Fitch: Europe faces rating downgrades if Greenland ruptures NATO

Investing.com -- European countries could face one-notch credit rating downgrades if tensions between the U.S. and Denmark over Greenland lead to a fracturing of NATO, according to Fitch’s top sovereign analyst.

James Longsdon, head of sovereign ratings at Fitch, said on Thursday that the agency might consider applying a one-notch "adjustment" to European sovereign ratings if the defense alliance weakens, similar to what it already does for countries in geopolitical hot spots like Israel, Taiwan and South Korea.

"Clearly that’s the one thing we’d have to look at for any of the sovereigns in Europe where structurally we need to think about that," Longsdon said in an interview.

The comments come as Danish Prime Minister Mette Frederiksen warned that a conflict with the U.S. over Greenland could spell the end of NATO. Frederiksen said Thursday that there remained a "fundamental disagreement" with the U.S. after President Donald Trump again insisted that the U.S. "needs" Greenland.

Longsdon emphasized that Fitch would "have to see how these things play out first" and that any rating action would require careful assessment. He noted that proximity to Russia would be a key factor in determining vulnerability.

"It could be where you felt the vulnerability to a geopolitical event would be most obvious," he said. "That’s the broad rule of thumb, so the further away you are from Russia, the least likely that is to be the case."

Despite the tensions, Longsdon indicated that Denmark’s triple-A credit rating was unlikely to be affected by the Greenland dispute.

"Greenland is a large land mass, but it’s very small economically and fiscally for Denmark," Longsdon said. "It is a very solid triple-A sovereign rating, so I think just the size differential makes it very hard to see a situation that would be so consequential."

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