Eurozone defiant after S&P throws downgrade gauntlet

6th December 2011, Comments 0 comments

Eurozone nations hit back on Tuesday at a threat by ratings agency Standard & Poor's to downgrade 15 eurozone countries, and promised to push ahead with reforms to tighten budget discipline.

Many EU officials criticised the timing of S&P's warning, coming hours after France and Germany announced a joint plan to pull the euro back from the brink with a new EU treaty and tougher budgetary rules.

The warning also came three days before an EU summit on Thursday and Friday, which S&P said was now of critical importance.

French Foreign Minister Alain Juppe said the strategy aimed at ending the eurozone debt crisis announced by President Nicolas Sarkozy and German Chancellor Angela Merkel after crisis talks in Paris was "the response" to S&P.

Monday's plan to toughen EU budgetary rules "is precisely the response to one of the major questions of this ratings agency (S&P) that mentions the insufficiency of European economic governance," Juppe told RTL radio.

"We have a trajectory for revising our public deficits that we will stick to," Juppe said, voicing confidence that the Franco-German plan would provide impetus to Thursday and Friday's crucial summit of EU leaders in Brussels.

The governor of the Bank of France, Christian Noyer, said that S&P's warning was "totally inopportune... after a Franco-German agreement on an extremely powerful governance package."

The head of the eurozone finance ministers grouping, Jean-Claude Juncker, joined Noyer in lashing out at S&P's warning, telling Germany's Deutschlandfunk radio it was "completely over the top and also unfair."

"After the very substantial efforts in the eurozone in recent days to get the debt crisis under control... this warning comes as crushing blow," said Juncker, who is also prime minister of Luxembourg.

EU internal markets commissioner Michel Barnier also voiced surprise over the timing.

"These assessments came three days before the European Council, instead of afterwards to evaluate the impact (of the summit decisions)," Barnier told reporters.

"It's an assessment and opinion among others," said Barnier, who last month presented plans to regulate ratings agencies, which have come under heavy criticism over their role in the eurozone crisis.

Merkel responded to a question on the downgrade threat on Tuesday morning by saying that she would press on with "important" reforms for the eurozone.

"I have always said it's a long process which will still last a long time. But this path is now mapped out, also yesterday through the meeting with the French president, and we will continue on this path," she added.

However, German Finance Minister Wolfgang Schaeuble said that the S&P warning was a good way of concentrating minds before the summit and raising pressure for an agreement.

Merkel and Sarkozy's plan backed automatic sanctions against any EU member state with a public deficit exceeding 3.0 percent of gross domestic product.

S&P's warning threatened a one-notch cut to the hallowed AAA ratings of Germany, The Netherlands, Finland, Luxembourg and Austria.

France, also AAA-rated and the eurozone's second-largest economy, could be hit with a two-notch cut, as could the other countries currently rated below AAA.

S&P said it would complete a review of the 15 countries' ratings "as soon as possible" following the EU summit.

It warned Tuesday that the eurozone's 440-billion-euro EFSF bailout fund, which depends on the triple-A ratings of six eurozone countries, also risks losing its top rating.

Spain's incoming prime minister, Mariano Rajoy, said he was in favour of treaty reform and that "we will find a way for that reform to enter into force as soon possible."

Poland's Prime Minister Donald Tusk said Tuesday his country, which holds the EU's rotating presidency until the year's end, "will support all efforts to expedite the rescue of the eurozone because this is the ultimate objective."

Slovak Finance Minister Ivan Miklos, a strident fiscal disciplinarian, said that the eurozone must send a strong signal at the Brussels summit.

"It's important to ratify strong fiscal rules, automatic and enforceable that would prevent fiscal irresponsibility," he told Slovakia's EU affairs parliamentary committee.

The Austrian government put out a statement Monday night saying it acknowledged S&P's move but insisting it was taking measures to lower the deficit, saying it was "determined" to tackle the debt.

Sony Kapoor of the Re-Define think tank said S&P's warning "upped the ante for what was already going to be a very high-stakes summit even more."

While EU leaders might point the finger of blame at S&P for deepening the crisis, "S&P's actions have not caused the worsening of the euro crisis but are merely a symptom of it," he said.


© 2011 AFP

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