Moody's snubs Europe as it slashes Ireland's rating

Ratings agency Moody's gave an emphatic thumbs-down yesterday to Europe's efforts to resolve a debt crisis, slashing Ireland's credit rating as EU leaders took no new action to prevent market turmoil spreading.

Moody's cut Ireland's rating by a stunning five notches during a European Union summit meant to restore confidence in the eurozone by creating a permanent financial safety net from 2013 and vowing to do whatever it takes to protect the euro.

The ratings agency cut Ireland's rating to Baa1, two notches above "junk", with a negative outlook from Aa2 and warned further downgrades could follow if Dublin was unable to stabilise its debt situation, caused by a banking crash after a decade-long property bubble burst.

Dublin-based Glas Securities said: "While a downgrade had been anticipated, the severity of the downgrade is surprising."

The blow to investor confidence came as the 27 leaders failed to agree any specific measure to stop contagion spreading from Greece and Ireland, which have received EU/IMF bailouts, to other high-deficit countries such as Portugal and Spain.

The leaders spurned calls for immediate practical steps such as increasing the size of a temporary bailout fund or allowing it to be used more flexibly to buy bonds or open credit lines before troubled countries are shut out of the credit markets.