EU officials slam S&P after ratings downgrade
Brussels, December 21, 2013
Credit agency Standard & Poor's has cut its triple-A rating of the European Union by one notch, saying it had concerns about how the bloc's budget was financed, a view EU leaders and other officials dismissed as misguided.
S&P yesterday also affirmed the UK's long-term sovereign rating at AAA/A-1+, saying the outlook was still negative.
It affirmed Ireland's long-term sovereign rating at BBB+/A-2 with the outlook remaining positive.
The ratings agency said the UK government continued to benefit from its "exceptional monetary flexibility", while the economy was recovering on the back of private consumption and residential investment.
The outlook, however, remained negative, reflecting risks to the sustainability of that growth, S&P said.
In Ireland, the ratings agency expects the government to reduce its debt burden through budgetary consolidation and asset sales, as the domestic economy improves. That will allow the country to exit the EU/IMF programme and maintain access to capital markets.
S&P's announcement came the day after the EU reached a deal to overhaul the region's banking sector, an agreement many commentators said fell short of expectations, although S&P said it had not factored into its credit assessment.
"In our opinion, the overall creditworthiness of the now 28 European Union member states has declined," the rating agency said in a statement that came 11 months after it announced it had a 'negative' outlook on the bloc.
"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 officials said they were not surprised by the move to AA+ since S&P recently downgraded the Netherlands and has lowered its view on six other member states - France, Italy, Spain, Malta, Slovenia and Cyprus - in the past year.
But they pointed out that the EU has no debt or deficit to speak of and its budget is a stand-alone entity financed by 28 countries, making it one of the most stable institutions and most reliable borrowers in the world.
"We must put it in perspective," Belgian Prime Minister Elio di Rupo said as he arrived for an EU summit in Brussels. "It's just an opinion."
Italian Prime Minister Enrico Letta said the decision shouldn't be ignored and showed that Europe's economic crisis was not yet over. Others were more withering in their reaction, questioning the expertise of S&P and other ratings agencies, which have been critical of the EU throughout a four-year debt crisis.
"I've met some of the so-called experts from the ratings agencies and really you have to wonder. What have they got right?" asked one senior official with knowledge of the EU budgetary process. "Two years ago they were saying Greece would end up leaving the euro zone. They were completely wrong. Shouldn't they have to acknowledge their mistakes?"
Others questioned whether S&P understood the financial underpinnings of the EU budget, which is administered by the European Commission, saying it should be assessed independently, not as the average of 28 countries' ratings.-Reuters