Fitch: Η εγγύηση των καταθέσεων των τραπεζών του Πουέρτο Ρίκο από την Ομοσπονδιακή Τράπεζα των ΗΠΑ και το ομοσπονδιακό ΤΕΚΕ (μέχρι 250000$) αναδεικνύει τις διαφορές μεταξύ Πουέρτο Ρίκο και Ελλάδας και τις δομικές αδυναμίες της ευρωζώνης....

Fitch Ratings-New York-20 July 2015: The protection of US regulatory oversight over Puerto Rico's banks, including US federal deposit insurance and the intervention authority of the Federal Reserve and the FDIC, is critical to considering the range of possible outcomes facing local banks on the island, says Fitch Ratings. The US umbrella materially differentiates the situation in Puerto Rico versus other regions where the local government is battling a fiscal crisis. Such distinctions are relevant given the comparisons commonly being drawn between Puerto Rico and Greece.

Puerto Rico's banks operate within the legal jurisdiction of the United States of America (Long-Term IDR AAA, Outlook Stable), thus the risk of transfer to and convertibility by the Commonwealth of Puerto Rico (IDR CC, Rating Watch Negative) is irrelevant to the island's banks in credit rating terms. Neither of Puerto Rico's two Fitch-rated banks, Popular, Inc. (Issuer Default Rating BB-, Rating Outlook Stable) and First BanCorp (IDR B-, Rating Outlook Stable), face any possibility of becoming nationalized by the commonwealth. The highest possible viability ratings (VRs) of Puerto Rico's banks are constrained by the country ceiling rating of the United States, rather than Puerto Rico.

Puerto Rico's local economy will be the primary determinant of how well Puerto Rico's banks uphold their credit strength. We see Popular's and First BanCorp's ratings remaining highly sensitive to deterioration in economic trends, but modestly cushioned by their capitalization levels.

At March 31, 2015, Popular's Common Equity Tier 1 ratio and tangible common equity (TCE)/tangible assets (TA) totaled 15.74% and 10.72%, respectively. In a scenario assuming a 40% write-down to direct (obligations of Puerto Rico and its municipalities) and indirect exposures (obligations payable by non-government entities while having a government guarantee), Fitch estimates a pro forma TCE/TA of 9.37%. Popular also has over $2.3 billion of liquid investments, $4.5 billion of available-for-sale securities, and valuable stake in Evertec, a payment processing company spun off by the bank in 2010. We expect Popular's good liquidity to be maintained, even with the Government Development Bank of Puerto Rico's plan to take over local municipalities' deposits.

First BanCorp's common equity Tier 1 and TCE/TA ratios were 16.15% and 12.71%, respectively, at March 31, 2015. First BanCorp's non-performing loan performance has held relatively steady at slightly under 6% for the last two years. Non-performing assets typically run at much higher levels than all US mainland banks. However, charge-offs have not occurred at the same high levels, as many delinquencies end up being cured by borrowers.

Popular's and First BanCorp's recently reported Dodd-Frank Act Stress Test (DFAST) results specifically prescribed macro conditions unique to the Puerto Rico's circumstances, and worse than those prescribed under the Fed's standard "severely adverse" scenario. The test results reflected a GDP contraction of 3.3% (versus a 1.1% contraction for the standard test) and an unemployment rate of nearly 19% (versus 10% under the standard test). Puerto Rico's unemployment rate was 12.4% as of May 2015. Both banks passed the tests by comfortable margins to the "well capitalized" threshold minimums.

Puerto Rico's banks will continue to operate with elevated and likely weakening NPAs. While the sluggish economic conditions in Puerto Rico are unlikely to resolve quickly, Popular and First BanCorp do not have outsized loan concentrations (such as in commercial real estate loans), and their moderate loan growth rates suggest they have adapted to the weak environment. Overall, the capital positions and overall expected profitability of both banks remain adequate to support current rating levels, even in light of the commonwealth's admitted need for debt relief.

If the commonwealth defaults and the fiscal situation of the local government clearly degrades, leading to worsening losses for the banks, Fitch would review the Puerto Rican banks ratings for negative action.


