Ireland may be further downgraded by Fitch

EURO ZONE CRISIS:IRELAND FACES the prospect of a further ratings downgrade by the end of the month after credit ratings agency Fitch reiterated its intention to downgrade Ireland and five other euro zone states.

Speaking in Madrid yesterday, Fitch managing director Edward Parker said the agency was likely to cut the ratings of six euro nations by one or two levels by the end of this month.

Fitch, the third-largest rating agency, placed the ratings of Belgium, Spain, Slovenia, Italy, Ireland and Cyprus on credit watch “negative” in mid-December, signalling the possibility of a downgrade within three months.

Ireland has a BBB + rating from Fitch.

Last week Ireland escaped a downgrade by the US ratings agency Standard & Poor’s when it downgraded a swathe of European countries, including France and Austria, which lost their triple-A rating.

Spain and Italy were also included in the downgrade, while the euro zone rescue fund, the EFSF (European Financial Stability Facility) was downgraded a few days later.

The agency left Ireland’s long-term credit rating unchanged at BBB + although it said there was at least a one-in-three chance that the current Irish rating would be lowered this year or next.

While it described the Irish Government’s response to the financial crisis as “proactive and substantive”, it said it may lower the rating if weaker external demand results in lower economic growth.

In July, Moody’s cut Ireland’s credit rating to junk status. The agency is due to review its ratings of all EU sovereign credit in the first quarter of this year.

Taoiseach Enda Kenny said last week that the Government wants to return “in a tentative way” to international bond markets next year from the second quarter onwards, though, more likely, the end of the year.

Yesterday, Fitch’s Mr Parker, who was delivering the last in a series of seminars held at different European capitals over the last two weeks, expressed doubts about Spain’s ability to reach its deficit targets for this year and next after overshooting its projected shortfall last year.

He said that Spain’s 2011 deficit of 8 per cent of GDP created doubts about its capacity to hit budget targets for 2012 and 2013.

In its December review, Fitch said that the absence of a “comprehensive solution” to the region’s debt crisis was the reason it was placing the six countries’ ratings on credit watch negative.

The agency expressed pessimism about the capacity of euro area countries to address the crisis.

“Following the EU summit on December 9th/ 10th, Fitch has concluded that a comprehensive solution to the euro zone crisis is technically and politically beyond reach,” it said. – (Additional reporting Bloomberg)