Moody’s lowers its outlook for European Union to negative

Ratings agency Moody’s has lowered its outlook for the European Union’s AAA credit rating to “negative” and warned that the bloc’s rating could be downgraded.

Moody’s said the move reflected the negative outlook for the ratings of the EU’s key budget contributors.

Earlier this year, Moody’s put ratings of Germany, France, Netherlands and the UK on a negative outlook.

It said that these nations were all exposed to the region’s debt crisis, hurting their creditworthiness.

The ratings agency said that in case of “extreme stress”, the AAA-rated member states were more likely to service their own debt obligations rather than “prioritize their commitment to backstop the EU debt obligations”.

It added that if the AAA-rated member states were to default on their debt obligations, there were likely to be defaults on the loans that back the EU’s debt and the bloc’s cash reserve was also likely be stressed.

“Hence, it is reasonable to assume that the EU’s creditworthiness should move in line with the creditworthiness of its strongest key member states,” the agency said.

Germany, France, Netherlands and the UK together account for about 45% of the EU’s budget revenue.

Moody’s warned that if the credit ratings of these member states were downgraded, it could have a knock-on effect on the EU’s rating.

“Additionally, a weakening of the commitment of the member states to the EU and changes to the EU’s fiscal framework that led to less conservative budget management would be credit-negative,” it added.