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DBRS confirms ESM and EFSF long-term issuer ratings at AAA, with stable trend

DBRS Ratings GmbH (DBRS Morningstar) confirmed the European Stability Mechanism’s (ESM) Long-Term Issuer Rating at AAA and Short-Term Issuer Rating at R-1 (high).

In a press release, it said that the trend on both ratings is Stable.

In addition, it confirmed the European Financial Stability Facility’s (EFSF) Long-Term Issuer Rating at AAA and Short-Term Issuer Rating at R-1 (high). The trend on both ratings is also Stable.

DBRS Morningstar notes that the strong increase in inflationary pressures and the subsequent tightening of monetary conditions have weighed on private consumption and particularly housing investment.

Furthermore, it says that the increases in policy rates by the European Central Bank (ECB) have been accompanied by a moderate divergence in financing costs for Euro area governments, the extent of which, however, has so far been clearly below the levels seen during the crisis years 2011 and 2012.

"DBRS Morningstar will monitor potential divergences in economic, fiscal and debt positions across European countries, particularly if they were to lead to lower cohesion. Perceptions of greater divergences may give rise to further Euroscepticism and could bring new challenges to additional European integration" it notes.

Noting that ESM is an essential tool of Euro Area policymakers for fostering cohesion it says that it expects the commitment of European policymakers towards the Monetary Union and economic cohesion in EU economies to remain very high.

This commitment was exemplified in the past by substantial support measures during the Euro area sovereign debt crisis about a decade ago and the COVID-19 pandemic, it continues.

DBRS Morningstar says it continues to assess the commitment of core guarantors to support the EFSF as very strong.

"The EFSF has been an integral part of a broader policy response to the Euro area sovereign debt crisis about a decade ago, and an illustration of the commitment of member states to preserve the Monetary Union".

Given the importance of the mandate of the EFSF, DBRS Morningstar continues to believe that its guarantors are highly likely to meet their obligations and provide support to the institution in a stress scenario.

CNA/AAR/AGK/2023

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