Contacts:

Doriana Gamboa
Senior Director
Financial Institutions
+1 212 908-1865
New York, NY

Matthew Noll, CFA
Senior Director
Financial Institutions Fitch Wire
+1 212 908-0652


Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

www.transiciondoralbank.com/

www.cnbc.com/2015/07/27/prs-tourism-weat...tential-default.html

www.theguardian.com/world/2015/aug/01/pu...yment-liquidity-debt

Eυρωζώνη είναι το Puerto rico?

Όχι σε αυτό το topic γίνεται μια σύγκριση του τρόπου που συμπεριφέρεται η Ευρωζώνη στην Ελλάδα, με τον τρόπο που αντιμετωπίζουν οι ΗΠΑ το Πουέρτο Ρίκο, το οποίο παρόλο που ανήκει στις ΗΠΑ και έχει ως επίσημο νόμισμα το δολλάριο, δεν πληρώνει ομοσπονδιακούς φόρους, δεν συμμετέχει δηλαδή στη fiscal Union που έχουν οι υπόλοιπες πενήντα πολιτείες των ΗΠΑ...Γι' αυτό θεωρώ και την κατάσταση του συγκρίσιμη με την κατάσταση των κρατών της ευρωζώνης: νομισματική ένωση χωρίς δημοσιονομική ένωση...Ήδη όπως έχω αναφέρει το ομοσπονδιακό ΤΕΚΕ (FDIC)έχει καλύψει τις καταθέσεις των πιστωτικών ιδρυμάτων που είχαν πρόβλημα, κάτι που δεν ισχύει ακόμη στην ευρωζώνη αφού δεν υπάρχει ευρωπαϊκό ΤΕΚΕ, να καλύπτει τουλάχιστον το μισό ποσό από αυτό που καλύπτει το FDIC ήτοι 100000€....

Ευρωπαϊκός Βορράς και Νότος: Μπορούν να συνυπάρξουν ισότιμα;
ΔΗΜΟΣΙΕΥΣΗ: 29/03/2013 06:33


Πολλά ερωτήματα εγείρονται με αφορμή την προκύπτουσα ομαδοποίηση των χωρών της Ε.Ε. σε (οικονομικά πλεονασματικό) Βορρά και (ελλειματικό) Νότο. Μια διάκριση που έχει τις ρίζες της στον 8ο μ.Χ. αιώνα, όταν το κέντρο βάρους της ισχύος στην Ευρώπη μετατοπίστηκε από τη Μεσόγειο προς το βορρά υπό την πίεση του Ισλάμ. Κατ΄ άλλους δε από την εποχή της Ρωμαϊκής Αυτοκρατορίας, όταν ο Νότος ευημερούσε και κάποια Γερμανικά φύλα αφέθηκαν να εγκατασταθούν εντός των συνόρων της Ρώμης, όπου γρήγορα εκλατινίστηκαν. Οι εκτός των συνόρων Γερμανοί διατήρησαν πολλά χαρακτηριστικά τους μέχρι και σήμερα.

Βαθμιαία, οι βάσεις του πολιτισμού, που ήσαν αρχικά προνόμιο του Νότου, διαδόθηκαν και στο Βορρά. Με την πειθαρχία, την εργατικότητα και την οργανωτικότητα που διακρίνουν τις κοινωνίες του ξεπέρασε το Νότο σε ισχύ, πλούτο και αργότερα σε κοινωνική μέριμνα. Οι κυριώτερες πηγές πλούτου στο Νότο ήσαν παραδοσιακά το εμπόριο και η ναυτιλία. Στο Βορρά επικράτησε η παραγωγή και αργότερα οι τράπεζες.

