks, but detailed proposals have yet to emerge,” it said.

“We think it is positive that a government has been formed ahead of the UK’s referendum on EU membership on June 23.

“If the UK voted to leave the EU — which is not Fitch’s base case — having a government in place to formulate a policy response and engage in Brexit negotiations could help to contain the potential damage to economic confidence in Ireland. The country is one of the most exposed in the EU to the UK via merchandise and service exports,” said Fitch.

“Nevertheless, political uncertainty has not been eliminated. It is unclear how much of its legislative programme the minority government will be able to implement with Fianna Fáil’s limited support.

“Fianna Fáil leader Micheál Martin said that negotiations with Fine Gael had ‘confirmed the serious and substantive policy differences’ between our parties’,” it said.

However, it said the accord between Fine Gael and Fianna Fáil pointed to the new administration maintaining its support for EU fiscal controls.


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