20 December 2013

EUobserver: S&P downgrades EU's rating

"In our opinion, the overall creditworthiness of the now 28 European Union Member States has declined", Standard&Poor's said in a note to investors. The agency noted that "EU budgetary negotiations have become more contentious, signalling what we consider to be rising risks to the support of the EU from some Member States".

European Commission chief José Manuel Barroso dismissed the rating downgrade. "We have no deficit, no debt and also very strong budget revenues from our own resources. We disagree with this particular ratings agency", the top official said in a press conference at the end of the EU summit. "We think the EU is a very credible institution when it comes to its financial obligations", Barroso added.

In a statement, VP Rehn said: "The Commission underlines that the EU rating with the two other major rating agencies Fitch and Moody's is AAA. The Commission's view is that the EU credit rating should be essentially assessed on its own merits, due to the special Treaty based status of the EU budget (without deficit or debt), the very strong budget revenues from EU Own Resources and the Treaty obligation from the 28 Member States to always balance the EU Budget.

The Commission disagrees with S&P that MS obligations to the Budget in a stress scenario are questionable. All MS have always and also throughout the financial crisis provided their expected contributions to the budget in full and in time."

German Chancellor Angela Merkel said the EU had actually shown "capacity to act" as it managed to get a deal and have a multi-annual budget on 1 January 2014. EU Council chief Herman Van Rompuy downplayed the S&P decision. "The downgrade will not spoil our Christmas", he said.

But other leaders were more cautious. Swedish Prime Minister Fredrik Reinfeldt said the downgrade was "something the EU as a whole has to take on board". "It can influence investments in Europe", he said. Italian Prime Minister Enrico Letta said the decision should not be ignored, as it showed that Europe has not yet overcome the economic crisis.

The ratings agency may further downgrade the eurozone bailout fund (ESM), after it stripped it of its top rating in January.

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