Οι κοινωνίες του Νότου είναι, κυρίως λόγω κλίματος, πιό αυθόρμητες, πιό κοινωνικές, πιό ατομιστικές, πιό χαλαρές και με τάση προς την καλοζωϊα. Εκείνες του Βορρά, λόγω κλίματος και πάλι, έμαθαν να προνοούν, να λειτουργούν πιό ομαδικά, να πειθαρχούν στους νόμους, να είναι πιό φειδωλές στη διαχείριση, πιό ορθολογικές και πιό επιθετικές. Την Ελλάδα την έχουν καταστρέψει ήδη 4 φορές: 267 μ.Χ. οι ‘Ερουλοι, 395 μ.Χ. οι Γότθοι, 1204 μ.Χ. οι Σταυροφόροι, ο Β’ Π. Πόλεμος και τώρα επανέρχονται. Και επειδή τα βασικά χαρακτηριστικά μιας κοινωνίας (το κοινωνικό της DNA) συντηρείται διαχρονικά, φροντίζουν να διατηρούν και την επιθετικότητά τους ώστε να αμύνονται αποτελεσματικά έναντι άλλων επιθετικών επιβουλέων. Έτσι διασφάλισαν τη ζωτικότητα και την ισχύ τους για παραπάνω από 1000 χρόνια. Ιδιαίτερα δε οι Γερμανοί που δεν υπήρξαν ναυτικός λαός, δεν απέκτησαν αποικίες και δεν γνώρισαν άλλους πολιτισμούς για να «ανοίξει» η σκέψη τους, αναγκάστηκαν να στηριχθούν στις δικές τους δυνάμεις και θεωρούν ότι το δικό τους μοντέλο είναι το μόνο επιτυχημένο και πρέπει να επιβληθεί και στους άλλους, φυσικά επ’ ωφελεία τους! Η δε προτεσταντική ηθική που εφευρέθηκε στη Γερμανία χρησιμοποιείται και ως μεταφυσική δικαίωση της περιφρονητικής στάσης τους προς τον “αργόσχολο” Νότο.

Νότος και Βορράς είναι λοιπόν δυό οντότητες με διαφορετικές αξίες και στάση ζωής. Μπορούν άραγε να συμβιώσουν ομαλά και ισότιμα;

Μέχρι πρόσφατα και για όσο υπήρχαν πλεονάσματα, τα πράγματα έδειχναν ότι αυτό είναι εφικτό. Η ώρα της αλήθειας όμως έφτασε μαζί με την οικονομική κρίση και την αναβίωση των ορέξεων της Γερμανίας για επικράτηση επί των άλλων. Aφού λοιπόν η Γερμανία μάζεψε όλα τα λεφτά του Νότου με μοχλούς το ΕΥΡΩ, τις τράπεζες, τη συνεχή βελτίωση των προϊόντων της και την επί μία δεκαετία εσωτερική της λιτότητα, τώρα δανείζει πίσω στο Νότο με τόκο και με σκληρούς όρους υποταγής και δημιουργεί και ένα νέο πολιτικό κόμμα που επιδιώκει την αποχώρηση της χώρας του από το ΕΥΡΩ. Αφού δηλαδή δεν έχει άλλα να μας προσφέρει ο Νότος, τα παίρνουμε και φεύγουμε! Εκτός και άν ο Νότος δεχθεί να ξεπουληθεί φτηνά και να καταστεί ενεργούμενο των επιδιώξεων της Γερμανίας.

Βασικά προσόντα ενός ηγέτη είναι να θεωρείται δίκαιος, όχι μικρόψυχος, όχι αχάριστος και να μην κάνει διακρίσεις. Όμως, η τιμωρητική στάση της Γερμανίας απέναντι σε όποιον δεν ακολουθεί αμέσως τα κελεύσματά της προδίδει αλαζονεία, έλλειψη μέτρου και επιλεκτική μεταχείριση και γεννά στους λοιπούς καχυποψία, ανασφάλεια και αντίδραση. Ενώ η ίδια δεν έχει κατορθώσει, μετά από 23 ολόκληρα χρόνια και με πακτωλό χρημάτων, να ενσωματώσει πλήρως την πρώην Ανατολική Γερμανία, ζητά από τους άλλους να αλλάξουν, εδώ και τώρα, καταστάσεις και νοοτροπίες αιώνων και τους τιμωρεί βάναυσα και τους λεηλατεί επειδή αυτό δεν γίνεται. Έχουν κάνει παράδοση τη χρησιμοποίηση των αδύναμων ως πειραματόζωα. Αρπάζουν ή καταστρέφουν ο,τιδήποτε επιθυμούν και δεν έχουν. Στην Ελλάδα χτύπησαν μεταξύ άλλων την ιδιοκτησία. Στην Κύπρο τις τράπεζες. Εμείς τους πληρώσαμε τα χρέη τους το 1953! Αυτοί μας έκλεψαν τον χρυσό και το Κατοχικό δάνειο, μας κατέστρεψαν, χάσαμε εξ αιτίας τους το 7% του πληθυσμού μας και τώρα μας κάνουν και μαθήματα ηθικής!

