Socialist Hungary wants to 'reign in spending'

Ireland, Hungary raise fresh European concerns

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Grace Wong, contributor, On Monday July 19, 2010, 6:05 am

Fresh concerns over Europe's debt problems surfaced Monday after Ireland's debt rating was downgraded and talks between Hungary and the International Monetary Fund reached an impasse.

Moody's Investors Service cut Ireland's government bond ratings to Aa2 from Aa1 on Monday, citing weakening growth prospects and mounting debt.

The downgrade was "primarily driven by the Irish government's gradual but significant loss of financial strength, as reflected by its deteriorating debt affordability," said Dietmar Hornung, Moody's lead analyst for Ireland.

The financial services segment has taken a big hit in Ireland since 2008, which has led to a sharp decline in tax revenue. According to Moody's, Ireland's government debt-to-GDP ratio reached 64% at the end of last year and is still rising.

Ireland is one of the troubled European economies known collectively as the PIIGS. The group also includes Portugal, Italy, Greece and Spain.

Meanwhile, the leader of an IMF mission to Hungary said over the weekend that while negotiators had conducted intense talks with authorities, "a range of issues remain open" and that the team would be returning to Washington.

The IMF mission, led by Christoph Rosenberg, had been in Hungary for the past two weeks to discuss terms related to the $25 billion in aid Hungary accepted in 2008 from the International Monetary Fund and European Union.

In a statement on Saturday, the IMF said Hungary needed to do more to achieve its target of having a fiscal deficit below 3% of gross domestic product in 2011.

Rosenberg said "difficult decisions" would need to be made and called for the country to rein in spending and restructure state-owned enterprises.