Ireland's debt junked as euro crisis spreads

Europe's debt woes escalated yesterday as Ireland's credit rating was cut to junk status, and the crisis threatened to engulf its biggest victim yet in Italy. Moody's Investors Service cut Ireland's ratings by one notch to Ba1 from Baa3 and kept a negative outlook.

Click HERE to view graphic (91k jpg)

It added that there was a danger that the country will need more bailout aid in late 2013 when the current European Union-International Monetary Fund support program ends.

Italy and Spain both insisted last night that their economies, and with them the future of the euro, were secure from the debt crisis that has already floored Greece.

Speculators have stepped up attacks on the two southern European economies – the third and fourth largest in the eurozone. In both countries borrowing costs soared, while stock markets and the euro fell back – despite pledges from finance ministers that Italy and Spain were committed to slashing their debt levels.

The developments came as Greece, which for more than a year has been swamped by a growing sovereign debt crisis, rejected a rescue deal proposed at an emergency EU finance ministers' meeting in Brussels that involved a partial default on repayments. The plan had won support among several countries, as well as from Christine Lagarde, the new IMF chief.

After attending the meeting in Brussels, Italy's Finance Minister Giulio Tremonti told reporters he was "leaving to wrap up the Italian consolidation package", which pledges to cut spending by €47bn (£41.3bn) and wipe out Italy's deficit by 2014, by cutting local government grants, health spending and pensions. At almost 120 per cent to her national income, Italy's debt is second only to Greece relative to the size of her economy. In the UK, debt stands at about 60 per cent of income.

Italian premier Silvio Berlusconi said the country had "to be united and cohesive in the common interest".

The opposition has indicated it will work with the government to pass packages quickly to reassure markets. The German Finance Minister, Wolfgang Schauble, said Italy's austerity package was "ambitious" but he was confident it would be approved. He even sought to divert attention from the larger economies. "We have not spoken much about Italy, because we are convinced that the core of the crisis is Greece," he told reporters.

Spanish Prime Minister José Luis Rodríguez Zapatero stressed the measures his government had taken to reduce debt levels and placate the markets. Spain has slashed public wages, frozen pensions, increased the retirement age and cut state subsidies.

It is aiming to reduce the eurozone's third-largest deficit to 6 per cent of GDP this year from 9.2 per cent in 2010. Mr Zapatero added that his Socialist government was ready to make further budget cuts if needed.

At one stage yesterday, however, both Spain's and Italy's 10-year bond yields surged past 6 per cent – meaning the interest rates for each country on its debt are twice as high as those of Germany. They are approaching the unaffordable levels that could trigger talk of default and sovereign debt crisis. Despite this, Spain's Finance Minister Elena Salgado insisted that Italy and Spain had "strong economies" and there was no logic to them being affected by market instability.

PROMOTED VIDEO
News
More than 90 years of car history are coming to an end with the abolition of the paper car-tax disc
newsThis and other facts you never knew about the paper circle - completely obsolete tomorrow
News
Piers Morgan tells Scots they might not have to suffer living on the same island as him if they vote ‘No’ to Scottish Independence
peopleBroadcaster has a new role bringing 'the big stories that matter' to US
Arts and Entertainment
Kylie performs during her Kiss Me Once tour
musicReview: 26 years on from her first single, the pop princess tries just a bit too hard at London's O2
Life and Style
Moves to regulate e-cigarettes and similar products as medicines come amid increasing evidence of their effectiveness
healthHuge anti-smoking campaign kicks off on Wednesday
Life and Style
fashionEveryone, apparently
Voices
The erotic novel Fifty Shades of Grey has already been blamed for a rise in the number of callouts to the fire brigade for people trapped in handcuffs
voicesJustine Elyot: Since Fifty Shades there's no need to be secretive about it — everyone's at it
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
A new Banksy entitled 'Art Buff' has appeared in Folkestone, Kent
art
Arts and Entertainment
Shia LaBeouf is one of Brad Pitt's favourite actors in the world ever, apparently
filmsAn 'eccentric' choice, certainly
Life and Style
An Internet security expert has warned that voice recognition technology needs to be more secure
techExperts warn hackers could control our homes or spend our money simply by speaking
Extras
indybest
News
peopleBenjamin Netanyahu trolled by group promoting two-state solution
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Trust Accountant - Kent

NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

Law Costs

Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

Day In a Page

Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

Isis an hour away from Baghdad -

and with no sign of Iraq army being able to make a successful counter-attack
Turner Prize 2014 is frustratingly timid

Turner Prize 2014 is frustratingly timid

The exhibition nods to rich and potentially brilliant ideas, but steps back
Last chance to see: Half the world’s animals have disappeared over the last 40 years

Last chance to see...

The Earth’s animal wildlife population has halved in 40 years
So here's why teenagers are always grumpy - and it's not what you think

Truth behind teens' grumpiness

Early school hours mess with their biological clocks
Why can no one stop hackers putting celebrities' private photos online?

Hacked photos: the third wave

Why can no one stop hackers putting celebrities' private photos online?
Royal Ballet star dubbed 'Charlize Theron in pointe shoes' takes on Manon

Homegrown ballerina is on the rise

Royal Ballet star Melissa Hamilton is about to tackle the role of Manon
Education, eduction, education? Our growing fascination with what really goes on in school

Education, education, education

TV documentaries filmed in classrooms are now a genre in their own right
It’s reasonable to negotiate with the likes of Isis, so why don’t we do it and save lives?

It’s perfectly reasonable to negotiate with villains like Isis

So why don’t we do it and save some lives?
This man just ran a marathon in under 2 hours 3 minutes. Is a 2-hour race in sight?

Is a sub-2-hour race now within sight?

Dennis Kimetto breaks marathon record
We shall not be moved, say Stratford's single parents fighting eviction

Inside the E15 'occupation'

We shall not be moved, say Stratford single parents
Air strikes alone will fail to stop Isis

Air strikes alone will fail to stop Isis

Talks between all touched by the crisis in Syria and Iraq can achieve as much as the Tornadoes, says Patrick Cockburn
Nadhim Zahawi: From a refugee on welfare to the heart of No 10

Nadhim Zahawi: From a refugee on welfare to the heart of No 10

The Tory MP speaks for the first time about the devastating effect of his father's bankruptcy
Witches: A history of misogyny

Witches: A history of misogyny

The sexist abuse that haunts modern life is nothing new: women have been 'trolled' in art for 500 years
Shona Rhimes interview: Meet the most powerful woman in US television

Meet the most powerful woman in US television

Writer and producer of shows like Grey's Anatomy, Shonda Rhimes now has her own evening of primetime TV – but she’s taking it in her stride
'Before They Pass Away': Endangered communities photographed 'like Kate Moss'

Endangered communities photographed 'like Kate Moss'

Jimmy Nelson travelled the world to photograph 35 threatened tribes in an unashamedly glamorous style