Σε θέσεις – κλειδιά των θεσμικών οργάνων της ΕΕ και στις “Τρόϊκες” τοποθετούνται κυρίως άτομα ευθυγραμμισμένα με τις Γερμανικές θέσεις. Εύλογα συμπεραίνει κανείς ότι η Γερμανία θα προσπαθήσει να καθορίσει και τον καταμερισμό εργασίας στις χώρες της ΕΕ, περιορίζοντας το Νότο κυρίως σε τουρισμό, αγροτική παραγωγή και ενέργεια, όπου αυτή υπάρχει.

Και ο διακριτικά χειραγωγούμενος Γερμανικός λαός που διαθέτει και πολλά προτερήματα, αντί να στραφεί διεκδικητικά προς τις μεγάλες βιομηχανίες (τζίρος VW – 2012 = 193 δις. Ευρώ!) και προς τις τραπεζές του που θησαυρίζουν ενώ παράλληλα τον κρατούν σε διαρκή λιτότητα, στρέφεται περιφρονητικά εναντίον του Νότου.

Όσο όμως και άν «νουθετεί» στο παρασκήνιο μικρές και μεγάλες χώρες, πιστεύω πως είναι θέμα χρόνου να αντιδράσουν οι θιγόμενοι λαοί της μεταλλαγμένης Γερμανικής Ευρώπης. Η Ευρωπαϊκή ιδέα της ισοτιμίας των λαών έχει ήδη δεχτεί ισχυρό πλήγμα από τους Γερμανούς. Δεν φαίνεται να αντιλαμβάνεται η Γερμανία ότι “η ισχύς εν τη ενώσει” και ότι στις δύσκολες ώρες η οικογένειά σου είναι αυτή που θα σε συντρέξει και άρα θα πρέπει και αυτή να είναι ισχυρή. Αποξενώνοντας και πτωχεύοντας όμως τους άλλους και βάζοντας στόχους μεγαλύτερους από το μπόϊ της κινδυνεύει να βρεθεί κάποτε μετέωρη. Και επειδή η ίδια δεν διαθέτει την αναγκαία κρίσιμη μάζα εδαφών και πληθυσμού ούτε και στρατιωτική δύναμη, η φιλοδοξία της να ελέγχει τα πάντα στην Ευρώπη και αλλού είναι εκ προοιμίου μη πραγματοποιήσιμη. Άν συνεχίσει έτσι, θα καταστρέψει για τρίτη φορά τους υπόλοιπους, χωρίς τους οποίους δεν πρόκειται και η ίδια να κρατηθεί για πολύ. Όπως περίπου έγινε δυό φορές στο παρελθόν. Και τη Γερμανία την έκριναν οι λαοί συνειδησιακά με μεγάλη επιείκεια στο τέλος του Β’ Π. Πολέμου επειδή από το 1918 μέχρι το 1933 της επιβλήθηκε μια βάναυση λιτότητα που εξέθρεψε και το Ναζισμό. Τώρα όμως που είναι χορτάτοι δεν θα έχουν κανένα άλλοθι.

Και πώς αναπαράγονται διαχρονικά όλα αυτά τα αρνητικά γνωρίσματα; Φταίει το DNA των ανθρώπων; Ασφαλώς όχι. H δεύτερη γενεά όσων Γερμανών μετανάστευσαν π.χ. στην Αμερική, συμπεριφέρεται τελείως ως Αμερικανοί. Άρα είναι η κοινωνία τους και η εκπαίδευσή τους που δημιουργούν αυτές τις συμπεριφορές. Είναι η ελίτ τους που επιδιώκει τη διαιώνιση αυτών των προτύπων και δηλητηριάζει υποκριτικά την ψυχοσύνθεσή τους για να διατηρεί την ισχύ και τα προνόμιά της.

