In the wake of the approval of the European Union-International Monetary Fund rescue package for Ireland on Thursday, Moody's on Friday slashed Ireland's credit rating—not by an expected position or two but by five levels, from Aa2 to Baa1. It then warned that further downgrades might follow.
Coming in the midst of an EU summit meeting on the debt crisis, it was not reassuring news. The gathering of EU leaders was focused on restoring confidence despite the ongoing debt crisis, but leaders thus far have done little, apart from the approval of a change to the treaty demanded by Germany.
The European Central Bank (ECB) took its own action on Thursday, announcing that it would nearly double the amount of its subscribed capital. Jean-Claude Trichet, the ECB's president, said that the bank's governing council felt it appropriate to make "additional provisioning."
Nonetheless, the spread on bonds for Greece, Ireland, Portugal and Spain all rose, as did the cost of insuring the debt. The inaction of the 27 leaders was a sore point for economists and analysts, and earlier mentions of possible downgrades for Greece, Spain and Belgium have added to the market turmoil.
