The European Union just got some bad news from Standard & Poor’s.
The whole thing.
In a release on Monday, S&P slashed its outlook on the European Union to “negative” from “stable.”
By the EU, S&P means the supranational organisation that borrows in capital markets to lend to member states. This includes all 28 members of the EU, not just the 19 that use the euro.
In its release, S&P said its downgraded outlook reflects 3 main points:
- S&P’s expectation that the EU will provide first-loss guarantee support for financing connected to the Juncker Plan (Greece’s latest bailout package)
- Further downward pressure on the average weighted rating on net budgetary contributors to the EU, as indicated by S&P’s negative outlooks on the second- and third-most important sovereign contributors, the UK and France (Germany is the largest contributor)
- The EU’s repeated use of its balance sheet to provide higher-risk financing to EU member states (most recently including Greece), without the member states’ paying in capital.
Cutting its outlook for the EU also reflects S&P’s view that the EU’s credit rating, which currently stands at AA+, has greater than 1-in-3 chance of being cut in the next 2 years.