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EU Credit Rating Cut
World Economy

EU Credit Rating Cut

The European Union’s credit rating has been cut, with ratings agency Standard and Poor’s saying that the bloc’s future is more uncertain after the UK’s vote to leave.
In a statement, the agency said: “After the decision by the UK electorate to leave the EU as a consequence of the June 23 consultative referendum, we have reassessed our opinion of cohesion within the EU, which we now consider to be a neutral rather than positive rating factor”, SkyNews reported.
The EU’s rating was cut from AA+ to AA, with the bloc’s condition described as “stable”.
The statement added that the post-referendum vote uncertainty would affect revenue forecasting, long-term capital planning and adjustments to key financial buffers.
Commenting on the reason for the change, Standard and Poor’s said that the UK’s declared intention to leave the EU weakened the bloc’s “fiscal flexibility” and its “political cohesion”.
“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 UK’s departure will inevitably require new and complicated negotiations on the next seven-year budgetary framework.
“The long-term rating on the EU relies on the capacity and willingness of the 10 wealthiest EU members that are net contributors to the EU budget.”
A senior EU official involved in the bloc’s economic policy told Reuters that the downgrade of a single agency should not affect the EU because investors take an average of all ratings on capital requirements.
This means that, in practice, the EU retains a top-notch credit rating.

 

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