Leading credit ratings agency S&P has warned that the current construction of the European Union is “unsustainable” and needs far-reaching reform.
In a report published on Monday (25 July), S&P Global Ratings added its voice to the growing number of politicians and analysts calling for change.
“The problem is this: the EU, as it’s currently constructed and operates, doesn’t embody a coherent ‘pooling’ of the various dimensions of nation-state sovereignty, and therefore it’s unsustainable in its current form,” S&P said.
“There are too many moving parts in the electoral politics of 28 nation states, and too many conceivable random-like events that could push political and economic developments in one direction or another, with impossible-to-predict consequences and timelines,” the agency added.
A clear response is needed to address uncertainty about the future of the EU and to make it relevant to citizens, especially since the UK’s vote to leave on 23 June, the report said. “Brexit can be seen as just one, rather rude, manifestation of the underlying incoherence” of the EU.
S&P stripped the UK of its AAA credit rating on 27 June, just three days after the country voted to leave the European Union.
A new survey from the Confederation of British Industry (CBI), published on Monday (25 July) has shown that confidence among UK manufacturers has slumped sharply to a six-year low.
The monthly industrial trends survey found that just 5% of firms are more optimistic about the general business situation than three months ago, but 52% are less optimistic. That gives an outcome of -47%, the lowest figure since January 2009, the height of the financial crisis. Firms also reported that export orders have fallen this month, despite the weaker pound.
S&P Global’s chief economist Paul Sheard said the UK referendum should act as a “wake-up call to the rest of the EU.”
He added that it should be “answered in a way that calls forth an abundance of clear-mindedness and statesmanship”.
For the ratings agency, Europe has to choose between two ways forward. The first is to pool more sovereignty and develop a tighter and more coherent political union. The second is for member states to take back sovereignty over certain areas and turn the EU into a “looser form of political and economic federation”.
“The time has come for Europe to think big and to convene a constitutional convention,” said Sheard, “with a view to coming up with one or more recommendations for the future state of Europe and the outline of treaty changes necessary to bring it about.”