|Since becoming prime minister, Rajoy has taken steps to deal with Spain's high unemployment rate [AFP]
French President Nicolas Sarkozy is in Spain for talks with Mariano Rajoy, the country's new prime minister, that are likely to be dominated by a sweeping credit downgrade that has reignited fears over the financial stability of the eurozone.
Sarkozy, in remarks published on Monday, said he wanted to applaud the "extremely courageous" decisions taken by Spain to confront the crisis, and said he would present new reforms at the end of the month to get France growing again.
Standard & Poor's, a New York-based ratings agency, cut the credit rating of nine debt-laden European countries on Friday, including stripping France of its top-notch AAA rating and slashing Spain by two notches to A from AA-.
Sarkozy has been optimistic, saying the crisis would give France "the opportunity to make decisions quickly, because the situation demands it".
"Courage gives the strength to act. France is a big country. During its history France often went through hard times. France resisted during the three years of the crisis, and France will overcome this crisis and will come out of it stronger," Sarkozy said during an address at a public ceremony in France on Sunday.
Al Jazeera's Jacky Rowland, reporting from the French capital, Paris, on Monday, said Sarkozy is in a very difficult position.
"It's an election year. Anything like cuts in public spending or increases in taxes are unpopular with voters," she said.
"Yet, nevertheless whoever does win the election in a few months time will - after that result - be forced one way or the other to introduce new tough measures."
However, Sarkozy said deficit-cutting measures could not alone resolve the eurozone crisis.
"We all have to understand that to get Europe out of the crisis we must, in addition to the indispensable deficit-reduction measures that we have already taken, give priority to growth, to employment and competitivity," he told Spain's conservative daily ABC in remarks made before arriving in Madrid.
That message will resound in Spain, which posted an unemployment rate in the third quarter of 2011 of 21.5 per cent - the highest in the industrialised world.
Spain's government has announced 8.9bn euros ($1bn) in budget cuts, tax increases to bring in 6.28bn euros and an anti-tax fraud battle to recoup another 8.17bn euros to help balance the public finances.
Rajoy said on Saturday that Spain now had an "astronomical" figure of 5.4 million jobless.
Al Jazeera's Jonah Hull, reporting from the Spanish capital, Madrid, said Rajoy is keen to preserve Spain's historical place at the heart of European decision making.
"But preserving Spain's historical place will not in itself prevent what would be a historic collapse of Spain's economy," our correspondent said.
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"It's in a dreadful mess - the fourth largest economy in the eurozone with the third largest budget deficit, its highest levels of unemployment and going now back into recession.
"[Rajoy's] given some indications of where he will make cuts, but he's got to find something like $55bn worth of cuts in this year alone."
Meanwhile in France, Valerie Pecresse, France's budget minister, said that a downgrade of her country's credit rating would not lead to a rise in the country's borrowing costs.
She said she did not expect "mechanical consequences" of the downgrade because France had "credibility" and was a "sure value".
The Moody's ratings agency on Monday confirmed France's AAA credit rating, just three days after its rival downgraded it.
The downgrades by Standard & Poor's were largely expected and traders said pressure on Italian and Spanish bond yields on Monday were offset by the European Central bank stepping in to buy the bonds.
Greek's debt crisis
Uncertainty over fixing Greece's debt crisis is more of a threat to Europe's stability than the downgrades, George Osborne, the British finance minister, said on Monday.
Greece needs a deal with the private sector, the EU and the IMF to avoid going bankrupt when 14.5bn euros of bond redemptions fall due in late March, but talks with its creditor banks broke down without an agreement on Friday.
Lucas Papademos, the Greek prime minister, promised a debt swap would be clinched in time after he dispatched senior officials to Washington to break the deadlock in talks.
A leading representative for the creditors said Greece was not the problem in the talks, suggesting the issue lay with terms insisted on by foreign lenders keeping Greece afloat with aid.
Inspectors from the EU, the IMF and the European Central Bank, due in Athens on Tuesday for talks on a second, 130bn-euro bailout, have warned that they need the deal with the private sector to achieve that debt-reduction goal before they agree to give more aid.
Greece, in its fifth year of recession, has continuously missed its fiscal targets, prompting speculation that the country may need further financial support to put its debt on viable footing.
Source: Al Jazeera and agencies