THE MARKET:THE €2 billion plan to stabilise the public finances found favour with international analysts, who are keeping a close watch on the public finances in light of the Government's requirement to borrow as much as €20 billion this year.
Societé Générale analyst Ciaran O’Hagan described the Government initiative as an “encouraging step” in the right direction. “The Government has no alternative but to take the bull by the horns and impose cuts in take-home pay, as well as raising taxes, or else follow the US and the UK into reflation,” he said in a note.
“The Government’s actions are remarkably brave for now. We can’t think of any government in Europe over the past 50 years that has had the courage to engage in such action. However, investors take a long-term view. They know that the hard part still needs to be done. The Government has taken decisions; it now needs to enforce them, whilst continuing to introduce further measures to get the public deficit down.”
Mr O’Hagan said there was still a long way to go, adding that current borrowing levels were “still far too much”.
Moody’s analyst Dietmar Hornung said Ireland’s triple-A credit rating, a top-level measure of the State’s financial strength, and “negative” outlook remain “completely appropriate” in light of the Government plan. The initiative “was basically as expected,” Mr Hornung added. “That said, our monitoring goes beyond yesterday’s announcements.”
Like rival credit rating agency Standard Poor’s, Moody’s has changed the outlook on Ireland’s rating to negative, increasing the prospects that the State’s top grade would be cut. A credit rating generally determines the level of interest that a borrower pays on debt, with lower ratings increasing the cost of debt.
The difference between the price of Irish bonds and German bonds, perceived to be of the highest quality in Europe, has widened by almost six times since last May as international investors demand higher premiums to hold Irish debt. – (Additional reporting: Bloomberg)
