Government support of the Republic of Ireland’s banks was a major reason for the bail-out Irish pass first economic review
Government support of the Republic of Ireland’s banks was a major reason for the bail-out The Republic of Ireland’s progress on deficit reduction has been approved by the European authorities – a condition of last year’s bail-out.
They have looked at the Republic’s performance throughout the first three months of the year and have said that it has met its targets.
The country’s Finance Minister, Michael Noonan, told a news conference that the bodies had been “very complimentary”.
Earlier its credit rating was cut again on concern over its financial strength.
The credit rating agency Moody’s marked the country down two notches on the scale to a status just one notch from “junk”.
Such a move typically means that the government will have to pay more to borrowing money.
Analysis
Moody’s timing didn’t really suit the Irish government today. After a fortnight in which the cost of borrowing for the Republic of Ireland had been failing, today’s downgrade to Baa1, or just above ‘junk’ status, pushed 10-year bond yields back up.
The new coalition in Dublin had hoped to trumpet the IMF/ECB/EU Commission’s report on the progress of the Irish economy in getting its deficit down. The first quarterly analysis from the Troika said that the country was “making good progress in overcoming the worst economic crisis in its recent history”.
The IMF et al also signed off on plans by Dublin to change the terms of the original bail-out deal last December to cancel the planned drop in the minimum wage as well as next month’s budget or “jobs initiative”.
However, the international bodies also revised downwards their growth forecast for 2011 to a meagre 0.5%.
The European Union (EU) and the International Monetary Fund (IMF) gave 85bn euros (£70bn, $113bn) in support for the country when it could no longer cope with its debts, largely the result of support for its over-stretched banking sector.
Mr Noonan said the authorities behind the bail-out, the EU, the IMF and the European Central Bank, had agreed to certain changes, including the reversal of a cut in the minimum wage.
The bail-out came with strict conditions, including an interest rate which the newly elected government said was too high and pledged to get it reduced.
Mr Noonan said “significant progress” had been made on the matter at last week’s meeting in Hungary.
He said he would take up the matter again at a meeting of eurozone finance ministers next month.
The final review documents would be made public once final approval had been given on May 15-16, Mr Noonan said.
Moody’s cut the Republic’s credit score on Friday to Baa3 – one level above junk-bond status – saying it could struggle to cut its budget deficit because of weaker-than-expected economic growth.
It stands alone though among the three leading ratings agencies. On Thursday Fitch ratings upgraded its outlook, while Standard and Poor’s gives the Republic the same grade as Fitch.
It has a target to cut the gap between government income and spending to 3% of gross domestic product by 2015.
The Republic’s 2010 deficit hit a European record of 32% after it bailed out its crippled banks.
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