Eurozone nations hit back yesterday at a threat by ratings agency Standard & Poor’s (S&P) to downgrade 15 eurozone countries and promised to push ahead with reforms to tighten budget discipline.
Many EU officials criticized 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 came three days before an EU summit tomorrow and on Friday, which S&P said was now of critical importance.
French Foreign Minister Alain Juppe said that the strategy aimed at ending the eurozone debt crisis announced by French 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 tomorrow and Friday’s crucial summit of EU leaders in Brussels.
Juppe said that he was surprised by the timing of S&P’s announcement, of which eurozone governments were forewarned on Monday morning several hours before the ratings agency issued a public statement.
Bank of France governor Christian Noyer said S&P’s warning was “totally inopportune ... after a Franco-German agreement on an extremely powerful governance package.”
“When you look at how Standard & Poor’s argues its point, you can see that the methodology has evolved and is now more linked to political factors than to economic fundamentals,” he told a gathering near Paris.
Luxembourg Prime Minister 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 the head of the eurozone finance ministers grouping. “We are on the way to solving the debt crisis. We’re consolidating, we’re reforming and we’re also reforming the way Europe is governed.”
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 percent of GDP.
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.