Standard and Poor‘s have downgraded Irish sovereign debt from AA to AA- and their outlook for the rating (not the economy) is negative. S&P cite the rising cost of the banking bailout as in their statement and project a debt-GDP ratio of 113% in 2012.
On the banking costs, they state
We have increased our estimate of the cumulative total cost to the government of providing support to the banking sector from about €80 billion (50% of GDP; see “Ireland Rating Lowered To ‘AA’ On Potential Fiscal Cost Of Weakening Banking Sector Asset Quality; Outlook Negative,” published June 8, 2009, on RatingsDirect), to €90 billion (58% of GDP) …
We have increased our estimate of the cost to the Irish government of recapitalizing financial institutions to €45 billion-€50 billion (29%-32% of GDP) from €30 billion-€35 billion (19%-22% of GDP).
Our estimate includes two main components: the upper end of our estimate of the capital we expect to be provided by the Irish government to improve the solvency of financial institutions, and the liabilities we expect the government to incur in exchange for impaired loans acquired from the banks.
Irish ten year bond yields have risen above 5.5 percent this morning and the spread against their German equivalent, at about 340 basis points, is the highest it has been in recent years. The NTMA have objected to the downgrade, arguing that S&P were using an “extreme estimate” of the cost of the banking bailout.