Ireland's economic recovery damaged by downgrade, says government

The Irish government has warned that its economic recovery has been damaged by Moody's decision to downgrade its credit rating to junk, and insisted that the move was unfair.

Economy minister Richard Bruton said Ireland had become "caught up" in the problems of other weaker members of the eurozone, and that the country was on track to hit the targets agreed with the International Monetary Fund (IMF). He also admitted that the downgrade will hurt Ireland's ability to rebuild its economy.

"This means for certain investors, Ireland is now taken off their radar, they will not touch Irish borrowings, that is bad for us, that makes the whole job of recovery more difficult," said Bruton.

"It is important to say this is agencies looking at a European strategy and we have been caught up in their view of the European solutions," Bruton added.

Investors drove down the value of Ireland's sovereign debt on Wednesday morning, driving up the yield – or interest rate – on the Irish 10-year bond above 14%. There was some relief for Spain and Italy, whose yields fell back to 5.7% and 5.4% respectively.

Moody's justified the one-notch downgrade, to Ba1, on two counts – the weak Irish economy, which it said undermines the effectiveness of the government's fiscal plan, and the increased likelihood that any subsequent rescue package would include losses for private creditors.

Analysts at Dublin stockbrokers Davy said that Ireland will now find it harder to borrow money on the international monetary markets in 2013, as planned under last year's bailout.

"Even the perception of possible private sector participation in a future funding package impairs the ability of the Irish sovereign to regain access to private markets in the near term," said Davy's Conall Mac Coille.

The Irish government has also argued that Moody's downgrade, which came late on Tuesday, was "completely at odds" with other rating agencies' views.

It also said it did not reflect the progress made at last night's eurogroup meeting where the minister of finance Michael Noonan is believed to have edged closer to a deal to get the country's "punitive" interest rate on the bailout reduced in a move that could save the country over €200m (£176m) a year.

"This is a disappointing development and it is completely at odds with the recent views of other rating agencies. Just last week, Fitch & DBRS noted our economy's return to growth in the first quarter, the progress in reducing our budget deficit and said that there was no reason to alter their views on Ireland at this time," said a spokesman for the department of finance.

"Given the timing of the Moody's announcement it is difficult to see how its decision reflects the agreement reached at last night's eurogroup meeting to enhance the flexibility and the scope of the European financial stability facility (EFSF), and to lengthen the maturities of, and lower the interest rates on, loans to countries in receipt of financial support," she added.

The cost of insuring Irish debt rose on Wednesday, as traders reacted to Moody's downgrade.

"The one-notch cut to Ba1 wasn't a tremendous surprise given the action on Portugal last week, and Ireland has been trading equivalent to a junk credit for many months," said Gavan Nolan, director of credit research at Markit.

"Nonetheless, it could trigger some forced selling in the bond market and can only add to negative sentiment."

The European commission said it "regrets the decision of Moody's to downgrade Ireland". It said it was confident Ireland was on track for a recovery and the decision "contrasts very much with the recent data, which support a return to GDP growth this year".

The European commission added that Ireland was making a "determined implementation" of the bailout programme and the Irish government had taken "strong ownership" of the necessary austerity programme.

The Moody's decision is a particular blow to the government, which is expected to get a good school report on Thursday from the IMF and EU, who will hold a press conference outlining how Ireland has met all fiscal targets under the IMF/EU programme.

They are also expected to say that Ireland is on track to achieve the deficit reduction for the year as a whole.

The head of the IMF's mission to Ireland, Ajai Chopra, has been in Dublin for a week leading the review of the second quarter performance.

In a note today, Dublin stockbrokers Bloxham said Moody's decision would force some investors who were permitted to hold non investment-grade status stock to sell.

"In our view this latest move by Moody's is cynical and manipulative, coming just two days before the EU/IMF in their latest quarterly review are expected to give Ireland the thumbs-up in meeting all its bailout targets," it said.

"The bottom line is that the credit ratings agencies have far too much power but policymakers and regulators only have themselves to blame."

Only last week Moody's said it saw differences between Ireland and Portugal when it downgraded the latter's debt to junk status.

