Geopolitical Tensions Affect European Sovereign Credit Outlook

Geopolitical Challenges Facing Europe

BERLIN, Jan 21 (Reuters) - A challenging geopolitical environment compounded by unfavourable political crosswinds within Europe is weighing on the region's medium-term sovereign credit outlook, Scope Ratings said on Wednesday, even as the continent continues to show economic and fiscal resilience.

Risks to Security and Fiscal Stability

"The U.S.-Europe Greenland crisis and the re-emergence of uncertainty over EU-U.S. trade relations are critical for the European sovereign outlook," said Alvise Lennkh-Yunus, head of sovereign and public sector at Scope Ratings.

U.S. Relations and European Cohesion

The main risk is to Europe's security, fiscal and energy stance and EU cohesion, rather than a large immediate economic hit, Lennkh-Yunus said, adding that the direct economic impact should be manageable.

Scope's baseline remains a broadly resilient European credit outlook, with "rating convergence and cautious optimism on growth and fiscal positions," Lennkh-Yunus said.

ASSUMING EU CAN RELY ON THE US

"The (U.S. President Donald) Trump administration’s escalation of political pressure against its NATO allies over the future of Greenland underscores the White House’s increasingly destabilising approach toward its traditional allies," said Eiko Sievert, executive director at Scope Ratings.

On whether Europeans could pressure Washington by selling U.S. assets, Sievert said a large, a coordinated selloff was unlikely, even though European countries, alongside Japan and China, hold large shares of outstanding U.S. Treasuries.

It warned such a scenario could trigger fire-sale dynamics, hit investors' own portfolios and destabilise the global financial system.

(Reporting by Rene Wagner and Maria MartinezEditing by Madeline Chambers)