It was only a matter of time before the extraordinary risk inherent in the European Union was brought to the forefront of economic news, and it happened on Tuesday when Standard & Poor's downgraded Ireland's bond ratings, following up on the same downgrade on Irish bonds made by Moody's (NYSE:MCO) in July.
Reasons given for the downgrade were the enormous costs associated with supporting the financial system of the country.
Irish bonds were slashed one level to "AA-" from "AA." A negative outlook was also assigned. The short-term rating was maintained at "A1+."
S&P said the increasing costs will "further weaken the government's fiscal flexibility over the medium term."
The rating agency added that the overall debt of the Irish government will increase by 2012 to an enormous 113 percent of the gross domestic product of Ireland. They said that is over one-and-a-half times over the average for the other European Union countries.
It even surpasses Spain and Belgium by a significant amount, said S&P.
Depending on how the government of Ireland performs fiscally, the rating could be lowered again, especially if the time-frame is extended, of in the case of their deficit being reduced quicker, it could result in an upgrade.
More than likely we'll see things get worse for the Emerald Isle before they get better. That means there will probably be more downgrades in the future, and they won't be the only country experiencing that unwanted distinction.
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