Irish debt cut to junk rating

creeper1

Mish Shedlock has an interesting blog post about Irish debt being cut to junk level.

http://globaleconomicanalysis.blogspot.com/

Obviously that has happened and we can't do anything about it. The main reason for this being that no more money will be paid to anglo until a change of government.

SO in this game Ireland holds the card of defaulting and burning bond holders whereas the EU holds the purse strings which means the state has no way to pay nurses, doctors, teachers etc without the bailout.

Now the EU bailout iinterest rate is an area of contention. We want a lower rate. The EU dont want to budge on that because it would provide a soft option for other countries such as Spain and Portugal to dip into. The French are pissed off that Ireland maintains a low corporation tax.

A simple compromise to this situation would be to increase corporation tax in return for a lower rate of interest on the bailout. That would be something that keeps everyone happy IMO.

later12

Just to clarify: Irish debt was not downgraded to junk; senior, unsecured bank debt was downgraded to junk, or non-investment grade to be specific, not Irish sovereign debt.

Junk actually means less than a lot of people think by the way, there is actually a very large pool of investors who invest at non investment grade. It isn't that the debentures are actually suddenly toilet paper or something.

It's worth mentioning by the way that a drop of 1% on the interest rate would only cut something like 675 million off the Irish loan. We are not talking billions here, certainly not enough to merit an increase in the corporate tax rate if figures about the contraction of the economy in that event are to be believed, and also for the impact that would possibly have on our export sector.