After Moody's cut Portugal to junk status last week, it made the same move yesterday as it cut Ireland's credit rating to junk warning that the country might need a second bailout, explaining that any further assistance from Brussels will need the participation of the private investors through a debt rollover or swap.
Moody's now rates Ireland Ba1 which is one notch above Portugal and six above Greece , keeping the negative outlook, which means further downgrades are possible in the next 12 to 18 months. Although S&P and Fitch ratings have Ireland at BBB+, this move by Moody's might put pressure on other ratings.
The European finance ministers have realized that some form of Greek default may be needed to cut Athens's debts and stop the contagion, especially Italy (the third largest economy) as it looks vulnerable with a debt-to-output ratio right after Greece.
The economic growth in the European region has been sluggish amid the mounting debt costs and the tough austerity measures which slowed growth further, creating a vicious cycle in which the tax revenues drops, making it hard on them to repay the debts. Fears that heavily indebted euro zone governments won't be able to repay the debts the more the higher the yields, pressuring banks balance sheets and also preventing debt-laden nations from accessing capital markets on higher borrowing costs.