Ireland Most Exposed in Eurozone to Borrowing Costs

Ireland’s economy and government finances are the most exposed among a group of eurozone countries assessed by ratings agency Moody’s to a “shock” tightening of borrowing costs in the market.
Speaking at a conference in Dublin on Tuesday, Moody’s lead analyst of Ireland’s sovereign creditworthiness, Katrin Muehlbronner, noted that the republic’s market borrowing costs have been most helped in the currency area from the ECB’s €2.5 trillion ($3.05 trillion) quantitative easing bond-buying program, which is currently being phased out, news outlets reported.
Muehlbronner noted that the ECB’s QE program, introduced in 2015, shaved about 1.5 percentage points off Ireland’s 10-year government bond yields, marginally more than second main beneficiary, Portugal. She also said that the European Central Bank is currently expected to move its main rate, currently at a record low, higher from 2019.
Moody’s, which is alone among the main ratings agencies in reducing its stance on Ireland’s creditworthiness to “junk” during the financial crisis, upgraded its rating of the republic in September to A2, although that remains five levels below its top-notch Aaa rating.
The upgrade reflected the state’s strong economic growth, near-balanced budget and declining public debt burden, the agency said at the time.
Muehlbronner said Brexit and US tax reforms, which make Ireland less attractive for US companies weighing investment, were among the main risks facing the state.
Looking at Europe as a whole, Muehlbronner said the economy is growing at its fastest and most-broad-based pace since the onset of the financial crisis. However, she said that limited progress on structural reforms—from labor market to fiscal overhauls—will affect the current cyclical recovery feeding into longer-term growth.
Meanwhile, an election in Ireland this year would unlikely roil sovereign debt markets and the political risks with the exception of Italy have mostly abated in the rest of the eurozone, RTE quoted Moody’s as saying.
In Ireland, Moody’s said, the banks have stronger capital buffers but banking risks have not gone away totally across the 19 states of the eurozone, and the costs of healthcare and public pensions are relatively high in Ireland, as a share of GDP.
The outlook offers no hints about future upgrades by Moody’s of Ireland’s credit rating.