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 "In our opinion, the overall creditworthiness of the now 28
European Union member states has declined," S&P said in a statement
that came 11 months after it announced it had a 'negative' outlook
on the bloc.
"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."
European officials said they were not surprised by the move since
S&P recently downgraded the Netherlands and has lowered its view on
six other member states — France, Italy, Spain, Malta, Slovenia and
Cyprus — in the past year.
But they pointed out that the EU has no debt or deficit to speak of
and its budget is a stand-alone entity financed by 28 countries,
making it one of the most stable institutions and most reliable
borrowers in the world.
"We must put it in perspective," Belgian Prime Minister Elio di Rupo
told reporters as he arrived for an EU summit in Brussels. "It's
just an opinion."
Others were more withering in their reaction, questioning the
expertise of S&P and other ratings agencies, which have been
critical of the EU throughout a four-year debt crisis.
"I've met some of the so-called experts from the ratings agencies
and really you have to wonder. What have they got right?" asked one
senior official with knowledge of the EU budgetary process, speaking
on condition of anonymity.
"Two years ago they were saying Greece would end up leaving the euro
zone. They were completely wrong. Shouldn't they have to acknowledge
their mistakes?"
Others questioned whether S&P understood how the financial
underpinnings of the EU budget, which is administered by the
European Commission, saying it needed to be assessed independently,
not as the average of 28 countries' ratings.
Olli Rehn, the commissioner for economic and monetary affairs,
pointed out that all EU member states had always provided their
contributions to the budget, even during the financial crisis.
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In its statement, S&P said cohesion among EU member states had
weakened and that some countries might baulk at funding their
contributions to the budget in the years ahead.
The budget is financed by contributions from all member states based
on gross domestic product. It is set for seven-year periods,
although there is also an annual negotiation to decide on the
precise spending for the next year.
The most recent seven-year budget, which runs from 2014-2020, was
agreed in December and sets a spending ceiling of around 1 trillion
euros, equivalent to slightly less than one percent of total EU
output.
S&P said it was concerned about the commitment of some member states
to continue funding their portion of the budget on a 'pro-rata'
basis. Later in the statement it mentioned Britain, which has fought
to keep the EU budget down, although it has never suggested it may
not pay its portion.
"We believe... that the willingness of the remaining 'AAA' rated
sovereigns to fulfill this joint and several pledge might be tested
should some other members be unwilling to provide the funds on a
pro-rata basis," S&P said.
The EU is not a sovereign but it can borrow in its own name, with
member states' contributions to the budget effectively acting as
collateral. As of this month, it had outstanding loans of 56 billion
euros ($76.5 billion), according to S&P.
(Reporting by Lincoln Feast in Sydney; editing by Noah Barkin)
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