The stable trend reflects the DBRS view that Member States’ commitment and ability to support the Union should remain strong despite rising debt and geopolitical risks.
DBRS Ratings GmbH (Morningstar DBRS) has confirmed the European Union (EU) Long-Term Issuer Rating at AAA. At the same time, DBRS confirmed the European Union Short-Term Issuer Rating at R-1 (high). The trend across all classifications is Stable.
The stable trend reflects the DBRS view that Member States’ commitment and ability to support the Union should remain strong despite rising debt and geopolitical risks.
The projected material increase in EU debt to a maximum of almost €1 trillion, mainly as a result of the temporary instrument Next Generation EU (NGEU), i.e. the Recovery and Resilience Plan, will likely generate high debt servicing costs in the future.
However, the increase in budgetary space, the obligation of Member States to finance agreed expenditure levels, the EU’s own resources system and repayments to loan beneficiaries should comfortably allow the Union to repay its debt, argues DBRS .
DBRS rates the EU based primarily on its AAA support rating. This is supported by the credibility of the Union’s core Member States, their strong commitment to the EU and the increase in multiple sources of support, especially from AAA-rated non-core Member States.
At the same time, the EU benefits from conservative budgetary management. Furthermore, despite the significant increase in debt following the introduction of the NGEU program, there continue to be several levels of debt service agreements that protect creditors and the EU has a de facto preferential creditor status, recalls the rating agency .
To finance the NGEU program, the EU’s debt is increasing rapidly, but DBRS considers the increased fiscal space to be positive, together with the commitment of Member States to introduce new EU own resources to pay down the debt.
“EU debt is expected to rise to a maximum of almost €1 trillion by 2026, up from around €458 billion (2.7% of EU27 gross national income -GNI-) in 2023. Debt Total Next Generation EU will finance grants and other non-repayable resources from Next Generation EU up to 421.1 billion and Recovery and Resilience Facility (RRM) loans worth 292.6 billion. These loans will be repaid by the loan beneficiaries. Furthermore, increasing the EU’s own resources ceiling from 1.2% of the EU’s GNI to 2.0% (of which 0.6 percentage points on a temporary basis until 2058, for Next Generation EU) gives the EU a significant budget margin to meet its annual financial commitments”, reads the DBRS report.
