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Irish credit rating downgraded

It has been revealed that Moody's, the credit rating agency, has today downgraded the Irish government's debt rating. The rating has been reduced by one notch to Aa2 as a consequence of the weakened financial strength of the economy and the budget deficit. So what does this mean for the Irish economy?

The most obvious repercussions of the credit rating downgrade is an increase in the cost of financing Irish public services and existing Irish debt. The ten-year yield on Irish sovereign debt has now risen to 5.51% which is the highest level for some time. The cost of insuring Irish debt has also increased significantly and unless the authorities can quickly take control of the financial situation in the country things could get worse before they get better.

While this move was not wholly unexpected it is still a hammer blow to the Irish authorities who are looking to rebuild confidence and financial strength. Moody's commented upon the banking and real estate sectors in Ireland and the fact that despite being leaders in the Irish economy over the years they will not contribute anything meaningful for many years to come. Ireland is not the first sovereign debt to be downgraded as a consequence of the credit crunch and economic difficulties around the world and it will not be the last.

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