Fergus O'Dowd (Louth, Fine Gael)

Before I outline the purpose and contents of the Bill, I would like to thank the Seanad for agreeing to discuss and consider all Stages of the European Financial Stability Facility and Euro Area Loan Facility (Amendment) Bill 2011 today at short notice. Although a fairly technical Bill, it is of critical importance to the public finances and to our economy. Enactment of the Bill is required to allow Ireland to ratify the changes to the European Financial Stability Facility that were agreed by the Heads of State or Government on 21 July 2011 as well as earlier changes to the Greek loan facility. The changes agreed to the European Financial Stability Facility framework agreement, which I will go through shortly, are viewed by the Government and the other euro area member states as essential for ensuring financial stability within the euro area.

As Senators will be aware, euro area member states agreed in May 2010 to create a European Financial Stability Facility, EFSF, in order to financially support euro area member states which are in difficulties caused by exceptional circumstances beyond their control. The EFSF was incorporated on 7 June 2010 for the purpose of providing stability support to such euro area member states in the form of loans of up to €440 billion. The EFSF can only advance loans up to the end of June 2013. After that, the new European Financial Stabilisation Mechanism or EFSM will take over.

In order to ensure that the EFSF secured a triple A rating and thereby borrow at the lowest possible interest rates, certain complex structures known collectively as credit enhancement measures were adopted. These involved the over-guarantee of bonds, cash buffers and the prepayment of margins on loans. A major effect of these measures was to reduce the effective lending capacity to some €250 billion, and they also increased the effective cost of borrowing for borrowers.

Ireland received one loan from the EFSF on 1 February this year worth €4.2 billion. The term of the loan is five and a half years, which means it will mature in July 2016. The total amount available to be disbursed to Ireland from the EFSF under the EU-IMF programme is €17.7 billion.

At the end of June 2011, euro area Ministers for Finance signed an amendment to the European Financial Stability Facility Framework Agreement, subject as usual to national ratification. The main purpose of the June 2011 amendment agreement is to increase the effective lending capacity of the EFSF back up to its headline volume of €440 billion from its effective capacity of €250 billion.