Standard & Poor’s, or S&P, cut its credit rating for the European Union, citing weak links between member nations in the group and rising tensions on austerity measures, signaling more trouble for the region that has seen mixed results so far in its efforts to escape from the clutches of slowing growth and recession.
S&P cut its long-term rating on the EU to AA+ from AAA and retained its short-term rating at A-1+, with both outlooks as “stable,” the company said in a statement, adding that recent rating cuts on several member countries including France, Italy and Spain, had affected the overall rating of the EU. The average rating of net contributors to the EU budget has dropped to AA from AA+ since January 2012, when S&P had revised its outlook on the long-term EU rating to negative, the company said.
“The downgrade reflects our view of the overall weaker creditworthiness of the EU’s 28 member states,” S&P said, according to a Reuters report. “We believe the financial profile of the EU has deteriorated and that cohesion among EU members has lessened…In our opinion, 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."
In January 2012, S&P had lowered its long-term rating on Italy, Cyprus, Portugal and Spain by two notches, and cut its rating on Austria, France, Malta, Slovakia and Slovenia by one notch. Germany was the only country in the euro zone that remained unaffected by the downgrade, and had retained its AAA rating with a stable outlook at the time.
Stoxx Europe 600 Index opened up 0.3 percent on Friday while the euro fell to $1.3626 -- its lowest in two weeks -- after the news.