Standard & Poor’s mass downgrade of half the countries in the eurozone has put the spotlight not only on those whose credit ratings were cut.
The New York-based agency said European leaders had overlooked a key cause of the crisis: sharp differences in economic competitiveness.
But the criticism brought little sign of a change of tack from the German Chancellor, despite its warning that reforms based on fiscal austerity alone risk becoming self-defeating.
Angela Merkel said she had “taken note” of S&P’s decision.
“It confirms my conviction that we in Europe still have a long road ahead of us before the confidence of investors is restored. We are now called upon to implement the fiscal pact quickly and decisively – without trying to water it down everywhere,” she said on Saturday.
Germany and some others kept their triple-A rating. But the lowering of several countries, including the eurozone’s second largest economy France, could add to debt problems as it is likely to increase eurozone borrowing costs overall.
The agency says the long-term outlook is negative for 14 countries, with a one-in-three chance of further downgrades.
“Standard & Poor’s considers that the efforts made to stabilise budgetary and fiscal matters have been insufficient, and it also considers that the solutions the Europeans have applied to the current crisis in the eurozone are insufficient,” said economic analyst Elie Cohen.
Angela Merkel stressed that Standard & Poor’s was only one of three major rating agencies.
But its doubts over European leaders’ policies will strike a chord with many who believe that too much emphasis is being put on belt-tightening, and not enough on boosting growth – which could further weaken countries in the eurozone’s so called “periphery”.