S&P strips European Union of top credit rating

PanARMENIAN.Net - The European Union lost its top credit rating from Standard & Poor’s, which cited the deteriorating creditworthiness of the bloc’s 28 member nations, Bloomberg reports.

S&P cut its long-term rating on the EU to AA+, with a stable outlook, from AAA and maintained its short-term rating at A-1+. The downgrade came after S&P last month lowered its AAA rating on the Netherlands.

S&P said that “downward pressure could build” if the creditworthiness of highly rated EU countries “was to deteriorate beyond our current expectations,” if future budget negotiations are “more protracted and acrimonious,” if member states apply to leave the EU, “or if its financial parameters markedly deteriorate,” according to an e-mailed statement.

Ratings remain under pressure more than four years after the outbreak of the European debt crisis, which led the EU to offer emergency financing to Greece, Ireland, Portugal, Spain and Cyprus to shore up their bonds and banks. European Central Bank President Mario Draghi’s pledge to do what it takes to save the euro has helped stabilize debt markets, while deficits and debt in most euro-area countries remain well above the limits set for membership in the single currency.

The EU budget is financed by contributions from the 28 member states and not EU-wide bond sales, and its credit rating is based on the perceived sovereignty of its members. There is little risk that the EU will not be able to access capital markets, S&P said.

A lack of cohesion and solidarity among EU member states, particularly regarding the budget process, poses a credit risk, S&P said in a statement.

“EU budgetary negotiations have become more contentious, signaling what we consider to be rising risks to the support of the EU from some member states,” the ratings company said.

The European Commission, the EU executive in Brussels, “disagrees with S&P that Member State obligations to the budget in a stress scenario are questionable,” EU Economic and Monetary Affairs Commissioner Olli Rehn said in a statement. “The commission underlines that the EU rating with the two other major rating agencies, Fitch and Moody’s, is AAA.”

The EU countries that make the biggest contributions to the bloc’s budget have been pushing for reductions in their shares, while the UK plans a referendum on whether to remain a member of the bloc.

This is “the first time in the EU’s history that a sitting government has proposed such a step,” S&P said. “Although this potential plebiscite is set for 2017, the UK general elections are expected in 2015 and we expect EU membership to be a key debate.”