Chancellor Angela Merkel has vowed faster eurozone reform after a sharply criticized credit downgrade of nine eurozone members. The creditworthiness of France and Austria took a hit as they were stripped of AAA status.
European leaders reacting to the Standard & Poor's credit downgrade of nine eurozone members did not hold back with their criticism on Saturday, saying the decision was "inconsistent" and "incomprehensible."
"I regret the inconsistent decision at a time when the euro area is taking decisive action on all fronts of its crisis response," said European Union economics commissioner Olli Rehn, referring to efforts to get a grip on the eurozone debt crisis.
In Vienna, Austrian Chancellor Werner Faymann on Saturday called the move to strip his country of its AAA status "incomprehensible," stressing Austria was working on a plan to restructure the budget while parliament had passed a bill to limit spending.
"It is incomprehensible that individual eurozone countries were evaluated differently, even though they have been working on solutions in close coordination," he said.
Rating agency Standard & Poor's on Friday hit nine eurozone countries with downgrades, notably cutting France and Austria's creditworthiness from AAA to AA+.
In addition, Malta, Slovakia and Slovenia were each relegated by one notch while Italy, Spain, Portugal and Cyprus were all knocked down two steps from their previous levels.
Germany, Belgium, Estonia, Finland, Ireland, Luxembourg and the Netherlands were spared from the mass cull.
"Today's ratings actions are primarily driven by our assessment that the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone," S&P said in a statement issued late Friday.
Long road ahead
German Chancellor Angela Merkel on Saturday urged Europe to push ahead with the necessary changes to strengthen to eurozone, in spite of S&P's decision. Speaking in the northern German city of Kiel she emphasized the need for Europe's new pact to tighten economic integration to be implemented as soon as possible.
"We are now called upon to quickly implement the fiscal pact, to implement it with determination... and not try again to soften it," she said after a meeting of her conservative Christian Democratic Union party.
"The decision confirms my conviction that we in Europe still have a long road ahead of us until investor confidence is again restored. But it's also apparent that we have resolutely pursued this road of a stable currency, solid finances and sustainable growth," she added.
Speaking at a televised news conference, the chancellor also sought to alleviate fears that the downgrade of the eurozone's second largest economy, France, would "torpedo" the work of the bloc's temporary rescue fund, the European Financial Stability Facility.
Merkel did, however, stress the urgency of quickly establishing its successor, the European Stability Mechanism, due to take effect in July.
The mass downgrade, coupled with news that S&P considers 14 of the 17 eurozone members to have a negative outlook for the future, means Germany is now the only member of the single currency to enjoy both a top-notch AAA credit rating and a "stable" outlook.
Jean-Claude Juncker, Luxembourg's prime minister and the head of the eurozone group, said Saturday the EU had taken note of the S&P announcement and was doing everything to combat the debt crisis.
"We reconfirm our determination to do whatever it takes to overcome the crisis, ensure sound public finances and return to a path of growth and job creation," he said.
Speaking defiantly on public television, French Finance Minister Francois Baroin acknowledged the cut to France's credit rating, but said the French government did not plan any more austerity measures "because it's not a case of budgetary discipline."
"It's not good news, but it's not a disaster either," Baroin said on France 2 television. "It's not the rating agencies that dictate French policy."
Reacting to the news, German Finance Minister Wolfgang Schäuble said France was on the right path, but that the downgrade wasn't completely unexpected.
"We're not entirely surprised by this," he told reporters in Kiel. "We know that there is uncertainty in the eurozone."
He added, however, that European leaders would work hard to remove that uncertainty, and that the recent successful bond auctions in Italy and Spain showed that their work had already begun to have an effect.
The euro continued its steady decline on Friday, at one point dropping to below $1.27, a 16-month low.
Author: Charlotte Chelsom-Pill, Gregg Benzow, Mark Hallam (AP, AFP, Reuters, dpa)
Editor: Martin Kuebler