S&P Global Ratings downgraded the European Union's credit rating to AA following the U.K.'s decision to leave the union, citing greater uncertainty.
The ratings agency said Thursday it had reassessed its opinion of cohesion within the EU following the June 23 vote, which it now considers to be neutral rather than positive.
“We think that, going forward, revenue forecasting, long-term capital planning and adjustments to key financial buffers of the EU will be subject to greater uncertainty,” said a notice on its website explaining the downgrade. As a result, the agency lowered its long-term issuer credit rating to AA from AA+, and affirmed the A-1+ short-term rating. The EU's outlook is stable, said S&P.
The agency said the U.K. government's declared intention to leave the EU “lessens the supranational's fiscal flexibility, while reflecting weakening political cohesion.” S&P reassessed its “previously favorable opinion of solidarity within the EU to neutral from positive.”
S&P's baseline scenario had been that all 28 member states of the EU would remain inside the EU, and while it expects the remaining 27 members to “reaffirm their commitment to the union, we think the U.K.'s departure will inevitably require new and complicated negotiations on the next seven-year budgetary framework, known as the Multiannual Financial Framework, from 2021-2027.”
