* Rating agency raises concerns about financing of EU budget
* European officials dismiss move as "just an opinion"
* S&P says view based in part on risk of UK exit from union
By Luke Baker
BRUSSELS, Dec 20 Credit agency Standard & Poor's
cut its triple-A rating of the European Union by one notch on
Friday, saying it had concerns about how the bloc's budget was
financed, a view EU leaders and other officials dismissed as
S&P's announcement came the day after the EU reached a deal
to overhaul the region's banking sector, an agreement many
commentators said fell short of expectations, although S&P said
it had not factored into its credit assessment.
"In our opinion, the overall creditworthiness of the now 28
European Union member states has declined," the rating agency
said in a statement that came 11 months after it announced it
had a 'negative' outlook on the bloc.
"EU budgetary negotiations have become more contentious,
signaling what we consider to be rising risks to the support of
the EU from some member states."
European officials said they were not surprised by the move
to AA+ since S&P recently downgraded the Netherlands and has
lowered its view on six other member states - France, Italy,
Spain, Malta, Slovenia and Cyprus - in the past year.
But they pointed out that the EU has no debt or deficit to
speak of and its budget is a stand-alone entity financed by 28
countries, making it one of the most stable institutions and
most reliable borrowers in the world.
"We must put it in perspective," Belgian Prime Minister Elio
di Rupo told reporters as he arrived for an EU summit in
Brussels. "It's just an opinion."
Italian Prime Minister Enrico Letta said the decision
shouldn't be ignored and showed that Europe's economic crisis
was not yet over.
Others were more withering in their reaction, questioning
the expertise of S&P and other ratings agencies, which have been
critical of the EU throughout a four-year debt crisis.
"I've met some of the so-called experts from the ratings
agencies and really you have to wonder. What have they got
right?" asked one senior official with knowledge of the EU
budgetary process, speaking on condition of anonymity.
"Two years ago they were saying Greece would end up leaving
the euro zone. They were completely wrong. Shouldn't they have
to acknowledge their mistakes?"
Others questioned whether S&P understood the financial
underpinnings of the EU budget, which is administered by the
European Commission, saying it should be assessed independently,
not as the average of 28 countries' ratings.
Olli Rehn, the commissioner for economic and monetary
affairs, pointed out that all EU member states had always
provided their contributions to the budget, even during the
In its statement, S&P said cohesion among EU member states
had weakened and that some countries might baulk at funding
their contributions to the budget in the years ahead.
The budget is financed by contributions from all member
states based on gross domestic product. It is set for seven-year
periods, although there is also an annual negotiation to decide
on the precise spending for the next year.
The most recent seven-year budget, which runs from
2014-2020, was agreed in December and sets a spending ceiling of
around 1 trillion euros, equivalent to slightly less than one
percent of total EU output.
S&P said it was concerned about the commitment of some
member states to continue funding their portion of the budget on
a 'pro-rata' basis. Later in the statement it mentioned Britain,
which has fought to keep the EU budget down, although it has
never suggested it may not pay its portion.
Britain plans to hold an 'in-out' referendum on its EU
membership in 2017, a vote that could end up destabilising the
union and worsen its financial stability, the agency said.
"We believe... that the willingness of the remaining 'AAA'
rated sovereigns to fulfill this joint and several pledge might
be tested should some other members be unwilling to provide the
funds on a pro-rata basis," it noted.
The EU is not a sovereign but it can borrow in its own name,
with member states' contributions to the budget effectively
acting as collateral. As of this month, it had outstanding loans
of 56 billion euros ($76.5 billion), according to S&P.