Credit rating agency Standard and Poor’s has cut their rating for the European Union’s sovereign debt from AA+ to AA.
The agency cited the United Kingdom’s decision to exit the organisation and a possible cascading effect from the vote as the primary reason for the downgrade.
“As a consequence of the decision by the U.K. electorate to leave the EU following the June 23 referendum, we have reassessed our previously favourable opinion of solidarity within the EU to neutral from positive,” said a release from S&P.
“Our baseline scenario was previously that all 28 member states would remain inside the EU. While we expect the remaining 27 members to reaffirm their commitment to the union, we think the U.K.’s departure will inevitably require new and complicated negotiations on the next seven-year budgetary framework, known as the Multi-annual Financial Framework (MFF), from 2021-2027.”
The possibility of such exits raises the uncertainty for the group and that heightened uncertainty made it difficult for S&P to feel confident in the EU’s ability to pay its debt long-term.
The move comes 3 days after the rating agency cut the outlook for the UK’s debt as well.
More to come…