Prudent financial management within the European Union will limit any risks to its budget from a no-deal Brexit, ratings agency DBRS has said.
While the EU faces a number of challenges, including uncertainty related to a possible disorderly Brexit and the impact that may have on the bloc’s budget, “prudent and conservative financial management limits any associated risks”.
The UK is expected to continue to contribute to the EU’s budget until the end of the current proposed transition period, December 31st, 2020. However, if the UK leaves and stops contributing, the budget will likely be amended, “and the shortfall in contributions will potentially be compensated by the higher funds from the remaining members as well as by a reduction in the expenditure programmes”, DBRS said.
The ratings agency has given the EU a long-term rating of AAA, a stable rating which reflects the company’s view that “the EU is well positioned to manage near-term risks”.
EU budget
The UK is one of the largest net contributors to the EU budget with about €13.7 billion in contributions in 2018, equivalent to about 11 per cent of total national contributions. For context, this year the Republic will contribute €2.1 billion, or about 1.7per cent of the EU’s total budget.
A combination of lower expenditures and higher revenues from the remaining EU members is expected to mitigate negative pressure on the budget once the UK leaves, the ratings agency said.
DBRS warned that the EU’s ratings could come under downward pressure if one of its core members is downgraded or if a marked deterioration in creditworthiness of a single core shareholder occurs.
“Ratings could also face downward pressure if a rise in anti-EU sentiment ultimately results in a material increase in the risk of the EU’s disintegration,” DBRS said.
