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Ratings agency S&P cuts EU credit score

The AA credit rating is still the rating agency's third highest level. The rating agency cited fiscal uncertainty over the UK's vote to leave the EU.

Ratings agency S&P cut the European Union's credit rating on Thursday, citing the United Kingdom's decision to leave the bloc as lessening fiscal flexibility and "weakening political cohesion."

S&P lowered its rating from "AA+" to "AA," still the third highest level, with a stable outlook, meaning it envisions no further rating cuts.

Earlier this week, S&P and Fitch downgraded the UK's rating citing the Brexit. S&P cut the country's rating from the top "AAA" to "AA," while Fitch lowered its rating from "AA+" to "AA."

The rating agency said its baseline assumption before the referendum last week was that the UK would remain in the EU.

"As a consequence of the decision by the UK electorate to leave the EU following the June 23 referendum, we have reassessed our previously favorable opinion of solidarity within the EU to neutral from positive," the agency said in a statement.

It said the UK's departure would mean that going forward revenue forecasting, capital planning, financial adjustments and budgetary issues would be impacted by greater uncertainty.

"While we expect the remaining 27 members to reaffirm their commitment to the union, we think the UK's departure will inevitably require new and complicated negotiations on the next seven-year budgetary framework, known as the Multiannual Financial Framework (MFF), from 2021-2027," it said.

The EU's future fiscal health, it said, would be determined by the 10 wealthiest countries that are net contributors to the EU budget.

The agency said the relatively high rating for the EU "reflects our assumption that member states will fulfill" their budget obligations to the EU.

In 2016, Britain contributed 13 percent to the total EU budget. A British exit from the EU is expected to create a looming budget gap to be filled my member states or through EU budget cuts. Germany and France this year contributed 21 percent and 16 percent, respectively, to the EU budget.

"Our baseline expectation is that gross payments of remaining budgetary contributors are likely to be cut in the next Multiannual Financial Framework (seven-year budgetary framework) as the overall budget is downsized, while wealthier members' proportional contributions will likely rise to replace lost net financing from the UK," the agency said.

cw/bw (AFP, Reuters)

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