Eurozone voices anger at credit downgrades

European leaders have called “incomprehensible” Standard and Poor’s (S&P) credit rating downgrades of nine debt-laden European Union countries, including stripping France and Austria of their top AAA rating.

Only Germany escaped unscathed, as all other eurozone members were either downgraded, some by two notches, or else warned their current ratings were being re-examined amid fears about sovereign debt.

The move may make it more expensive for struggling countries to borrow money, reduce debts and avoid a new recession.

“It is incomprehensible when one of three US rating agencies decides to go it alone and downgrade eurozone countries’ ratings or give them a negative outlook,” the Austrian government said in a statement, adding that “solutions [to the debt crisis] have been and are being worked out in close co-operation”.

Michel Barnier, the EU’s internal market commissioner, said on Saturday he was “surprised” by the timing of Standard and Poor’s downgrades, just when the bloc is toughening budget rules.

Earlier, Olli Rehn, the bloc’s economic affairs commissioner called the downgrades “inconsistent”.

Francois Fillon, France’s prime minister, said on Saturday that his country will push ahead with cost-cutting measures after its top-tier debt rating was downgraded, a blow that sent economic shock-waves across Europe.

‘Long road’

Angela Merkel, the German chancellor, said the downgrades underline the fact that Europe has a “long road” ahead to win back investors’ confidence. Her own country, was not downgraded.

Nine European countries’ credit ratings were lowered

Merkel said that she had “taken note” of the decision by New York-based S&P, which she stressed repeatedly is only one of three major rating agencies.

“The decision confirms my conviction that we in Europe still have a long road ahead of us before the confidence of investors is restored,” she said on Saturday at a televised news conference in the north German city of Kiel.

Al Jazeera’s Nick Spicer, reporting from Berlin, said the downgrade has been greeted in Germany, the largest contributor to Europe’s economy, with “healthy scepticism”.

“Angela Merkel doesn’t think markets should dictate policy, and that goes double for ratings agencies,” Spicer said.

Merkel and Fillon, said the downgrades should push European countries to quickly implement a planned pact to strengthen budget discipline.

Germany and France have piloted rescue efforts for other eurozone countries amid the continent’s ongoing debt crisis.

An ‘alert’

Fillon struck a sombre, measured tone when responding on Saturday to the downgrade, which was particularly wounding to France’s self-image and could hurt bailout efforts.

Economist Marwan Muhammad says the Eurozone must work cohesively

France is central to those efforts, and the downgrade, by pushing up its own borrowing costs, could make it harder for Paris to help others.

Fillon said the downgrade confirmed his conservative government’s plans for more reforms to bring down debts, despite worries that more austerity measures could suffocate growth.

He said the government would not adjust the budget yet, saying it had been devised with an assumption of higher borrowing costs.

The downgrade, three months before France holds presidential elections, was “an alert that should not be dramatized any more than it should be underestimated,” he said.

Al Jazeera’s Jacky Rowland, reporting from Paris, said Fillon “downplayed” the credit rating reduction.

“What he was pointing out is that it is not for a credit agency, sitting in New York, to dictate policy for France or any other European,” Rowland said.

Fiscal rules

Standard and Poor’s had warned 15 European nations in December that they were at risk for a downgrade.

Amongst those hit on Friday, Italy’s rating was lowered and Portugal’s debt was consigned to junk.

Kikis Kazamias, Cyprus’ finance minister, called S&P’s two-notch downgrade of his eurozone country to junk status “arbitrary and unfounded”.

He said the action illustrated once more how credit ratings agencies exacerbate Europe’s debt crisis.

The downgrade served as a reminder that the 17-country eurozone faces another tough year.

France’s downgrade to AA+ lowers it to the level of US long-term debt, which S&P downgraded last summer.

Speaking to fellow conservatives on Saturday, Merkel stressed the importance of a new treaty enshrining tougher fiscal
rules. Most EU leaders agreed in early December to draw up the pact.

The chancellor sought to allay concerns that the downgrade of France, the eurozone’s second-largest economy, would complicate the work of the bloc’s temporary rescue fund, the $560bn European Financial Stability Facility.

She also underlined the urgency of putting its permanent successor, the European Stability Mechanism, in place
quickly.