Η απάντηση λοιπόν στο βασικό ερώτημα είναι ΟΧΙ: Η Γερμανία δεν δέχεται κανέναν άλλον στην Ευρώπη ως ισότιμο και, ως εκ τούτου, δεν προοιωνίζονται ευχάριστες εξελίξεις.

Για να αμυνθούν, οι χώρες που καταπιέζονται από τη Γερμανία και που μαζί συνθέτουν την πλειοψηφία στα Ευρωπαϊκά όργανα, πρέπει να δημιουργήσουν ένα lobby, μάλλον υπό τη Γαλλία, που θα προωθήσει ένα νέο μοντέλο ανάπτυξης, αλλαγή της Συνθήκης του Μάαστριχτ, έκδοση Ευρωομολόγων κλπ. Θα θελήσει όμως η Γαλλία να αναλάβει μια τέτοια πρωτοβουλία; Άν όχι, η αποχώρηση χωρών από το Ευρώ θα αποτελέσει σοβαρό ενδεχόμενο.

Αλλά και εμείς οι Έλληνες θα πρέπει να θυμόμαστε ότι γίναμε δεκτοί στο Ευρώ με δική μας επιμονή, χωρίς να διαθέτουμε τις προϋποθέσεις, ωθούμενοι από μια επιπόλαιη μεγαλομανία. Η λέσχη όμως των βορείων κρατών λειτουργεί με δικούς της κανόνες, τους οποίους δεσμευθήκαμε να ακολουθήσουμε. Όσο αποφεύγουμε να το κάνουμε θα θεωρούμαστε “ξένο σώμα”, δεν θα βρίσκουμε συμπαραστάτες και ίσως εξωθηθούμε να αποχωρήσουμε ή να προσκυνήσουμε.

Τέλος, θα πρέπει ο Νότος να λάβει υπόψη του ότι το Γερμανικό μοντέλο που δημιουργεί τον πλούτο δεν του ταιριάζει και να αποδεχτεί συνειδητά να έχει μικρότερη αγοραστική δύναμη από το Βορρά (το πόσο μικρότερη είναι ένα άλλο ζήτημα). Διαθέτει όμως ο Νότος πολλά άλλα πλεονεκτήματα που μπορεί και απολαμβάνει και για τα οποία ο Βορράς τον φθονεί!

www.tovima.gr/opinions/article/?aid=504936

άρθρο γραμμένο πάνω απο 2 χρόνια πριν

Υποβάθμιση της προοπτικής της ΕΕ από Standard&Poor's:


The European Union (EU) supranational borrows on the capital markets to lend
to member states and certain other governments on a back-to-back basis, as
well as to lend under other programs, such as the European Atomic Energy
Community (EURATOM). The long-term rating on the EU partly relies on the
capacity and willingness of its 28 members to support it. We currently rate
the EU at 'AA+'.


The institutional arrangements backing the EU underpin our rating on the
supranational organization. In the unlikely event that borrowing member
states defaulted on their loans from the EU, the EU could draw upon its
budgetary resources to make payment on its own debt.
Because the EU has no paid-in capital, our methodology puts considerable
weight on the average weighted rating on net budgetary contributors to
the EU.
Germany, France, and the U.K. contribute more than 70% of net transfers
to the EU budget, and excluding own resources in gross terms, these three
states contribute 50% of total EU member state national contributions.
We are revising our outlook on the EU to negative from stable and
affirming the 'AA+/A-1+' ratings.
The negative outlook reflects our view that there is a greater than
one-in-three likelihood of a rating change on the EU during the next two
years.

MADRID (Standard & Poor's) Aug. 3, 2015--Standard & Poor's Ratings Services
today revised its outlook on the supranational institution, the European Union
(EU), to negative from stable. The 'AA+/A-1+' long- and short-term issuer
credit ratings were affirmed.

