European Union credit rating slips from AAA
European Union credit rating with Standard and Poor’s slipped from AAA to AA+. After taking into account the deteriorating creditworthiness of several EU Member States and how the budget was financed, Standard and Poor’s (S&P) lowered the status of the whole economic bloc by one notch.
In a statement , S&P wrote:
“In our opinion, the overall creditworthiness of the now 28 European Union member states has declined. 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.”
Investors say the change in the EU’s rating is largely symbolic, because most debt is issued by member states and not the economic bloc as a whole.
The EU’s long-term rating is now AA+, while its short term rating is A-1+.
European credit rating change not the only one
In November the Netherlands lost its AAA rating. Several other EU countries have recently lost their AAA status, including the United Kingdom and France. The only member states maintaining a AAA rating are Finland, Luxembourg and Germany.
The United States lost its S&P AAA rating in 2011.
According to Bloomberg Businessweek, “Investors often ignore ratings.” In 2012, sovereign securities yields moved against the current as far as ratings were concerned in over half of 32 upgrades, downgrades and changes in creditworthiness.
Downgrade annoyed leaders and officials
In a summit of EU leaders in Brussels today, French President Francois Hollande said the European Union credit rating slip “changes nothing.”
Olli Rehn, European commissioner for economic and monetary affairs, said “The commission disagrees with S&P that member states’ obligations to the budget in a stress scenario are questionable. All member states have always, and also throughout the financial crisis, provided their expected contributions to the budget in full and in time.”
The Financial times quotes an EU official who accused S&P of not understanding the EU and politicizing the ratings process by generally announcing changes in ratings during important EU summits.
The EU official said “They don’t understand the EU. The EU is one of the only entities in the world that has no deficit, has no debt. Our debt is zero.” The EU is forbidden from running a deficit.
According to The Telegraph, the European Union credit rating downgrade is partly due to British Prime Minister David Cameron’s referendum promise regarding staying or leaving the EU and increased squabbling in Brussels over spending.