The Irish Republic has had its credit rating downgraded by a leading ratings agency, Standard and Poor's (S&P). S&P fears that the growing cost of propping up the country's troubled banking sector will further weaken the government's finances. It now thinks that the Irish government will spend 90bn euros ($101bn; £74bn) helping the banks, 10bn euros higher than previous estimates. The country's own debt agency described the analysis as "flawed". It claimed that S&P's outlook was based on an "extreme" scenario of the cost of recapitalising the banks.
S&P cut the rating one step to from AA to AA-, its lowest since 1995. This follows clearance earlier this month for an additional injection of 10bn euros into Anglo Irish Bank. The agency now forecasts that net government debt - the sum of all borrowing - will rise to 113% of GDP in 2010. That would be a substantial increase on the 64% level recorded in 2009. It would also make it one of the highest in the eurozone and well above its projections for Spain (65%) and Belgium (98%).
The rating could be cut again if the costs of the bail-out rise or the economic recovery becomes more sluggish, S&P warned. A lower rating can make it more expensive for governmenta to borrow money on the markets - vital for countries needing to finance large deficits such as Ireland. The Irish economy has been affected by a damaging recession prompted by the global financial crisis and the collapse of the once-booming property market. This weighed heavily on Ireland's banks which have needed massive injections of government money. Unemployment has continued to rise, reaching 13.3% at the last count.
