Is the US next? The Dublin-based Economic & Social Research Institute on July 14 forecast that the deficit may widen to 19.8 percent of GDP this year, in part because of government pledges to inject 13 billion euros ($16.9 billion) into two banks. Currently the total debt to GDP ration is worse in the US than in Ireland.

By Louisa Fahy at Bloomberg.com

Ireland had its credit rating cut one level at Moody’s Investors Service, which cited a “significant loss of financial strength” and the cost of bank bailouts.

The company lowered Ireland to Aa2 from Aa1 and moved the country to a “stable” from a “negative” outlook, it said today in a statement. Ireland lost its top rating at Moody’s in April 2009. Irish bonds fell after the downgrade.

The euro has fallen 10 percent versus the dollar this year on concern that widening budget deficits in countries including Ireland, Spain and Greece could lead to a default. While Irish Finance Minister Brian Lenihan said last week that the country’s fiscal position is “stabilizing”, the cost of aiding the banking industry is adding to pressure on the public finances even as the economy emerges from recession.

“It’s a gradual, significant deterioration, but not a sudden, dramatic shift,”Dietmar Hornung, Moody’s lead analyst for Ireland, said in a telephone interview. Overall, “we have a constructive view. We agree Ireland has turned the corner.”

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