Irish credit rating downgraded as EU eschews crisis action

By Padraic Halpin and Jan Strupczewski ,Reuters

DUBLIN/BRUSSELS — Ratings agency Moody’s gave an emphatic thumbs-down on Friday to Europe’s efforts to resolve a debt crisis, slashing Ireland’s credit rating as EU leaders took no new action to prevent market turmoil spreading. Moody’s cut Ireland’s rating by a stunning five notches during a European Union summit meant to restore confidence in the eurozone by creating a permanent financial safety net from 2013 and vowing to do whatever it takes to protect the euro. Moody’s cut Ireland’s rating to Baa1, three notches above junk, with a negative outlook from Aa2 and warned further downgrades could follow if Dublin was unable to stabilize its debt situation, caused by a banking crash after a decade-long property bubble burst. “While a downgrade had been anticipated, the severity of the downgrade is surprising,” Dublin-based Glas Securities said. The blow to investor confidence came as the 27 leaders failed to agree any specific measure to stop contagion spreading from Greece and Ireland, which have received EU/IMF bailouts, to other high-deficit countries such as Portugal and Spain. “The recent events have demonstrated that financial distress in one member state can rapidly threaten macrofinancial stability of the EU as a whole through various contagion channels,” a final summit statement said. The leaders spurned calls for immediate practical steps such as increasing the size of a temporary bailout fund or allowing it to be used more flexibly to buy bonds or open credit lines before troubled countries are shut out of the credit markets. Barclay’s Capital analyst economist Fabio Fois called it “another missed opportunity to calm the markets.” German Chancellor Angela Merkel, who led opposition to those options, sought to reassure citizens and markets, declaring: “We are doing everything to make the euro secure.” Merkel said the existing EU rescue fund was sufficient, and she was impressed by reforms announced by Spain and Portugal. On the sidelines of the summit, non-euro member Britain won support from France, Germany and other countries for a drive to freeze the common EU budget in real terms over the next decade to take account of national spending cuts. UK Prime Minister David Cameron said the EU’s big three would issue a joint letter on Saturday calling for a lean budget in the seven-year spending plan after 2013, rising only in line with inflation “to stop this budget getting out of control.”