The outlook revision reflects the following:
Our expectation that the EU will provide first-loss guarantee support for
financing connected to the Juncker Plan;
Further downward pressure on the average weighted rating on net budgetary
contributors to the EU, as indicated by our negative outlooks on the
second- and third-most important sovereign contributors, the U.K. and
France (Germany is the largest contributor); and
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.

Since we last reviewed our ratings on the EU on Oct. 14, 2014, we revised our
outlook on the second-largest net contributor to the EU budget--the U.K.--to
negative, reflecting among other concerns, the U.K. government's decision to
hold a referendum to exit the EU (for further details, see "United Kingdom
Outlook Revised To Negative; 'AAA/A-1+' Ratings Affirmed," published June 12,
2015, on RatingsDirect). The negative outlook on the EU also reflects its lack
of any paid-in capital, a key difference compared with other multilateral
institutions. The EU continues to run a very large negative net asset
position, largely reflecting its considerable pension obligations.

We view the EU as the most prominent of the European supranationals. Founded
in 1958 by the Treaty Establishing the European Community (The Treaty of
Rome), the EU manages a common budget for its members. It administers transfer
programs that are policy priorities for its member states; maintains a customs
union; and sets common social, environmental, and regional policies. As a
lender, the EU focuses on providing financial assistance primarily (though not
exclusively) to EU member states in economic difficulty with limited access to
commercial bond markets.

Since lowering our rating on the EU to 'AA+' on Dec. 20, 2013, we have lowered
the ratings on Bulgaria, Croatia, Finland, and Greece. Over the same period we
have taken positive rating actions on Cyprus, Hungary, Ireland, Latvia,
Lithuania, Romania, Slovenia, and Spain. On Oct. 10, 2014, we lowered the
ratings on one 'AAA' rated EU member (Finland), leaving four 'AAA' rated
members (Germany, Luxemburg, Sweden, and the U.K.). Since 2007, the revenues
contributed by 'AAA' rated sovereigns as a proportion of total revenues have
nearly halved to 34%. At the same time, the average sovereign rating for the
11 members that are net contributors to the EU budget (NBCAR), weighted by the
sum of their contribution, remains unchanged at 'AA+' since 2013. Although our
positive outlooks (seven) on the EU-28 member states outnumber negative
outlooks (two), the two negative outlooks are on the second- and third-
largest net contributors to the EU budget, the U.K. and France, respectively.
Together, France and the U.K. make up 31% of EU GDP and an estimated 39% of
net EU budgetary contributions. An upgrade of The Netherlands, for instance,
would not neutralize the effect of lower ratings on either the U.K. or France,
given that The Netherlands accounts for only 6% of total net contributions to
the budget.

We acknowledge that net contributions from member states do not reflect the
benefits to members' economies from EU membership, including the reduction in
transaction costs and other positives from being part of the single market.
Nevertheless, the 1999 European Council stipulated that operating expenditure
data (which refer to "net budgetary contributions") would be considered as
budgetary imbalances. Using other accounting definitions for budgetary
support, the importance of France and the U.K. is somewhat lower. For example,
as a share of total (gross) member states' national contributions excluding
own resources, France and the U.K. account for 29% of the total. This
continues to be a large share of the total, however. Moreover, under our
methodology for rating multilateral lending institutions (MLIs) we do not
consider these budgetary contributions to be a substitute for loss absorbing
paid-in capital.

The EU's financial arrangements are complex. Its liabilities substantially
exceed its assets (by €58 billion at year-end 2014). This large net liability
position includes material current payables, a large part of which we believe
would be subordinated to debt-servicing requirements if necessary (Treaty on
the Functioning of the European Union, Articles 310.1 and 323). This baseline
assumption--the priority of debt payments over current expenditures--is a key
rating consideration, and, alongside the entity's importance to its
membership, is the cornerstone for rating the EU according to our criteria "
Principles of Credit Ratings," published Feb. 16, 2011).

