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Fitch: EU Membership a Strong Support for Sovereign Ratings in the Visegrad Countries
May 15, 2017 / 8:34 AM / 3 months ago

Fitch: EU Membership a Strong Support for Sovereign Ratings in the Visegrad Countries

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Visegrad Countries and European Union Membership here PARIS/LONDON, May 15 (Fitch) Fitch Ratings says in a new report that European Union (EU) membership has been a strong support for the sovereign ratings of the four Visegrad countries (V4). A deterioration in the relationship between the V4 and the EU could lead to negative pressures on the ratings in the medium to long term, depending primarily on its impact on economic prospects, institutional quality and the economic policy framework. Sovereign ratings of candidate countries to the EU would likely benefit from accession, but that looks distant. Accession to, and membership of, the EU has supported the sovereign ratings of the V4 (Poland (A-/Stable), Hungary (BBB-/Stable), the Czech Republic (A+/Stable) and Slovakia (A+/Stable)). Benefits have been clearest through economic development and the quality of institutions. Monitoring of economic and fiscal policy by the EU in the context of the European Semester has bolstered macroeconomic stability and structural reforms. Hungary, since 2010, and Poland, since 2015, have adopted more confrontational attitudes to the EU. While relations with the Czech Republic and Slovakia have been smoother, during the migrant crisis all V4 countries coalesced in a common rejection of EU policy. Some EU members have voiced concerns in response to these developments, but there have been few concrete policy steps or sanctions. However, there are risks that this relatively favourable stance could change, in Fitch's view. Fitch believes the bulk of institutional and economic policy gains from EU membership are entrenched. However, further deterioration in relations with any of the V4 countries could alter economic and financial ties with the EU. This would be compounded by a potential move to a "multi-speed" EU, as suggested by the main EU leaders in early 2017, which could sideline some V4 countries. Such a scenario could have negative rating implications depending primarily on its impact on economic prospects, institutional quality and the economic policy framework. The sources of economic benefits for the V4 have been access to large EU structural funds, integration within the single market and associated gains in trade, investment and productivity. Given its low level of development relative to other EU countries, the V4 has attracted a large share of EU structural funds (EUR152 billion for the 2014-2020 EU investment cycle, or about a third of total funding). The departure from the EU of the UK, one of the biggest net contributors to the EU budget, is likely to impact on funds available in the future. EU accession has supported the quality of institutions as it entails the adoption of a legislative package and the reform of key institutions to match EU requirements. Most significantly for ratings, this has supported the quality of governance, primarily via enhancement of institutional checks and balances and respect for the rule of law. Progress seems to have been stronger before than after accession, likely reflecting the lack of power of EU institutions to impose reforms on member countries. EU rules on government deficits and debt have become an important anchor for fiscal policy in the V4. The 3% deficit criterion may be especially useful in limiting fiscal slippage ahead of general elections (for example, in Hungary in 2014 and Poland in 2015). EU membership has also gone hand in hand with policies focusing on low and stable inflation, which has helped anchor inflation expectations. For the five EU candidate countries (Albania, Montenegro, Macedonia (BB/Negative), Serbia (BB-/Stable) and Turkey (BB+/Stable)), joining the EU would likely boost sovereign ratings, notably via reform momentum, access to EU funds and likely support for political stability. However, after the addition of 13 new member states in the past 10 years and the planned departure of the UK, further enlargement is not on the EU's agenda. The report, 'Visegrad Countries and European Union Membership', is available on www.fitchratings.com or by clicking on the link above. Contact: Arnaud Louis Director +33 (0)1 44 29 91 42 Fitch Ratings S.A.S 60 rue de Monceau Paris Paul Gamble Senior Director +44 20 3530 11623 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. 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Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

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