The euro zone is facing a mass downgrade by Standard and Poor’s on the credit ratings of most of its members. The warning is directed at EU leaders if they fail to agree on how to solve the region’s debt crisis.
The countries include the zone’s six triple-A members – Austria, Finland, Luxembourg and the Netherlands, with even the two biggest economies Germany and France under threat.
The extra pressure comes as crisis talks continue in the run-up to Friday’s EU summit.
French Finance Minister François Baroin said:
“The problem is one of confidence. The euro, and Europe, and the euro zone have to restore confidence. To restore the link between investors outside the euro zone and within , we must change the economic governance.”
And that is what the leaders of France and Germany are trying to do. Yesterday they agreed on a master plan involving treaty change to impose budget discipline across the euro zone.
President Nicolas Sarkozy and Chancellor Angela Merkel said their proposal included automatic penalties for governments that fail to keep their deficits under control.
But one area still lacking in commitment is the as-yet insufficient European Financial Stability Facility. Will Merkel finally capitulate over the issue of eurobonds come Friday.