Editor's Blog

Boyle's Moody's blues

The news that the credit ratings agency Moody’s has downgraded Irish debt from Aa1 to Aa2 was to be expected. After all, if the cost of bailing out the banks is included then the size of the budget deficit is the biggest in the euro zone. The NTMA says that the move will not add to the cost of Irish government borrowing and that it was not prompted by any new developments. But it has been reported by the news agency Reuters and the Financial Times’ Alphaville that the downgrade was in part a reaction to comments made by Green Party chairman Dan Boyle in an interview with the Sunday Tribune.

In an interview with Eamon Quinn, Boyle said it was “probably a heresy” for a government party to question at this time whether the 3% target could be met.
“It is certainly doable if you want to be draconian every year. But is it politically feasible and socially possible? That is where I see the debate being had. Seeing that we have had three and a half really difficult budgets I do not see the public appetite continuing. It could be that we have neutral budgets for a period.”

These comments hardly seem enough to cause the euro to dip in early Monday morning trading, but that is exactly what Reuters and the FT claim.

The markets are notoriously fickle when uncertainty pervades. An ill-judged comment by a government official can have a disproportionate impact on investor sentiment. When the global economy was booming Senator Boyle’s comments would barely have raised an eyebrow in government circles, never mind being picked up by the bond market vigilantes.

There may be something more to what Boyle said. He could be looking for some wriggle room for the Greens in the run in to the next election. According to opinion polls the party is on the verge of being wiped out. If it was seen to have won a few small reprieves for the taxpayer in the drive to fiscal consolidation, then it might be enough to stave off a meltdown.

Maybe the Green Party chairman was making an off the cuff remark that reflected nothing more than his reading of the political landscape.

But these are extremely uncertain times. If investors formed the opinion that Ireland was wavering in its commitment to restore fiscal rectitude then it would have implications far beyond these shores. There is a sovereign debt crisis bubbling under the surface across the euro zone. All it takes is reckless action by one member state to trigger a full blown contagion effect.

It is true that there is a debate going on between those who favour keeping stimulus packages going for a while longer and those who argue that there has to be a massive and immediate retrenchment in order to avoid a debt explosion over the medium-to-long term.

Ireland has pinned its policies firmly to the retrenchment strategy. It has won the backing from the international community. If the Government changes tack now, then the consequences could be devastating.

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