Morningstar DBRS confirmed the European Union's Long-Term - Issuer Rating at AAA.
At the same time, it confirmed the bloc's Short-Term - Issuer Rating at R-1 (high). The trend on all ratings is Stable.
“The Stable trend reflects Morningstar DBRS' view that member states' commitment and ability to support the Union is expected to remain very strong, despite rising debt and economic and geopolitical risks”, the rating agency said.
The projected material increases in EU debt to a maximum of almost EUR 1.1 trillion, mainly as a result of the Next Generation EU (NGEU) temporary instrument, will likely generate high debt service costs in the future, it added. “Nevertheless, the increase in the budgetary headroom, the obligation of member states to finance the agreed expenditure levels and the system of EU own resources and repayments from loan beneficiaries, should comfortably enable the Union to repay its debt”, it said.
On the AAA assessment, Morningstar DBRS said this was “underpinned by the creditworthiness of the Union's core member states, their strong commitment to the EU, and the uplift from multiple sources of support, particularly from non-core AAA-rated member states”. Furthermore, it said, the EU benefits from conservative budgetary management, benefits from multiple layers of debt-service arrangements that protect creditors remain in place and the Union has a de facto preferred creditor status.
It also notes that the EU's credit ratings “could be downgraded” if one or a combination of the following occurs: a marked deterioration in the creditworthiness of a single core shareholder, particularly if it reflects a material weakening in the cohesion of core member states or of the strength of their political commitment to the EU, a rise in anti-EU sentiment that ultimately results in a material increase in the risk of the EU's dissolution, or “although unlikely given its Stable trend”, a downgrade of Germany's AAA assessemnt.