Ireland's debt rating downgraded

Ireland's debt rating was downgraded to just above junk status today amid warnings that austerity plans may not be enough to repair its battered economy.

Moody's slashed the rating by two notches, to Baa3 - just one move away from a junk rating and the same level as embattled Iceland and Tunisia.

The news came just hours before an announcement by the Irish Government of a revised agreement with international lenders on the terms of its 67.5 billion euro (£59.7 billion) bail-out.

The European Commission, European Central Bank and International Monetary Fund are due to lower interest terms on Ireland's loan in return for tough austerity measures.

Moody's said on delivering its ratings blow that Ireland's economy could decline further if recovery efforts are hampered by harsh deficit cutting or if spending cuts fell short.

It cautioned that more government belt-tightening may be needed to get the economy back on track, on top of the 15 billion euro (£13.3 billion) spending cuts already earmarked for the next five years.

"The country's weak economic growth prospects are driven by the fiscal consolidation process, the ongoing contraction in private sector credit, and a more adverse interest rate environment," said Moody's.

It added: "Should the intended fiscal consolidation goals not be met, a further rating downgrade would likely follow. Moreover, a further deterioration in the country's economic outlook would also exert downward pressure on the rating."

Today's downgrade will compound Ireland's troubles by making it more expensive for the country to borrow.

However, the Moody's move is at odds with confirmation from rival agency Fitch late yesterday that it was maintaining Ireland's debt rating, albeit with a negative outlook.

Hit by Europe's worst banking crisis, Ireland is pumping billions of euros of taxpayer cash into its lenders in order to stabilise the sector following a devastating property crash.

Fitch said yesterday that the latest bank bail-out efforts were "credible", although it warned that significant threats to the wider economic recovery remained.

Elsewhere in Europe, debt-laden Greece was also in focus as it prepared to present a mid-term package of economic measures in the hope of bringing its finances under control.