Credit rating slashed, France promises reforms
Credit rating downgrades prompts several European nations to lambaste S&P ratings agency. But France, which lost its AAA credit rating, says it will implement cost cuts.
PARIS — France's prime minister said Saturday his country will push ahead with cost-cutting measures after its top-tier debt rating was downgraded, a blow with repercussions across financially beleaguered Europe.
Other European countries from Austria to Cyprus assailed ratings agency Standard & Poor's after a raft of downgrades Friday night that renewed questions about the power such agencies wield. The move may make it more expensive for struggling countries to borrow money, reduce debts and avoid a new recession.
German Chancellor Angela Merkel said downgrades of nine eurozone countries underline the fact that Europe has a "long road" ahead to win back investors' confidence. Her own country, the engine of Europe's economy, was not downgraded.
Merkel and French Prime Minister Francois 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 as the continent has been swept up in crisis after crisis over the past two years.
Fillon struck a somber, measured tone when responding Saturday to the downgrade, which was particularly wounding to France's self-image and could hurt bailout efforts. France is central to those efforts, and the downgrade, by pushing up its own borrowing costs, could make it harder for France 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 wouldn't adjust the budget yet, saying it had been devised with an assumption of higher borrowing costs. S&P had warned 15 European nations in December that they were at risk for a downgrade.
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.
Standard & Poor's stripped France of its coveted AAA status, knocking it down one notch to AA+. It dropped Italy even lower. Germany retained its top-notch rating, but Portugal's debt was consigned to junk.
Cyprus' finance minister called Standard & Poor's two-notch downgrade of his eurozone country to junk status "arbitrary and unfounded."
Kikis Kazamias said on Saturday that the agency ignored the island's deficit-cutting measures as well as the discovery of significant offshore natural gas deposits. He said the action illustrates once more how creditratings agencies exacerbate Europe's debt crisis.
Austria's chancellor criticized S&P's decision to strip his country of the top AAA rating, and noted that his coalition government is working on an austerity package.
The downgrade brought a downbeat end to a mildly encouraging week for Europe's heavily indebted nations and served as a reminder that the 17-country eurozone faces another tough year.
France's downgrade to AA+ lowers it to the level of U.S. long-term debt, which S&P downgraded last summer.
Stocks fell Friday as downgrade rumors reached the trading floors of Europe and the United States. But the declines were nothing like the wrenching swings of last summer and fall.
Speaking to fellow conservatives in the northern German city of Kiel, Merkel stressed the importance of a new treaty enshrining tougher fiscal rules. Most European Union leaders agreed in early December to draw up the pact.
"We are now called upon ... to implement quickly the fiscal pact and implement it decisively — without trying to water it down everywhere," Merkel said.
The chancellor sought to allay concerns that the downgrade of France, the 17-nation eurozone's No. 2 economy after Germany, would complicate the work of the bloc's temporary rescue fund, the €440 billion ($560 billion) European Financial Stability Facility. However, she did underline the urgency of putting its permanent successor, the European Stability Mechanism, in place quickly.
France's presidential elections could complicate Europe's internal discussions. President Nicolas Sarkozy, who has been at the heart of the debate, is highly unpopular and far from certain of winning a second term.
The man who tops polls ahead of the April and May elections, Socialist Francois Hollande, said the downgrade was a punishment for conservative Sarkozy's policies. He said Saturday that austerity measures were stifling growth and France's competitiveness.
Elie Cohen, economist with France's National Center for Scientific Research, said the Standard & Poor's decision casts doubt on Sarkozy's choices and European leaders' ability to handle the crisis.
"From the moment France was downgraded, it boomerangs on (Sarkozy's) own economic record, and it becomes one factor in the electoral battle," Cohen told AP Television News. Cohen said France's economic standing had been weakening for a long time, and the downgrade was overdue.