Minister criticises S&P downgrade

Minister of State Dara Calleary has today defended the Government's economic policy following the decision by Standard and Poor's (S&P) to cut Ireland's credit rating.

His comments come after National Treasury Management Agency (NTMA) chief executive John Corrigan, whose organisation manages the State’s debt, publicly criticised the methodology used by S&P.

Shares in Ireland's biggest banks closed flat or lower yesterday, while the cost of State borrowing rose after S&P cut the Republic's credit rating from AA to AA minus on Tuesday. The downgrade means S&P believes there is an increased risk that the State will not be able to meet its liabilities.

Mr Calleary said today the State had chosen to publicly express its concerns about the methodology used by S&P to arrive at its judgement to show the country's finances are strong and that there is stability in the banking system.

"The message that we are sending to the markets is that our economy is strong, our funding requirement as a country is well catered for into 2011, and we will continue to address our public finances and address our banking system," he said.

Speaking on RTÉ radio, Mr Calleary also said Ireland was still highly regarded in international markets despite the downgrade.

"I think it's important to realise that the revised rating is still one of the strongest in the euro zone. It still defines that we are in a strong financial position and actually means that we have a very strong capacity to meet all of our financial commitments," he said.

S&P based its calculations on a €50 billion estimate for bank recapitalisation, which the National Treasury Management Agency described as extreme, and Nama’s €40 billion liabilities.

Mr Calleary said this morning the ratings agency had used "a very negative analysis" of Nama that did not give any credit for the fact there were performing loans.

The Minister also defended the Government's backing for State-owned Anglo Irish Bank after S&P forecast it could cost up to €35 billion to bail out the lender.

"Our priority as a Government is to get the best possible deal for the Irish taxpayer . . . we are very anxious to bring certainty to the Anglo debate, and we are engaged, and have been engaged, during the summer break in a very vigorous discussion with the European Commission on the options that have been presented," he said.

Irish bank bond credit default swaps (CDS), which insure against banks defaulting on their borrowings, also rose yesterday, with Bank of Ireland CDS up by 10 points to 358 and CDS on Anglo Irish Bank increasing by 13 points to 581, according to data provider CMA.

Shares in Ireland's biggest banks bounced back this morning before giving up some gains. Shares in Bank of Ireland gained 1.2 per cent to close at 76 cent while AIB was marginally off at 77 cent, down 0.6 per cent at 5.30pm.

The difference in 10-year the difference in yield that investors demand to hold Irish 10-year bonds, compared with those of safe-haven Germany, jumped by 24 basis points to 344 basis points