Ireland hit by ratings warning

Ireland's borrowing costs rose again yesterday after two credit rating agencies warned its debt is at risk of further downgrades.

Both Fitch and Standard & Poor's warned they may cut the country's credit rating due to the rising cost of recapitalising Anglo Irish Bank.

Ireland is battling to convince investors it can afford to shore up its banking sector and cut the biggest budget deficit in the European Union, given its weak economy and growing risks of a political crisis.

The government is hoping a final bill for dealing with its nationalised lender, expected later this week, will clear up fears that the cost will vastly exceed a current estimate of 21 billion.

Taoiseach Brian Cowen said: "We will be providing a manageable way forward on how that will be dealt with over the longer term. We are determined to do what's necessary to achieve international confidence and build domestic confidence."

The ratings agencies' warnings, which followed Moody's decision on Monday to slash its ratings on Anglo Irish's lower-grade debt, sent the cost of insuring Irish debt from default to new highs.

The news also drove the premiums on bonds from other economies on the eurozone periphery to new highs. Ireland is funded until mid-2011 but the rising borrowing costs are unsustainable over the medium term and are putting mounting pressure on Cowen