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The UK vote to withdraw from the European Union (EU) and our subsequent downgrade of the UK sovereign rating to 'AA'/Negative Outlook is unlikely to have any immediate impact on the 'AAA' ratings of EU-related Supranationals, the EU, the European Investment Bank and the European Investment Fund, Fitch Ratings says.
However, given the overall uncertainty surrounding the withdrawal of the UK from the EU, and the resulting increased political risks in the EU, Fitch will closely monitor any material evidence of weakening political support by member states to the EU in the coming months.
In the near term, Fitch does not expect any impact on the rating of the European Investment Bank (EIB), which is driven by its intrinsic features rather than by shareholder support. As mentioned in Fitch's special report dated 16 May 2016 ("'Brexit' Would Raise Downside Risks to EU Sovereigns"), the UK's share of the EIB's paid-in capital is 16.1%.
Fitch does not expect a unilateral and sudden withdrawal of the UK's capital from the EIB. Article 50 of the Lisbon Treaty governing the process of a country leaving the EU indicates that there would be a two-year timeframe for negotiations with the withdrawing country, subject to potential extension by the European Council in agreement with the country concerned.
The European Investment Fund's (EIF) rating is based primarily on strong support from its key shareholder, the EIB (61.2% of capital). Consequently, a negative rating action on the EIB would likely lead to a negative rating action for the EIF (affirmed on 22 June 2016). As indicated above, we do not envisage a negative rating action on the EIB as a direct result of the UK exit vote.
The exit vote in the UK referendum does not have immediate implications for the ratings of the EU and Euratom. The UK is not included in the group of 'AAA'-rated member states (MS) whose additional contributions would be needed to cover the EU's debt service if needed; for example, if a borrowing country defaulted on a loan granted by the EU. However, Fitch believes that the UK's vote could have longer-term negative implications for the EU's creditworthiness if it results in a weakening of support for the EU by other highly rated MS.
