Text: S&P may cut European Union 'AAA' rating

Thu Dec 8, 2011 2:36am IST

An illustration picture shows a one Euro coin being melted by a smith in Skopje, December 6, 2011. REUTERS/Ognen Teofilovski

An illustration picture shows a one Euro coin being melted by a smith in Skopje, December 6, 2011.

Credit: Reuters/Ognen Teofilovski

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(The following statement was released by the rating agency)

-- On December 5, 2011, Standard & Poor's placed the ratings on 15 of the 17 member states of the European Monetary and Economic Union (EMU or eurozone) governments on CreditWatch with negative implications. As a result, the ratings on 17 European Union member states are now on CreditWatch with negative implications.

-- We are therefore also placing the 'AAA' long-term rating on the EU on CreditWatch negative. At the same time, we are affirming the 'A-1+' short-term rating on the EU.

-- The CreditWatch placement on the eurozone member states was prompted by our concerns about the potential impact on these member states of what we view as deepening political, financial, and monetary problems within the eurozone.

-- Eurozone members directly contribute approximately 62% of the EU's total 2011 budgeted revenues. Our CreditWatch review will focus on the financial ability of eurozone member states to support the EU's debt service should the institution face a period of financial distress.

-- We expect to conclude our review as soon as possible after the European summit on December 9, 2011. Depending on the outcome of our review of the ratings on eurozone member governments, we could lower the long-term rating on the EU by one notch, if any.

Dec 7 - Standard & Poor's Ratings Services today placed its 'AAA' long-term issuer credit rating on the European Union on CreditWatch with negative implications. At the same time, we affirmed the 'A-1+' short-term issuer credit rating on the EU. The CreditWatch placement is prompted by similar CreditWatch placements, which we made on 15 eurozone sovereigns on December 5, 2011. 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. Eurozone members account for 62% of the EU's total 2011 budgeted revenues. For 2011, budgeted revenues from Germany and France were 32% of total EU revenues, at 16% and 14%, respectively. In total, 'AAA' rated member states account for just over 49% of the EU's 2011 budgeted revenues, with only the U.K., Denmark, and Sweden retaining a stable outlook (together they contribute 13% of the EU's 2011 budgeted revenues).

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.

CREDITWATCH We expect to resolve the CreditWatch placements on the eurozone member states as soon as possible after the European summit on December 8 and 9, 2011. Following this, we then expect to resolve the CreditWatch on the EU. We typically resolve CreditWatch actions within 90 days, although we will attempt to resolve the CreditWatch placements on eurozone sovereigns and therefore the EU sooner, if possible and appropriate.

We could lower the long-term issuer credit rating on the EU by one notch if we were to lower the current 'AAA' ratings on one or more member states, with a special focus on the largest contributors, France and Germany.

Conversely, the ratings could be affirmed at their current levels if we were to affirm the member states' 'AAA' ratings following the respective sovereign CreditWatch review.

RATINGS LIST

Ratings Affirmed; CreditWatch/Outlook Action

To From European Union

Issuer Credit Rating

Foreign Currency AAA/Watch Neg/A-1+ AAA/Stable/A-1+

European Union

Senior Unsecured AAA/Watch Neg AAA

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