Friday, Moody's Investors Service placed Ireland's Aaa government bond ratings on review for possible downgrade.

Today's rating action reflects the severe economic adjustment taking place in Ireland, which threatens to undermine the country's low tax, financial services-driven economic model, said Dietmar Hornung, a vice president-senior analyst in Moody's Sovereign Risk Group. The government's debt affordability metrics will probably be lastingly impaired.

Moody's said scopes for the Irish authorities to restore the country's economic and financial stability are limited at this point, though they are proactive to the extent possible.

Moody's also recognized that Ireland is not alone in seeing a sharp deterioration in credit metrics, but the country is constrained by the small scale of its economy and the erosion of its dynamic core relative to larger Aaa countries that have similar structural challenges.

Accordingly, Ireland has lost both economic and government financial strength relative to its Aaa peers over the past year, Hornung said.

Hornung noted that actions of the National Asset Management Agency, or NAMA will merely convert an off-balance sheet exposure of the government into an on-balance sheet liability and have only a limited impact on its net debt. Still, the now-crystallised bank liabilities significantly exceed earlier estimates. The NAMA have the power to acquire bank assets without management and shareholders' agreement if deemed necessary.

Further, Moody's said its rating review will focus on whether Ireland is able to stabilise debt affordability at a level compatible with a Aaa rating without endangering the prospects for a robust economic recovery.

Moody's previous rating action on Ireland was implemented on 30 January 2009, when the rating agency changed the outlook on the country's Aaa ratings to negative from stable.

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