Moody's credit rating agency warned Ireland on Friday it was in danger of losing its prized AAA sovereign debt rating if public finances were badly hit by banking sector woes and a worsening recession.
CNBC.com
The negative outlook echoes a similar warning from Standard & Poor's earlier this month and puts further pressure on Dublin to secure 2 billion euros ($2.57 billion) worth of spending cuts in talks with unions this week.
Prime Minister Brian Cowen, under fire for his handling of the economic crisis, wants Ireland to avoid the fate of fellow euro zone members Greece, Spain and Portugal which have all seen their ratings cut amid buckling public finances.
Alan McQuaid, chief economist at Bloxham Stockbrokers, said Moody's comments further raised the pressure on the government to cut spending.
"This really turns up the pressure -- if they don't deliver something very convincing next week they're going to be in serious trouble with the ratings agencies," McQuaid said.
Moody's said Ireland, which is facing a budget deficit of 9.5 percent of GDP this year even with its targeted 2 billion euros worth of savings, had some room to manoeuvre due to its relatively low level of government debt.
But analyst Dietmar Hornung warned that Ireland's guarantee of all bank liabilities was a significant risk and the imploding housing market pointed to further pain ahead.
"The sizeable indebtedness of households points to a particularly painful de-leveraging process," Hornung said in a statement.