Just a couple of years ago Ireland basked with other top countries in the warm glow of the coveted AAA sovereign debt status.
But yesterday Moody’s Investors Services completed the country’s slide down the investment rankings by reducing its debt to Ba1, which is the highest rung on the ‘high yield’ or ‘junk’ investment rating ladder.
And, just to keep the pressure on, Ireland was kept on a ‘negative outlook’.
It was only on April 15th that Moody’s had reduced Ireland’s rating two notches to Baa3 leaving it hovering just above junk status.
This will drive up borrowing costs for Ireland further as well as making it that much harder for the country to obtain funds for its bonds outside of any rescue package.
Moody’s claim that once the current â‚¬85 billion EU/IMF rescue package expires in 2013 Ireland will need another one (maybe more) before it sorts itself out and can re-enter the bond markets. Hence the downgrade.
This comes at a time when Italian debt has come under the microscope, both Italian and Spanish bond yields hit record euro highs by topping 6% and a Greek debt default is all but admitted.
The Spanish and Italians, just like those countries that went before them on this journey, claim that their economies are secure.
Spain has cut public sector wages and state subsidies as well as freezing pensions and increasing the retirement age.
Italy’s finance minister is pushing through an austerity package designed to remove the country’s deficit (the overspend, not the debt) by 2014. Italy’s debt now stands at about 120% of national income compared to the UK’s 60%.
Should the yields on Spanish or Italian debt go much higher they could become unsustainable, which could herald a default in due course throwing huge pressure on the Euro.
As every day passes there is another twist to the Eurodebt crisis and the knot draws ever tighter.