Michael McGrath (Cork South Central, Fianna Fail)
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Question 77: To ask the Minister for Finance his views on the implications for Ireland's funding programme of any possible change in the credit rating of the European Financial Stability Facility; and if he will make a statement on the matter. [3216/12]

Michael Noonan (Limerick City, Fine Gael)
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On Monday January 16th 2012, Standard & Poor's (S&P) announced the downgrade of the EFSF long term rating to AA+.

S&P's downgrade of EFSF's long term rating had been signalled in advance and was not a surprise. The financial markets have already priced in such a development for the EFSF. EFSF issuance has been pricing in line with French yields as opposed to German yields. The EFSF continues to be assigned the best possible credit rating by Moody's (Aaa) and Fitch (AAA), underlining its solidity. Neither rating agency has indicated any rating action for EFSF in the immediate future. Clearly, it would be preferable for the EFSF to maintain the highest rating with all agencies.

I note that Mr Klaus Regling, the CEO of the EFSF, has indicated that the S&P's decision will not reduce the EFSF's lending capacity of €440 billion. The EFSF has sufficient means to fulfil its commitments under current and potential future adjustment programmes and will continue to be backed by unconditional and irrevocable guarantees by Euro Area Member States

The EU Heads of State or Government (HoSG) decided on 9 December 2011 to advance the introduction of the permanent stability mechanism, the ESM, to July 2012. The ESM will have its own capital base and thus be less affected by ratings of Euro Area Member States. The adequacy of the overall lending ceiling of the EFSF/ESM of EUR 500 billion will be reassessed by March 2012.

There is no risk to the commitment to fund Ireland's programme. The commitments from the EFSF to provide total funding of €17.5 billion in funding remain in place. The EFSF has already successfully undertaken two short term funding auctions, one of which was after the downgrade.

The EFSF raised €1.5 billion in 6 month bills at an auction on Tuesday 17th January 2012 – at an annual rate of 0.2664%. There was strong interest in the auction with a bid cover ratio of 3:1. Some €0.48 billion of this is to be provided to Ireland.

In December 2011, the EFSF raised close to €2 billion (€1.971 billion of 3 month bills) at an annual interest rate of 0.222% of which some €1 billion was provided to Ireland.

For Ireland, the guarantee commitment fee of 0.1% is added to these amounts to bring the cost up to 0.3664% and 0.322% respectively. These yields are at similar levels to French yields on similar maturities.