Standard & Poor’s rating agency today downgraded the European Union by a notch to AA from AA+ and has placed the region under stable outlook from the previous negative status. The move highlights the political and economic pressures facing Europe along with the UK.
According to a statement issued by S&P, the move reflected weakening political cohesion following Brexit, and will force the remaining EU leaders to revamp their fiscal plans, including the framework for its budgetary contributions, following the departure of its third largest economy.
“After the decision by the U.K. electorate to leave the EU as a consequence of the June 23 consultative referendum, we have reassessed our opinion of cohesion within the EU, which we now consider to be a neutral rather than positive rating factor.
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We think that, going forward, revenue forecasting, long-term capital planning, and adjustments to key financial buffers of the EU will be subject to greater uncertainty.
As a consequence, we are lowering our long-term rating on the supranational European Union to AA from AA+ and affirming the A-1+ short-term rating.
The outlook is stable, reflecting our opinion that under most scenarios, including a U.K. withdrawal from future (though not current) budgetary commitments, our anchor ratings on the EU will remain at the current level of AA/A-1+.”
UK Credit Rating
Earlier this week, S&P along with Fitch downgraded the UK’s credit rating after Brexit. S&P cut the country’s rating from AAA to AA, while Fitch lowered its rating from AA+ to AA.