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S&P cuts EU rating over tense budget talks

Credit rating agency also points at worsening creditworthiness of the bloc's members as another reason for its decision.

Last updated: 20 Dec 2013 11:53
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S&P said that cohesion among EU members had lessened [GETTY]

Standard & Poor's has downgraded the European Union's long-term credit rating, stripping the bloc of the highest grade of AAA to AA+, citing rising tensions on budget negotiations.

The move follows cuts to the ratings of EU member states in recent months.

The credit rating agency said on Friday that a bitter battle over the EU budget and worsening creditworthiness of its members are behind the decision to decrease the bloc's long-term issuer credit rating by one grade.

"In our opinion, the overall creditworthiness of the now 28 EU member states has declined," 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."

S&P said cohesion among EU members had lessened and that some might baulk at funding the EU budget on a pro-rata basis.

Average rating of contributors dropped

The average rating of net contributors to the EU budget has fallen to AA+ from AA since January 2012, when S&P revised its outlook on the long-term EU rating to negative, the company said.

S&P has had a negative outlook on the EU since that date and has since cut its ratings on members France, Italy, Spain, Malta, Slovenia, Cyprus and the Netherlands.

The EU is not a sovereign but it can borrow in its own name. As of this month, it had outstanding loans of 56 billion euros ($76.5 billion), according to S&P.

The credit-rating agency said its downgrade of The Netherlands last month left the EU with six AAA-rated members. Since 2007, revenues contributed by AAA-rated sovereigns as a proportion of total EU revenues nearly halved to 31.6 percent, it added.

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