Juncker Unconcerned By EFSF Downgrade

by Ulrika Lomas, Tax-News.com, Brussels

19 January 2012

Luxembourg’s Prime Minister and President of the Eurogroup Jean-Claude Juncker has recently issued a statement concerning the decision by Standard and Poor’s to downgrade the credit rating of the European Financial Stability Facility (EFSF) from triple A to AA+, following the rating action of January 13 pertaining to a group of eurozone member states.

In the statement, Juncker insists that the EFSF continues to be assigned the best possible credit rating by both Moody’s and Fitch (triple A), underlining its solidarity, and notes that neither rating agency has indicated any rating action for EFSF in the immediate future.

The Eurogroup President states that: “S&P’s decision will not reduce EFSF’s lending capacity of EUR440bn (USD564bn). 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”.

He adds: “Heads of state or government decided on December 9, 2011 to advance the introduction of the permanent stability mechanism ESM to July 2012. The ESM will have its own capital base and thus be less affected by ratings of euro area member states.”

Juncker ends: “The adequacy of the overall lending ceiling of the EFSF/ESM of EUR500bn will be reassessed by March 2012.”

Following the recent decision by ratings agency Standard and Poor’s to downgrade the credit ratings of nine eurozone member states, including crucially France and Austria, German Chancellor Angela Merkel underlined the need to rapidly implement the planned fiscal pact, agreed in December.

Warning that the budgets of eurozone countries must quickly be placed on a more solid footing, the Chancellor underscored that the fiscal pact must now be implemented swiftly, without being watered down. The latest decision by the credit ratings agency has made it clear that Europe still has a long road ahead to regain the confidence of investors, Merkel pointed out.

During a European Union (EU) summit meeting in Brussels in December, plans to conclude a new treaty on fiscal union were agreed by the 17 eurozone states and by the other members of the European Union, with the exception of the UK.

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