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The European Financial Stability Facility (EFSF), the main bailout fund that finances Ireland’s spending, managed to raise €1.5bn in the money markets this week despite a ratings downgrade.

The EFSF borrowed the amount in six-month IOUs or ‘bills’ (very short-term bonds) at an auction managed by German officials.

The fund paid an interest rate of just 0.2664 per cent despite ratings agency Standard & Poor’s downgrading its long-term credit rating from AAA to AA+.

An EFSF spokesperson said the €1.5bn raised was part of an emergency fund to cope with any sudden request for financing from countries such as Ireland or Portugal, its only current borrowers. It added that it could also be used if another European country needed cash for its banking sector.

Should Ireland draw down any of the newly raised cash, the Government here will have to pay just 0.1 per cent extra in interest.

But sources here say Ireland would look to borrow for much longer than six months forcing the EFSF back to the markets to replace its six-month borrowings with long-term bonds to match the Government’s needs.

The EFSF was never supposed to borrow over such short terms. The decision to do so was made after a bond deal was cancelled at short notice back in November when money markets shut down to almost all borrowers.

This November crisis left bailout officials extremely concerned about the need to have cash available for Ireland and Portugal at all times. Since then, the EFSF has used short-term bills to ensure this.

The deal was seen as a success in the markets where investors bid to buy three times more of the bonds than were actually sold.

But the EFSF’s future itself is in doubt anyway as it is due to be replaced by a more permanent arrangement in July. Some officials have argued that the EFSF should be kept running alongside the new rescue fund at least until 2014.

This would result in two large bailout funds being available which in theory could circumvent the €500bn limit that Germany insists it’s prepared to see committed to rescuing the euro.

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