So, the next domino falls in the Pan-European Sovereign Debt Crisis. As has been the casse for much of the Asset Securitization Crisis and the Pan-European Sovereign Debt Crisis, the ratings agencies have arrived to smoldering pile of ashes littered with charred bones and remnants of the putrid smell of burnt flesh with a fire hose and a megaphone yelling "Get out! We have word there may be a fire here!"

From Bloomberg: Ireland Debt Rating Cut to Junk, Adding Pressure for EU to Contain Crisis:

Ireland joined Portugal and Greece as the third euro-area nation to have its credit rating reduced to below investment grade as European Union finance ministers struggle to contain the region’s sovereign-debt crisis.

Moody’s Investors Service cut Ireland to Ba1 from Baa3, citing the probability that the country, which received a bailout last year, will need additional official financing and for investors to share in losses before it can return to the private market to borrow. The outlook remains “negative,” Moody’s said in a statement late yesterday.

Irish bonds dropped for a sixth day today after the downgrade, which came after European finance ministers failed to present a solution to the contagion that’s threatening to spread to Italy from the so-called peripheral euro-area states. Ireland’s debt agency said the downgrade will make it “more difficult” for Ireland to return to the market next year.

While Ireland “has shown a strong commitment to fiscal consolidation and has, to date, delivered on” the terms of its bailout, “implementation risks remain significant,” Moody’s said in the statement.

Irish 10-year bonds fell, pushing the yield on the debt up 31 basis points to 13.65 percent. The premium over German bunds widened 32 basis points to almost 11 percent. Italian yields were at 5.47 percent after surging above 6 percent earlier this week. The euro, which dropped to a four-month low against the dollar yesterday, rose 0.5 percent to $1.4049 as of 9:06 a.m. in London.

Debt Markets

Irish Finance Minister Michael Noonan had said he hoped to be able to sell debt again next year. That may now be less likely, according to the country’s debt agency.

“The action by Moody’s will make it more difficult for Ireland to access the market next year, that is certainly the case,” Oliver Whelan, head of funding at the National Treasury Management Agency in Dublin, said on RTE radio today. “Ireland does deserve a higher than junk status from the agencies.”

Ireland, which had a top Aaa rating just over two years ago, has suffered after a real-estate boom collapsed, fueling bank bailouts and a surge in the country’s debt.

As he tries to regain the confidence of investors, Noonan said this month that he may seek a bigger budget correction than the 3.6 billion euros ($5.1 billion) planned for 2012 to ensure deficit targets are met. In Spain, Finance Minister Elena Salgado said yesterday the nation might need to endure even deeper spending cuts next year than currently planned.

‘Evolving Approach’

The NTMA said in a statement that “the situation in the euro area is evolving rapidly” and noted that Moody’s cited the decision was “primarily driven by their concern about the prospect of private investor participation in future financial support programs in the euro area.”

European finance ministers have discussed a plan to roll over Greek debt with the participation of private bondholders. Ratings companies had said that could be a “selective default,” something that the European Central Bank opposes.

“In the end, these kind of discussions and the evolving approach just reflect uncertainties that weigh on the creditworthiness of countries that are dependent currently on support,” Dietmar Hornung, a senior credit officer with Moody’s in Frankfurt, said in a telephone interview yesterday. “We also decided to keep the negative outlook just to reflect the implementation risk, but also to reflect the shifting tone among EU governments toward the conditions under which support to a distressed euro-area sovereign will be made.”

Irish Bailout

Ireland was forced to seek an 85 billion-euro rescue from the European Union and the International Monetary Fund in November as a banking crisis overwhelmed the government.

The European Commission in Brussels said the downgrade “contrasts very much” with recent economic data and the “determined implementation of the program by the Irish government.” The Irish program is “fully on track,” it said.

Moody’s rationale for cutting Ireland echoed its review of Portugal, which was lowered to junk on July 5. European leaders may hold an extraordinary summit in two days in another attempt to stem the debt crisis, Greek Finance Minister Evangelos Venizelos and Irish Prime Minister Enda Kenny said separately yesterday.

Standard & Poor’s cut Ireland’s rating one level to BBB+ with a “stable” outlook on April 1. Fitch Ratings affirmed Ireland’s BBB+ rating on April 14 and removed it from “rating watch negative.” It said the outlook is negative. Both firms’ ratings are three levels above junk.

Ireland’s debt will rise to 118 percent of GDP in 2012 from 25 percent at the end of 2007, the European Commission has forecast. Taxpayers have pledged as much as 70 billion euros to shore up the country’s debt-laden financial system.

“Things need to get worse before they get better,” said Steven Lear, deputy chief investment officer at J.P. Morgan Asset Management’s Global Fixed Income Group in New York, who helps oversee $130 billion in assets. “There has to be a lot of pain before the alternative of pain seems palatable.”