Moody's sees no direct, immediate Brexit impact on other EU ratings

[March 10, 2016]  By Marius Zaharia

LONDON (Reuters) - There would not be any direct or immediate rating impact from Britain leaving the European Union on any of the bloc's other members, although some longer-term political risks may arise, the head of global sovereigns at Moody's said on Thursday.

Britain is due to hold a knife-edge vote on June 23 on whether to remain in the bloc, raising the possibility of years of uncertainty for the world's fifth-biggest economy if it decides to leave.

Moody's sees a "limited" and "manageable" impact on trade between Britain and the continent as arrangements could be re-constructed in the event of a Brexit, Moody's managing director of the global sovereign risk group Alistair Wilson told Reuters.

German Finance Minister Wolfgang Schaeuble has said it would be extremely difficult or even impossible for Britain to negotiate a "special deal" on trade with the EU if it voted to leave the 28-member bloc.

But Wilson said in an interview that the EU would have strong reasons to find new agreements as it currently has a trade surplus with Britain.

The political situation would need monitoring, he said, as anti-establishment parties in some EU countries may seek to use a Brexit as an argument for their policies, which may include renegotiating their own country's position within the Union.

"The negative implications are more indirect and more longer-term, and it gets back to the political dynamics we see are increasingly centrifugal and anti-austerity," Wilson said on the sidelines of a Moody's presentation of 2016 credit trends.

"I don't think there's any question that some of the alternative parties we see emerging across the EU would take some encouragement from a major structural break to offer an example they can use."

While some analysts have suggested Ireland could be one of the biggest losers from a Brexit due to its strong trading links with Britain, Wilson was quick to point out the economy's proven ability to absorb shocks.

Ireland has recovered from a bailout to become Europe's top performer in terms of economic growth. Moody's rates Ireland Baa1, which is already well below Standard & Poor's A+ and Fitch's A-.

As for Britain, Wilson reiterated a Brexit would result in a negative outlook on its Aa1 rating as it would cause "a long period of uncertainty."

On Cyprus, Wilson did not see any impact on ratings from the fact that it risks not being part of the European Central Bank's bond-buying program now that it is expected to soon exit its bailout.

The tiny island is still deep in "junk" ratings territory.

Another non-investment grade EU country, Portugal, which suffered a sharp bond sell-off in mid-February due to perceived budget and banking risks, is also not expected to see any near-term changes to its ratings.

"In Portugal ... we don't see any significant further improvement, but we don't see any significant downside risks either," Wilson said.

In general, the rating outlook for Europe was "relatively benign", and a slow recovery was expected, Wilson said. Finland and Austria are the only euro zone countries where Moody's has a negative outlook.

For a factbox on euro zone ratings, see

(Editing by Hugh Lawson)

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