EFSF DOWNGRADE COULD HIT IRISH INTEREST COSTS - The credit rating agency Standard & Poor's has cut its credit rating on the European Financial Stability Facility, the euro zone's rescue fund. S&P's said the decision was all but inevitable following the weekend cuts to the creditworthiness of France and Austria, which were two of the EFSF's guarantors. The EFSF was set up by the 17 euro zone governments in May 2010 and has so far been used to provide emergency loans to Ireland and Portugal. It is also expected to contribute to a second bail-out of Greece.
Charles Forelle at the Wall Street Journal in Brussels says that investors will be less interested in the EFSF now that it has lost its triple A status and so the fund could find it harder to raise money. He says the fund will need a lot of money for Greece in the near future. If Greece succeeds in reaching a critical debt writedown with private creditors, it may need up to €30 billion to be used as a sweetener as part of the deal. If the country fails to reach a deal, then it will need a lot more to prop up the country. Mr Forelle says that ''stark'' disagreements continue between Greece and its creditors.
Mr Forelle also says that any extra costs the EFSF will experience as a result of the downgrade will be passed on to Ireland as these extras will be written into our loan costs. He says the downgrade really displays the difficulties of the European strategy for the debt crisis as up to now it was relying on the strong countries to help out the weaker ones. But pointing to the example of France, he says the borders between the strong and the weak is constantly changing which makes the strategy very difficult to execute.
On the euro, Mr Forelle says that the single currency has held up surprisingly well over the last 18 months. But he says that all the signals are pointing to a continued weakening of the euro, especially if the ECB continues to cut euro zone interest rates.
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MORNING BRIEFS - Drinks group C&C says it expects its full year operating profit to be €110m - within the range of its previous guidance. In a trading update, it says trading over the Christmas period was positive, with Bulmers and Magners volumes up by 1% on last year. Magners sales were up by 5.8% by volume in the three months to November 30. The statement also says that Bulmers' net revenue remains under pressure from a weak pub trade, an increase in promotional pricing in the Irish off licence trade and continuing momentum in beer in Ireland.
*** Japanese bank Sumitomo has agreed to pay $7.3 billion for Dublin-based RBS Aviation - Royal Bank of Scotland Group's aircraft leasing business. This is RBS' biggest disposal since it got the £45 billion sterling bailout from the British government. Sumitomo will gain control of a fleet of 206 aircraft, with commitments to buy another 87 by 2015.
*** On the currency markets this morning the euro is trading at $1.2728 cents and 82.81 pence sterling.
