Ireland downgraded, with economy to dominate election battle

The firm blamed its decision on Ireland's crippled banking sector, warning that the Irish government may have to inject even more money into the nation's banks if the wider economy weakens further.

Plans to restore growth and the terms of Ireland's recent €85 billion EU-IMF bail-out look set to dominate the political debate ahead of legislative elections on 25 February.

Prime Minister Brian Cowen of the populist Fianna Fail party finally succumbed to months of pressure on Tuesday, calling for the dissolution of parliament and setting the election date.

The opposition centre-right Fine Gael party topped an opinion poll on Wednesday at 30 percent, with the centre-left Labour party coming in second place at 24 percent. The two are widely forecast to form a coalition after the elections. Fianna Fail have the support of 16 percent, as does Sinn Fein, largely on the back of its outright rejection of the EU-IMF austerity package.

Fine Gael leader Enda Kenny was in Brussels last Friday to speak to European Commission President Jose Manuel Barroso. The Irish politician expressed his desire to see a reduction in the roughly six percent interest rate currently being charged on the country's international aid package.

Germany has been the driving member state behind the setting of high interest rates, arguing that lower borrowing costs could reduce incentives for governments to put their economies in order.

Chancellor Angela Merkel appears to have softened her position in recent weeks however, although German officials insist any interest rate reduction must be part of a wider package of economic reforms.

France and Germany are expected to present EU leaders meeting in Brussels this Friday with their plans for closer 'economic government' in the eurozone, although subsequent negotiations are likely to last several weeks.

A final deal could be struck at an EU summit on 24-25 March, with rumours of an extraordinary meeting of EU leaders prior to that date.

Plans to boost economic growth and ensure budgetary discipline are among the topics expected in the Franco-German plan.

Proposals for constitutional 'debt-brakes' in the different member states, as well as widespread pension reform may also be included.