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Irish Government Debt Downgraded by Moody's

Crisis-stricken Ireland's debt rating has been downgraded by Moody's amid mounting worries about the country's public finances and the cost of the government's bailout of the banking system.

The credit ratings agency said Thursday it has lowered its rating by one notch to AA1 from the top triple A and said another downgrade was possible as it reaffirmed that the country's remains negative.

Moody's had put the country on warning of a possible downgrade in April.

"The pronounced weakness in the economic activity has been translating into a severe deterioration of Ireland's public finances, and the country is set to emerge from the current economic crisis with a considerably higher debt burden for the foreseeable future," said Dietmar Hornung, a vice president at Moody's.

He added that the deterioration of the government's financial strength has been further aggravated by the liabilities arising from the recapitalization of the country's troubled banks.

Despite these problems, Hornung said the government's "strong balance sheet position prior to the crisis" meant the downgrade was only a moderate one.

Though the new rating is still relatively strong it could mean the country may have to pay higher interest rates to borrow money on bond markets as investors may demand more insurance on Irish government bonds in exchange for risking their money.

Moody's downgrade comes just a few weeks after rival agency Standard & Poor's lowered its rating on the country for the second time this year.

Contact Europe: Economy

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