S&P warns EU of possible downgrade

WATCH-NEGATIVE::The ratings agency put the EU, which borrows little on global markets, on the watchlist because of its dependence on shaky sovereign states

AFP, Washington

Fri, Dec 09, 2011 - Page 10

Standard and Poor’s (S&P) placed the EU on watch for a downgrade of its “AAA” credit rating, a day before EU leaders meet in Brussels in a make-or-break bid to end the region’s debt crisis.

S&P cited the EU’s dependence on member states — who were recently warned about their own credit ratings — for its budget needs as the cause of the credit watch.

“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,” S&P said.

Meanwhile, the IMF on Wednesday denied a report that the G20 economic powers would pool US$600 billion to be used to -support the eurozone through its crisis.

“There has been no such discussion with the IMF,” IMF spokesman Bill Murray said of the report in Japan’s Nikkei Shimbun, which reported the G20 nations would muster the funds to be lent to struggling EU nations through the IMF.

It came amid talk that the IMF, with just about US$400 billion now available to lend, does not have nearly enough funds to help intervene should there be a sudden deterioration in eurozone stability.

S&P placed the EU body on credit watch-negative, which means that after review it could face a downgrade within months.

However, the move was largely symbolic as the EU itself borrows little on the markets.

Since December 2008, the EU has issued just 41 billion euros (US$55 billion) in medium and long-term debt.

That borrowing is guaranteed by the 27 member states. -However, unlike them, the EU cannot borrow to finance a budget deficit.

The funds it raises are lent on to member states in need of support, with Portugal and Ireland — both currently under joint EU-IMF rescue programs — the largest beneficiaries.

“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,” S&P said.

It came after S&P issued an identical warning to nearly all of the eurozone countries on Monday, including economic powerhouse Germany, citing political indecision on a crisis plan combined with a possible fall back into recession.

Also on Wednesday, it put a number of large European banks on review for a possible downgrade, including French banks BNP Paribas and Societe Generale, Deutsche Bank and Commerzbank of Germany, and Italy’s UniCredit.