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S&P downgrades Ireland over growing debt to prop up banks

The rating agency says the EU/IMF loan averted an even deeper downgrade.

THE CREDIT RATING agency Standard & Poor’s has downgraded Ireland’s short-term and long-term ratings, saying the country will need to borrow more than expected to prop up the banks.

The agency cut Ireland’s long-term sovereign rating to A from AA-, and its short-term rating to A-1 from A-1+. The agency also put Ireland on “credit watch” – meaning another downgrade could be on the cards.

S&P analyst Frank Gill said:

The lower ratings reflect our view that the Irish government will have to shoulder additional costs associated with further capital injections into Ireland’s troubled banking system.

He added that the expectation that Ireland will receive joint EU/IMF loan averted an even deeper downgrade. However, he defended the decision to downgrade Ireland, saying that while external support may increase market confidence in Irish banks, it won’t reduce the levels of private and public debt.

The agency also projected low levels of economic growth until 2012 – due to high levels of private debt, austerity measures and a generally uncertain outlook in the European economy.

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