Contentious Budget Talks Prompt S&P Downgrade of EU Credit Rating

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On Friday, the Standard & Poor’s ratings agency lowered its long-term credit rating on the European Union, citing threats to its cohesion and deteriorating creditworthiness of its 28 member nations.

The EU was downgraded to AA+ from AAA, though the outlook remained stable, and the downgrade does not affect the sovereign ratings of individual member countries. The agency maintained its short-term rating at A-1+.

The S&P said in a statement:

In our view, 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. … The downgrade reflects our view of the overall weaker creditworthiness of the EU’s member states. We believe the financial profile of the EU has deteriorated, and that cohesion among EU members has lessened.

EU leaders are meeting in Brussels with the aim of reaching an agreement on a banking union that will prevent foundering banks from bringing down an entire economy. This comes more than four years after the outbreak of the European debt crisis, in which the EU had to offer emergency financing to members such as Greece, Ireland, Portugal, Spain and Cyprus in order to shore up their bonds and banks. National debt and bad bank lending had brought some of these countries to the verge of bankruptcy and wrecked important parts of the banking system.

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