IMF Backs Ireland As Moody's Cuts Rating To Junk Status

The International Monetary Fund says Ireland could expect to return to bond markets next year, if European leaders are able to stop the contagion from other countries in the Eurozone.

Ratings agency Moody's last week downgraded Ireland's debt to junk status, because it believes there is a growing possibility that the country will need a second bailout in late 2013 when the money from the current fund runs out.

But IMF deputy director Ajai Chopra said Ireland has every chance of a full recovery if European leaders get their act together and sort out the wider problem.

"Ratings agencies have got it wrong on the upside during boom times by under-estimating risks and it's entirely possible that they are also getting it wrong on the downside by overestimating the risks," he said.

"The problems that face Ireland are not just an Irish problem," he added, "They're a shared European problem. What we need and is lacking so far is a European solution to a European problem."

Mr Chopra was speaking at the publication of the third quarterly review of Ireland's rescue package by the so-called "troika" of the IMF, European Commission and European Central Bank.

The troika said Ireland is "on track", "well financed" and the new government had developed "a great deal of fiscal credibility".

He said Ireland's borrowing costs would be lower and the country has "good prospects" for returning to bonds markets if it was judged on its own merits.

Ireland's been locked out of the markets since last September by sky-rocketing yields on its debt.

The next report card on Ireland's performance under the bailout will be in mid-October.

European Central Bank official Klaus Masuch said the ECB remained opposed to Irish government plans to force some losses on certain bondholders at Anglo Irish Bank and Irish Nationwide describing it as risky.

"We regard it as undermining confidence in the Irish banking sector," he said. "I know that there is sometimes criticism of ECB policy decision here in Ireland. One has to understand that being in the euro area means that monetary policy can't be divided, can't be set differently for one country than the other."