S&P warns European Union of possible downgrade
(WASHINGTON) - Standard and Poor's placed the European Union on watch for a downgrade of its AAA credit rating, a day before EU leaders meet in Brussels in a make-or-break bid to end the region's debt crisis.
S&P cited the European Union's dependence on member states -- who were recently warned about their own credit ratings -- for its budget needs as the cause of the credit watch.
"Given the EU's dependency on such revenues from national budgets, and our recent CreditWatch placements on the 'AAA' ratings on Germany and France, among others, we will concurrently review the 'AAA' long-term rating on the EU with the ratings on the eurozone member states."
S&P placed the EU body on credit watch-negative, which means that after review it could face a downgrade within months.
But the move was largely symbolic as the European Union itself borrows little on the markets.
Since December 2008 the EU has issued just 41 billion euros ($55 billion) in medium and long term debt.
That borrowing is guaranteed by the 27 member states. But unlike them the EU cannot borrow to finance a budget deficit.
The funds it raises are lent on to member states in need of support, with Portugal and Ireland -- both currently under joint EU-International Monetary Fund rescue programs -- the largest beneficiaries.
"The CreditWatch on the EU is an expression of our concerns about the potential impact on the future debt service capacity of eurozone sovereigns, and therefore also the EU, in the context of what we view as deepening political, financial, and monetary problems within the eurozone."
It came after S&P issued an identical warning to nearly all of the eurozone countries on Monday, including economic powerhouse Germany, citing political indecision on a crisis plan combined with a possible fall back into recession.
Also on Wednesday, the rater put a number of large European banks on review for a possible downgrade, including French banks BNP Paribas and Societe Generale, Deutsche Bank and Commerzbank of Germany, and Italy's UniCredit.