When Irish Eyes Are Crying
Posted on November 5th, 2009 by mark in Market Observations
Earlier this year, Ireland lost its AAA credit rating, but now the assessment is much bleaker. Yesterday, Fitch cut Ireland’s credit rating by two “levels” to AA-. This puts the country on par with the Italians, and more likely to default than Slovenia or Abu Dhabi.
Ireland’s woes are now familiar. Dependent on banking and addicted to “growth”, Ireland’s economy has been falling apart:
Fitch said gross domestic product in Ireland is expected to drop by 14% between 2007 and 2010 — a much more severe decline than in most other countries.
Wait a minute. A 14% drop in GDP from 2007? Ouch. But not everything sounds bad:
“The agency notes the vigor of the government’s fiscal consolidation response to date, the expectation of further aggressive budget tightening and the likely success of the National Asset Management Agency in rehabilitating the banking sector,” said Chris Pryce, a director in Fitch’s sovereign group.
So… perhaps they would have rated Ireland even lower, but that were impressed by the vigor of the government’s response? That doesn’t sound good. Just what is the National Asset Management Agency?
The cost of the NAMA bailout is around a third of Ireland’s gross domestic product, and banks are still likely to require additional state capital, the rating agency said.
A bailout a third of GDP? Why would Fitch think this is good news?
…the rating agency said it believes the bank rescue package will be successful in stabilizing the sector and that the Irish economy will “resume a growth trajectory” in late 2010 or 2011.
They believe it will stabilize? It’s 2009 and we’re still talking about “growth trajectory”? Fitch has had a golden opportunity with S&P and Moody’s being somewhat discredited due to their clueless ratings on now-worthless derivatives. They need to come out swinging – marking all the toxic debt to the miserable levels they deserve.
Nations issuing massive debts in Euros are already an unfathomable default risk because the Germans won’t let them print their way out of debt – can Fitch not see that? There is a good reason that German bonds are so much more expensive than Irish bonds – the risk of a widespread European debt default is real.
We’ve already learned that AAA ratings are worthless, but it’s disappointing to see that the trend of bogus, unrealistic ratings continue indefinitely. The rating agencies will be given a second chance by investors – but not likely a third.
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[...] on the brink for what now seems like an eternity. In another trend, we’ve been watching Fitch attempt to get tough with its ratings, in an effort to brand itself as the good rating [...]