Darker outlook for EU economy

By Jules Johnson

S&P changes EU outlook to negative, blaming bailouts.

Standard & Poor’s downgraded its outlook for the European Union to “negative” from “stable” on Tuesday as Greece’s economic problems weigh on the region.
The U.S. ratings agency reaffirmed the EU’s debt grade of double-A-plus, but the darker outlook raises the risk of a cut within the next two years. The region’s credit score was cut from triple-A in 2013. The lower the rating, the higher the interest rates EU agencies must pay to borrow money.

“The EU’s repeated use of its balance sheet to provide higher-risk financing to EU member states (most recently including Greece), without the member states’ paying in capital,” was one reason behind the revision, S&P said in a statement.
Another risk is the U.K.’s decision to hold a referendum to end its EU membership, which has threatening economic implications for the bloc.
However, S&P could reverse its decision if the credit ratings on two of the EU’s largest net contributors, the U.K. and France, are affirmed at their current levels.
Those two countries, together with Germany, contribute about 70 percent of the EU’s budget.