Fitch Ratings has today assigned the European Union and the European Atomic Energy Community‘s EUR 80 billion Euro Medium Term Notes (EMTN) programme a Long-term rating of “AAA”. The loan is a part of EU’s EUR 750 billion bailout package.
“This programme will replace their existing EUR 20 billion EMTN programme. The additional amount will be drawn only in case the stability mechanism proposed by the ECOFIN Council on 9 May 2010 is activated,” the rating agency says in a statement.
Under this mechanism, the EU is allowed to extend its balance of payment assistance programme – originally limited to non-euro area countries – to member states of the euro zone experiencing exceptional financial difficulties.
The emergency loans that would be granted by the EU under this programme would be funded by bonds issued under the EMTN.
Here’s Fitch’s argument for giving EU the highest rating on money they borrow to finance the enormous bailout package:
“The ratings of the EU and Euratom are entirely based on the support both entities receive from their 27 member states, which have a high credit quality overall. At end-May 2010, eight EU member states were rated ‘AAA’/Stable/’F1+’ by Fitch. Also, a guarantee fund has been created to cover defaults on loans made by the EU and Euratom to non-member countries. If the fund’s reserves were exhausted, then EU budget funds would be called upon to cover defaulted loans. Furthermore, in the last resort, the EU and Euratom benefit from the guarantee of EU member states, which are legally obliged, jointly and severally, to make sure that the EU’s budget is balanced. The ratings also take into account the highly conservative and prudential rules set up by the EU and Euratom on their lending and borrowing activities, and the preferred creditor status of these institutions.”
Okay, 27 European countries are legally obligated to cover this loan – I’ll buy that.
The Really Interesting Part
And I have no problem seeing that the Notes qualifies for a top rating, according to the usual criteria.
But what’s really interesting here is the involvement of European Atomic Energy Community – Euratom.
Euratom was founded by the Treaty of Rome in 1957.
Its objectives include promoting research on nuclear fuel, establishing safety standards and ensuring nuclear fuel supply in member states.
From the Euratom’s website:
“The European Atomic Energy Community (Euratom) acts in several areas connected with atomic energy, including research, the drawing-up of safety standards, and the peaceful uses of nuclear energy. One of the fundamental objectives of the Euratom Treaty is to ensure that all users in the EU enjoy a regular and equitable supply of ores and nuclear fuels (source materials and special fissile materials).”
“To this end, the Euratom Treaty created the Euratom Supply Agency, which has been operational since 1 June 1960. The Agency has the task of ensuring a regular and equitable supply of ores, source materials and special fissile materials in the European Union (EU).”
I have no reason to speculate in anything, but I can’t help wondering why EU invited, among all possible candidates, Euratom in on the deal?
And what role have the nuclear guys played in setting up this loan programme?
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