Bank of Ireland
Standard & Poor's Ratings Services said that it has downgraded its sovereign credit ratings on the Republic of Ireland to 'BBB+/A-2'. REUTERS

Standard & Poor's Ratings Services said that it has downgraded its sovereign credit ratings on the Republic of Ireland to 'BBB+/A-2'.

At the same time, it removed the ratings from CreditWatch, where they were placed with negative implications on Nov. 23, 2010. The outlook is stable.

The ratings agency said the downgrade reflects its view of the concluding statement of the European Council (EC) meeting of March 24-25, 2011, that confirms its previously published expectations that sovereign debt restructuring is a possible pre-condition to borrowing from the European Stability Mechanism (ESM), and senior unsecured government debt will be subordinated to ESM loans.

Both features are detrimental to the commercial creditors of EU sovereign ESM borrowers.

Standard & Poor's credit analyst Frank Gill said: The outlook is now stable, reflecting our opinion that the assumptions underlying the stress test conducted by the Central Bank of Ireland--in conjunction with the IMF, European Central Bank (ECB), and European Commission--are robust and that the expected €18-€19 billion (11.5%-12.0% of GDP) net cost to the Irish state of additional recapitalization, plus the contingency buffer for the banking system, is within our range of expectations, albeit at the upper end.

Gill said he is of the opinion that the sharp contraction in Ireland's nominal GDP and gross national product since 2008 has reached an end, and that the Irish economy is now set to gradually recover.

We believe that the Irish economy has stronger growth prospects than the Portuguese and Greek economies considering its openness (Ireland's exports are forecast at 107% of GDP for 2011 compared with Portugal's 30% of GDP), its flexibility, and its competitiveness, Mr. Gill said.

We anticipate that Ireland's current account will post a full-year surplus of more than 2% of GDP during 2011, for the first time since 2003, while net exports will continue to be the major contributor to headline GDP performance.

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