The Taoiseach has today described the decision by Moody's Investors Service to downgrade Ireland’s debt by five notches as “disappointing and a bit excessive”.

Moody's slashed Ireland's credit rating by five notches to Baa1 from Aa2 today and warned further downgrades could follow if Ireland was unable to stabilise its debt.

Moody's downgrade followed Fitch's move last week to become the first ratings agency to strip Ireland of its A credit status, cutting it by three notches to BBB+ following the debt-stricken Government's request for an EU-IMF bailout.

Brian Cowen today also questioned the suggestion by the credit rating agency of a negative outlook rather than a stable outlook. He suggested rating agencies were one of many different interested parties who “voice their opinions”.

Moody’s based its rating on its assessment that Ireland's sovereign creditworthiness has suffered from the mounting bank liabilities on the Government’s balance sheet,

Notwithstanding the rating, the Taoiseach contended the “real economy” of Ireland was stabilising and improving. He listed the successful passage of the Budget; revenues being €470 million ahead of profile; the annual deficit hitting the 11 per cent prediction; the 13 per cent increase in exports, as well as the first evidence of growth in both GDP and GNP since 2007.

In relation to the programme associated with the €85 billion bailout package, he said it was part of the political reality that made sure Ireland would meets its targets. He also portrayed peer review as a good thing.

“It helps us bring our people along and makes sure we know this is how we have to conduct our affairs,” he said, while accepting that the changes would be difficult.

S&P is the only ratings agency that still has Ireland in the top band, but that may not last long as it has placed the A rating on review for a possible downgrade.

"Ireland's sovereign creditworthiness has suffered from the repeated crystallisation of bank related contingent liabilities on the government's balance sheet", Dietmar Hornung, vice president and senior credit officer at Moody's said.

Mr Hornung said that action, which also put the rating on a negative outlook, was also driven by increased uncertainty over the country's economic outlook and a decline in the Government's financial strength.

Following today's announcement, credit-default swaps on Ireland rose 15 basis points to 575, according to data provider CMA, the highest since November 30th. Confidence in the Irish banks was also hurt, with the subordinated Markit iTraxx Financial Index up 22.5 basis points at 328.

The Dublin market also reacted negatively to the news with the Iseq down 6.36 points to 2837.77 at 3pm with banks leading the decline.

While a pre-Christmas market lull may have led to a temporary truce in the onslaught against peripheral euro zone debt, ratings agencies have been busy flagging up the fact that risks are undiminished.

Just prior to its downgrade of Ireland, Moody's said late yesterday that it had put Greece's Ba1 rating on review for a possible downgrade, citing uncertainty over the country's ability to cut debt to sustainable levels.

Moody's put Spain's debt on review for a possible downgrade on Wednesday, highlighting concerns over a funding crunch next year, although it said it did not expect Madrid to have to resort to a bailout as Greece and Ireland have.

Meanwhile, Standard & Poor's said this week it may cut Belgium's debt rating if the country's inability to form a government threatened deficit- and debt-reduction goals.

While Ireland avoided slipping back into recession in the third quarter - posting gross domestic product growth of 0.5 per cent - the modest upturn underlined the huge challenge ahead in tackling its financial crisis.

Moody's said Ireland's uncertain economic prospects were amplified by its required four-year, €15 billion budget-cutting plan, which it said is likely to weigh on domestic demand and further drag on the country's recovery prospects.

"Should Ireland's adjustment capacity prove to be insufficient to stabilise debt metrics in the foreseeable future, a further rating downgrade would follow," Moody's said.

Agencies