We use our principles of credit ratings criteria to assess the EU, owing to
the uniqueness of the supranational's structure, noting that it shares some
characteristics with other supranational entities. Although the EU lends to
member states, the EU does not resemble a bank: it has no paid-in equity (nor,
technically, any callable capital, though it can--as established in the Treaty
of the European Union--call upon the resources of member states to service its
debt). At the same time, its high credit rating partly recognizes its
preferred creditor treatment (a key rating factor for many MLIs that lend
primarily to the public sector, as specified in paragraph 25 of our criteria, "
Multilateral Lending Institutions And Other Supranational Institutions Ratings
Methodology," published Nov. 26, 2012). The EU also benefits from several
lines of explicit and implicit support by EU member states as stipulated in
the Treaty of the European Union.

The EU is a treaty organization, which we view as positive for the rating
under paragraph 23 of our multilateral lending and supranationals criteria. It
has some characteristics in common with other supranationals, especially in
its objectives and the sort of programs it funds. Unlike most financial
entities, including the European Financial Stability Fund--another
supranational that has lent to program countries in Europe--the EU does not
engage in maturity transformation. All of its loans are equally matched by
same-maturity borrowings in the market. The EU lends primarily to member
states through its balance-of-payments loans to and via its European Financial
Stabilization Mechanism (EFSM) lending to two members states, Ireland and
Portugal, as well as to nonmember states via its small-scale macrofinancial
lending to Serbia, Bosnia, Macedonia, Albania, Armenia, and Ukraine. The EU
also extends its guarantees on the European Investment Bank's (EIB's) lending
to small and midsize enterprises and other loans.

In January of this year, the European Commission adopted a legislative
proposal for the European Fund for Strategic Investments (EFSI). The fund aims
to back €315 billion (or 2.2% of EU-28 GDP) in private and public investments.
It establishes a first-loss guarantee equivalent to €11 billion, with the risk
assumed by the EU, should losses on investments under EFSI be incurred by the
EIB or the European Investment Fund (EIF). We understand the guarantee will be
irrevocable, and that the EU must pay within 20 days of a call by the EIB
management. The maximum guarantee of €16 billion (including first-loss and
general guarantee) will be gradually 50% cash financed into a guarantee fund,
over an extended period of seven years. The funding for the EU guarantee fund
will come from existing margins within the EU budget (€2 billion), as well as
the redeployment of grants from the Connecting Europe Facility (€3.3 billion),
and the Horizon 2020 program (€2.7 billion).

Although we think EFSI investments will materialize only gradually, in synch
with the increase in cash coverage of the guarantee, we note that this would
significantly increase the EU's off-balance-sheet exposures over the short
term, backing projects that target a higher risk profile. We see this as a
marked increase in the EU's contingent liabilities. This is particularly the
case because the guarantee is leveraged by the EIB and EIF exposures,
therefore significantly increasing the risk for the EU. If the EFSI guarantee
is called above its €8 billion budgetary allotment, the EU would find the
additional resources either from existing margins within the multi-annual
financial framework (MFF) ceiling (which in 2013 was the difference between
own resources, representing committed revenues to the EU of 1.23% of EU gross
national income (GNI), and the amount spent on actual payment appropriations
in any particular year (1.06% of GNI in 2013); or, alternatively, by cutting
spending on other EU programs. In other words, the guarantee call would have
to be budgeted, and as in the past, the EU's budget must balance by
definition.

We view the ratings on the EU as closely linked to those on its member states,
through the assessments in the budget and the contingent claims detailed
below.

As of year-end 2014, the EU's outstanding loans and guarantees totaled €84.1
billion (including EURATOM, as well as guarantees for EIB operations of an
estimated €24 billion). With the addition of the EFSI exposure, this total
exposures increases to about €100 billion, to gradually decrease as the €8
billion guarantee fund is being constituted.

The EU benefits from several credit strengths. The size of the EU's overall
risk assets is limited when compared to EU-28 GDP (€13 trillion or 0.6%) or
the EU government bond market (equivalent to €8.4 trillion or 0.9%). We also
expect the EU's lending activities will likely gradually decline, now that the
European Stability Mechanism is prepared and amply capitalized to provide
assistance to eurozone member countries. The recent bridge financing to Greece
for €7.2 billion is a three-month short-term exposure, and will not likely be
replaced by additional exposure to Greece (CCC+/Stable/C). Still, we note that
two member states (the U.K. and the Czech Republic) requested and received a
form of guarantee from the European Central Bank that any cash call on them in
the event of a default by Greece on the EFSM loan would be covered by
cumulative Eurosystem profits on treasury ("Securities Market Programme")
holdings on Greek government bonds.

