In a referendum that Western governments have deemed unlawful, over 95% of Crimea’s population voted to join Russia on Sunday. The EU has responded by imposing sanctions on around 20 Russian and Crimean people, including politicians responsible for calling and organising the election.
Escalating tensions have done little to unsettle markets on Monday, however, and in Europe, the major credit protection markets have tightened. The iTraxx main is 2.5bp tighter at 74.875bp and the Crossover 7.5bp tighter at 269.75bp.
This provides a firm backdrop for the EU’s deal, which has faced delays over negotiations around financial aid for Ukraine and scheduled ratings announcements.
On Friday, Moody’s affirmed the EU at Aaa while lifting its outlook from negative to stable, which should effectively give the green light to its €2.6bn bond expected as a 10- or 15-year benchmark, said bankers close to the discussions on Monday.
Moody’s cited improvements in the creditworthiness of its largest shareholders and diminishing risks emanating from the euro area debt crisis as the key drivers behind its actions.
In recent months, Moody’s has upgraded Ireland from junk territory as well as raising the outlook its ratings of Germany, Netherlands, Belgium, Italy and Spain.
“Together, 80.5% of the contributions to the EU’s budget now come from countries with a stable or positive outlook, compared to 22.0% when a negative outlook was assigned to the EU’s rating in September 2012,” said Moody’s on Friday.
Moody’s made no reference to the EU’s involvement in a €11bn European financial aid package for Ukraine, or any risks associated with lending to the state.
The EU could provide as much €6.5bn to Ukraine over the coming years, it confirmed in its investor presentation updated on Monday.
This includes €1.6bn in macro-financial assistance loans, grants of €1.4bn financed by the EU budget, and a potential €3.5bn leveraged through its Neighbourhood Investment Facility.
The EU has been eager to stress that any financial aid for Ukraine would not significantly increase its borrowing needs this year. The body has €55.76bn in debt outstanding, and is scheduled to issue €4.7bn this year.
