EU threatened with downgrade ahead of key summit
by Daniel Mason
08 December 2011
Standard & Poor's, which earlier this week threatened to downgrade the credit ratings of 15 eurozone countries, has today put the European Union itself on CreditWatch negative ahead of a crucial summit of EU leaders in Brussels today and tomorrow – at which the future of the single currency is at stake.
The rating agency said the EU's triple-A rating was at risk of being lowered by one notch because eurozone countries, most of which were put on review on Monday, contribute about 62 per cent of the bloc's budgeted revenues in 2011 and it is dependent on national finances. It said its review would focus on the ability of euro area counties to support the EU's debt service in a period of financial distress.
In a statement, S&P said the move was "in the context of what we view as deepening political, financial and monetary problems" in the eurozone. It noted that top-rated Germany and France, both on review for downgrade, provide 32 per cent of the EU's budgeted revenues, and triple-A countries overall contribute 49 per cent.
Of those countries, only non-eurozone members the United Kingdom, Sweden and Denmark retain a stable outlook on their rating. But together they contribute only 13 per cent of the EU' budgeted revenues. Overall 17 EU member states are currently on review for downgrade. It has also said a number of large eurozone banks, including the likes of BNP Paribas and Deutsche Bank, are at risk of a rating cut.
If Germany and France, as the largest contributors, are downgraded following the review of eurozone ratings, the EU itself would likely have its credit score lowered, S&P said. It added that a decision on individual eurozone countries would be made as soon as possible after the summit and the review of the EU concluded afterwards.
Today the leader of the Socialists and the Democrats in the European Parliament, Martin Schulz, launched a blistering attack on rating agencies in a letter to European Commission president José Manuel Barroso. In it, he said it was remarkable how downgrade threats always appeared just ahead of a European summit. "In my opinion this is not a coincidence but a clear attempt by the rating agencies to put even greater pressure on Europe."
He added: "I call on you to take action against the monopolistic and anti-competitive behaviour of these rating agencies. I also request the European Securities and Markets Authority, as the supervisory authority for all credit rating agencies registered in the EU, to investigate the latest ratings regarding EU member states and their compliance with the current EU legal framework." The EU recently proposed new regulations for rating agencies.
Meanwhile China's Dagong agency today cut France's credit rating from AA- to A+ with a negative outlook because the economic slowdown was worse than expected and growth would be sluggish in the medium-term, it said. It said the external risks posed by the eurozone crisis "undermine the solvency of the French government". Yesterday Dagong cut Italy's rating because of its reliance on the European Central Bank buying its bonds.
The rating agency said the EU's triple-A rating was at risk of being lowered by one notch because eurozone countries, most of which were put on review on Monday, contribute about 62 per cent of the bloc's budgeted revenues in 2011 and it is dependent on national finances. It said its review would focus on the ability of euro area counties to support the EU's debt service in a period of financial distress.
In a statement, S&P said the move was "in the context of what we view as deepening political, financial and monetary problems" in the eurozone. It noted that top-rated Germany and France, both on review for downgrade, provide 32 per cent of the EU's budgeted revenues, and triple-A countries overall contribute 49 per cent.
Of those countries, only non-eurozone members the United Kingdom, Sweden and Denmark retain a stable outlook on their rating. But together they contribute only 13 per cent of the EU' budgeted revenues. Overall 17 EU member states are currently on review for downgrade. It has also said a number of large eurozone banks, including the likes of BNP Paribas and Deutsche Bank, are at risk of a rating cut.
If Germany and France, as the largest contributors, are downgraded following the review of eurozone ratings, the EU itself would likely have its credit score lowered, S&P said. It added that a decision on individual eurozone countries would be made as soon as possible after the summit and the review of the EU concluded afterwards.
Today the leader of the Socialists and the Democrats in the European Parliament, Martin Schulz, launched a blistering attack on rating agencies in a letter to European Commission president José Manuel Barroso. In it, he said it was remarkable how downgrade threats always appeared just ahead of a European summit. "In my opinion this is not a coincidence but a clear attempt by the rating agencies to put even greater pressure on Europe."
He added: "I call on you to take action against the monopolistic and anti-competitive behaviour of these rating agencies. I also request the European Securities and Markets Authority, as the supervisory authority for all credit rating agencies registered in the EU, to investigate the latest ratings regarding EU member states and their compliance with the current EU legal framework." The EU recently proposed new regulations for rating agencies.
Meanwhile China's Dagong agency today cut France's credit rating from AA- to A+ with a negative outlook because the economic slowdown was worse than expected and growth would be sluggish in the medium-term, it said. It said the external risks posed by the eurozone crisis "undermine the solvency of the French government". Yesterday Dagong cut Italy's rating because of its reliance on the European Central Bank buying its bonds.
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Without a dramatic weakening of its macroeconomic position the UK's AAA rating should be safe despite Moody's decision to put the country on negative outlook – writes Costas Milas
Without a dramatic weakening of its macroeconomic position the UK's AAA rating should be safe despite Moody's decision to put the country on negative outlook – writes Costas Milas