We expect that the average maturity at disbursement of the EU's EFSM loan
portfolio will increase to 19.5 years (from 12.5 years in 2013), once it
extends advances to Ireland and Portugal (assuming their governments make this
request as and when current loans from the EU come due). Together, Ireland and
Portugal represent 78% of EU loans outstanding. We expect that the EU will
continue its back-to-back lending and that it will roll-over its debt to match
the maturity extensions anticipated in the Irish and Portuguese Troika lending
programs. We view as remote the EU not being able to access capital markets.

The EU's budget consists of annual revenues that we expect will total just
under 1% of the total GNI of its member states (€1,024 billion) over the
2014-2020 MFFs. In case of need, a large part of these revenues could be
reallocated for debt service instead of transfers and other current expenses.
To ensure funds would be available in such a scenario, the EU has scheduled
its debt maturities at the beginning of months, when its cash balances are
maximal. Over the past two years, the beginning-of-month cash balance has been
almost always higher than €10 billion; as of year-end 2014, cash and cash
equivalents exceeded €15 billion. The maximum yearly debt redemption of the EU
over the next five years is €7.7 billion.

In addition to these recurrent cash receipts, the EU has a contingent claim
("fiscal headroom") on EU members, which we expect will average 0.28% of GNI
(or about €30 billion annually) over the 2014-2020 MFF. EU members have made
this pledge for the express purpose of backing the EU's financial obligations.
Both this pledge and any budgetary payments are joint and several obligations
of EU members. As a point of comparison with MLIs, and using the fiscal
headroom to calculate our risk-adjusted capital ratio (our primary metric for
assessing capital adequacy for MLIs), we estimate that the EU's capital
adequacy is strong. We believe, however, that the willingness of sovereigns
rated at or above the level of the rating on the EU to fulfill this joint and
several pledge might be tested if some other members are unwilling to honor a
capital call on a pro-rata basis.

The EU's annual budget is set according to the terms of the MFF, which was
approved in early December 2013. As part of the MFF, member states agree to
commitments for individual budgetary line items and to disbursements under
these commitments. The commitments and payments are both subject to ceilings.
In particular, the amounts paid in by EU members, from taxes and levies that
fund the EU's commitments, must not exceed the MFF payment ceiling. As per an
EU council regulation, these amounts paid into the EU's "own resources"
account are adjusted retrospectively to reflect the actual value-added-tax
base, as well as backward revisions to GNI as and when they are determined.
Our rating on the EU reflects our assumption that member states will fulfil
these obligations in accordance with retrospective revisions.

The agreement at European Council level regarding the 2014 MFF was reached in
February 2013 and the regulation adopted by the European Council only in
December 2013, after negotiations with the European Parliament. During these
negotiations, non-eurozone members that are net contributors to the EU budget,
and which are typically 'AAA' rated, argued for a reduction in budgetary
payments. This relatively small but important group of EU members was able to
determine at least a temporary limit to the EU's budget. Other net
contributors, notably eurozone members, have continued to debate the U.K.'s
rebate (a formula for the U.K.'s budgetary contribution specific to it).
Further, the U.K.'s re-elected conservative government has pledged to organize
a referendum on continued EU membership, set to take place in 2016.

The negative outlook reflects our view that there is a greater than
one-in-three likelihood of a rating change on the EU during the next two
years.

We could consider a negative rating action if the sovereign creditworthiness
of net contributing EU sovereigns deteriorated, if we considered future
budgetary negotiations to be more protracted and acrimonious than past
negotiations, if members applied to leave the EU, or if its financial measures
deteriorated.

We could revise our outlook on the EU to stable if we affirm the ratings on
two large net contributors, the U.K. and France, at their respective current
levels.

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