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Home > Investments > European

Moody’s downgrades EU outlook to negative

Rating agency moves EU in line with member states ratings but gap between core and periphery remains.

By Nick Reeve | Published Sep 04, 2012 | comments

Credit rating agency Moody’s has put the European Union - which includes the UK - on a negative outlook for long term debt, but maintained the continent’s AAA credit rating.

In an announcement last night, the agency said the move reflected the fact that the European Union’s key economies were all on negative watch, including Germany, France, the UK and the Netherlands.

All four of these are major contributors to the EU’s budget, but are unlikely to prioritise this over paying off their own debt, Moody’s said.

In addition, the agency said the EU’s rating could fall further with further downgrades of other member states.

However, the rating agency maintained the EU’s overall AAA credit rating, citing its “conservative budget management” and the support available from the union’s members.

In a statement, Moody’s said: “We believe that it is reasonable to assume the same probability of default by the EU on its debt obligations as the highest rated key members states’ probability of default.

“Whereas Moody’s acknowledges that there are structural features in place that enhance the EU’s creditworthiness, they are in Moody’s view not sufficient to delink the EU’s ratings from the ratings of its strongest key member states.”

Germany, France, the UK and the Netherlands are all rated AAA by the main three agencies - Moody’s, Standard & Poor’s and Fitch. The struggling southern eurozone economies all have much lower ratings, ranging from Italy’s A- from Fitch to Greece, which has been ranked as in default with a C rating from Moody’s.

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