The downgrade by one notch leaves the union with a rating of AA+ which, though still considered solid, could make it more expensive for the EU to borrow money on bond markets.
S&P made the announcement just as EU leaders were holding a summit marking a big political step forward with an agreement on a banking union intended eventually to ring-fence failing banks from bringing down an entire economy as happened in Ireland.
The ensuing crisis forced the bloc to step in with billions in funds to bail out entire economies, putting national budgets under constraints and exposing an endemic debt problem in some countries such as France and Italy.
S&P said loans to Ireland and Portugal – which received bailouts – represent 80 percent of the EU’s outstanding loans.
Meanwhile, the union is currently embroiled in an ongoing battle over its budget, with some members such as Britain pushing for a curtailment on how much they contribute financially to the EU.
“In our view, 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,” said S&P in explaining its downgrade decision… see more