Threat to AAA debt rating may spur deal

PRESSURE on the Government to reach a deal on €2 billion of public spending cuts increased last night after being warned Ireland was in danger of losing its prized AAA debt rating.

It came as Taoiseach Brian Cowen was forced to reject suggestions that our economic plight could be compared to that of Iceland, which has seen its government fall because of the scale of the crisis there.

The debt rating warning came from credit rating agency Moody’s, which said the ongoing financial crisis was likely to “significantly affect” Ireland’s economic strength.

It changed the outlook on the Government’s debt rating from “stable” to “negative”, echoing a similar move from another agency, Standard & Poor’s, earlier this month. For the moment, however, the AAA rating itself remains intact.

Such ratings essentially measure a country’s credit worthiness, with AAA being the highest.

The Government is now under severe pressure to reduce spending and contain public debt to avoid the fate of other EU member states such as Greece, Spain and Portugal, which have all seen their ratings cut.

Moody’s senior analyst, Dietmar Hornung, said it would be helpful if the Government secured a deal with the social partners on the proposed cutbacks, but said such a deal would not in itself be sufficient to secure the AAA rating in the long term.

The Department of Finance refused to comment on the negative aspects of Moody’s outlook, instead stating: “We welcome the confirmation by Moody’s that Ireland remains triple A-rated.”

Further bad news came in the shape of credit monitor CMA DataVision stating investors view Ireland as the riskiest issuer of government debt in the eurozone. It came as the Taoiseach, attending the World Economic Forum in Davos, rejected as inaccurate comparisons between Ireland and Iceland by the president of the European Commission, Jose Manuel Barroso, who appeared to suggest that Ireland could have been in similar trouble to Iceland had it not been a member of the eurozone.

But Mr Cowen said: “Those comparisons are not accurate. Ireland has seen 12 [or] 13 excellent years, one better than the next. We have seen a very sharp financial crisis that has attacked globally — there is nowhere to hide for any country.”

Meanwhile, as the Government and social partners today continue economic recovery discussions by looking at energy costs, employers’ group IBEC has claimed the business community is very disturbed at ESB’s decision to pay the 3.5% wage increase under the new national wage agreement.

The employer’s body has sought a deferment of the payments, due in September, for at least a further 12 months, and yesterday its director of policy, Danny McCoy, questioned the symbolism of the move.

Also at the talks, Patricia Callan of the Small Firms Association said the Government needed to divert in excess of €1bn, into small enterprises to allow them to be more innovative.