Cavendish wins crash-marred 5th Tour stage

Mark Cavendish of Britain won a windy and crash-marred fifth stage of the Tour de France in a mass sprint on Wednesday, while Thor Hushovd of Norway kept the leader's yellow jersey.

Defending champion Alberto Contador fell in a crash and RadioShack rider Janez Brajkovic broke his collarbone and pulled out of the race during the 102-mile stage from Carhaix to Cap Frehel on the English Channel.

Cavendish, a sprint specialist, collected his 16th career Tour stage victory and his first this year by speeding past Philippe Gilbert of Belgium — who finished second — and Jose Joaquin Rojas in third.

"I am really happy. It was a difficult finish," said Cavendish, who rides with the HTC-Highroad team. "I put every thing into it … If we win, it's not because we're lucky, it's because we're good."

The British rider, known almost as much for his powerful legs as his sharp tongue, took aim at unidentified critics who he said expressed doubts about his abilities.

"It's always sweet to silence the ignoramuses," he said.

But Gilbert succeeded in making him work hard in the sprint.

"Normally, I try to win by a little-ish margin, just to try and save energy," Cavendish said. "Today, I had to give everything I had. He's taken a lot out of me, so I'll take a couple of days to recover."

The top standings didn't change because the vast majority of riders crossed in a pack right behind the sprinters. Hushovd kept his one-second lead over Cadel Evans of Australia in second. Frank Schleck of Luxembourg is third overall, 4 seconds back.

Schleck's younger brother Andy — the Tour runner-up for the last two years — is 10th, 12 seconds behind. Contador, who lost time by getting caught up in a crash in Stage 1, is 39th overall, 1:42 behind Hushovd.

The stage Wednesday included a picturesque patch along rocky Brittany cliffs overlooking the Atlantic, was mostly marked by crashes that brought down some of the biggest names in the pack. Two riders pulled out, reducing the pack to 195.

"It was very nervous, and because of that you get a lot of crashes, because there are 200 riders who want to be in front," said Hushovd, who retained the coveted yellow jersey for a fourth straight day.

Many riders were jostling to stay at the front — and ahead of possible group spills.

Contador, the Spanish three-time Tour champion, fell at about the 44-mile mark. With his Saxo Bank jersey ripped over the right shoulder, he took off his helmet briefly, then gave a thumbs-up to signal that he was all right.

"It was very difficult day, with a lot of tension," said Contador, who had scrapes on his right shoulder, elbow and knee. He said he took "a little knock" while braking to avoid one crash, then had his own a few miles later.

"When I got back going, 5 kilometers later, my chain came off — so I fell," Contador told French TV, which showed images of him throwing his bike on the roadside at the time. "What matters is, I was able to get back up."

"Yes, it'll be a bad night, of course, but you have to think about tomorrow," he added, suggesting his bruises and bumps might cause him to lose some sleep.

The highest-profile withdrawal was Brajkovic. The 27-year-old Slovenian was evacuated to a hospital in an ambulance. A race medical report said he had suffered a broken collarbone and a concussion.

Teammate Levi Leipheimer of the United States also was involved in a crash but returned to the course. In one of the more dramatic spills, Saxo Bank's Nicki Sorensen bumped into the motorcycle of a race photographer, and skidded on a roadside. The motorbike dragged his bike along the road — and race organizers barred its driver from covering the race.

Robert Gesink, the leader of the Rabobank team, went down in the same spill as Brajkovic. A mass crash earlier tangled up France's Sylvain Chavanel and Britain's Bradley Wiggins. Yet another ensnared Belgian sprint star Tom Boonen and his teammate Gert Steegmans.

Christophe Kern, the French time-trial champion, dropped out of the race after yet another crash.

"I kept hearing over the radio, 'Crash! Crash! Crash!', and then I saw guys like Gesink coming back to the peloton all covered in dirt," Evans said. "It was a dangerous day, I think."

With his jersey torn over his right shoulder, Boonen struggled through wincing pain behind an escort from Quick Step teammate Andy Engels — and finished more than 13 minutes behind the main pack.

On top of his injury, Boonen was penalized along with Rojas for an "irregular sprint" during the intermediate sprint earlier in the day's stage, race officials said. The riders were stripped of points used to calculate who wins the Tour's green jersey awarded to the best sprinter.