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EU's Credit Rating Downgraded By S&P to AA+

The European Union's credit rating has been downgraded one notch from the maximum AAA to AA+.

The ratings agency Standard & Poor's said the move had been prompted by weaker credit worthiness among the bloc.

A spokesman for the agency said: "The downgrade... reflects our view of weaker credit worthiness among the 28 EU member states, including among net creditors to the EU's budget.

"We consider that the EU's financial arrangements have deteriorated, and that cohesion among members has lessened."

The outlook was stable, it added.

But the downgrade angered the EU, which said the grounds for doing so were "questionable".


EU Economic Affairs Commissioner Olli Rehn said: "The Commission disagrees with S&P that member state obligations to the budget in a stress scenario are questionable.

"All member states have always and also throughout the financial crisis provided their expected contributions to the budget in full and in time," he said.

Numerous countries within the EU have seen their credit ratings cut in the last few years.

Although S&P said it was continuing to rate the UK at AAA, the other two well-known ratings agencies Fitch and Moody's had previously rated it at below the maximum.

While S&P rates many northern countries above A, several of the southern and east European countries are languishing at BBB or below.

The agency said that a bitter battle over the EU's budget and the worsening creditworthiness of its members was behind the decision.

A downgrade can sometimes make it more expensive to borrow money on bond markets.

A rating of AA+ is still considered very solid, but the downgrade will come as a blow to European money chiefs, who have taken pride in their record.

The downgrade came as EU leaders held a summit in Brussels during which they stumbled to agree on deeper economic reforms after striking a landmark banking union deal.

The banking agreement, which applies only to the eurozone, is regarded as one of the biggest handovers of sovereignty since the creation of the single currency.

All nations in the bloc agreed that banks in the 17 countries which currently use the euro - with Latvia due to be the 18th next month - should be be policed by a single body.

All banks in countries within the eurozone will have to pay into a fund so that, in the event one fails, it will pay out so that taxpayers in those countries should not have to bail them out.

But the deal has been criticised for not being large enough. The fund is only €55bn, which is less than it cost to bail out just one bank, RBS (LSE: RBS.L - news) , during the 2008 banking crisis in the UK.

The UK is not included in the banking union agreement as it is outside the eurozone.

The deal was drawn up after failed banks drove countries such as Ireland (Other OTC: IRLD - news) into bailouts and brought the continent's economy to a halt.

The banking union is seen as a means to ensure stability in the eurozone, and proponents also hope it will help facilitate much-needed growth and jobs by getting the banks to lend freely again.

With fragile growth of just 1.1% and a stubbornly high unemployment rate of 12.2% expected for 2014, the eurozone is badly in need of a boost.

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