No relief for Republic of Ireland on bailout terms
Mixed, but mostly dispiriting news for the eurozone's struggling peripheral economies prompted another sharp sell-off in Irish, Greek and Portuguese bonds yesterday, and heightened concerns about the stability of the single currency area.
Moody's downgraded Ireland's rating to near-junk bond status, cutting Ireland's sovereign bond rating from BAA1 to BAA3, the same as Iceland and Tunisia. The rating agency said: "The country's weak economic growth prospects are driven by the fiscal consolidation process, the ongoing contraction in private-sector credit, and a more adverse interest rate environment. Should the intended fiscal consolidation goals not be met, a further rating downgrade would likely follow."
The European Union and International Monetary Fund endorsed Dublin's progress and agreed a modest loosening of the conditions of the €85bn (£75bn) rescue package launched last November – but with no alteration in the interest rate. Such a result came as a disappointment to the Irish government, which campaigned on a pledge to renegotiate the deal. "This programme is a lifeline for Ireland," Ajai Chopra, the IMF's head of mission for Ireland, told a news conference at the IMF Spring Meeting. "This crisis will not be over till we see jobs coming back."
Prominent German voices are also contributing to the growing unease. Germany's most influential economist, Hans-Werner Sinn, the president of the Ifo research institute, said that a bailout of Portugal could turn into a "bottomless pit", and the crisis risks spreading to Spain because of local banks' involvement in Portugal.