EU upset with S&P; Greek talks grim

Leading European Union figures are angry about the downgrading of the credit ratings of France and other eurozone countries.

Leading European Union figures reacted with barely concealed anger yesterday to the downgrading of the credit ratings of France and other eurozone countries as attention focused on possible repercussions for the beleaguered single currency.

Michel Barnier, the former French foreign minister who is now the European commissioner responsible for regulating financial markets, expressed astonishment at the timing of the announcement from the ratings agency Standard & Poor's (S&P).

S&P cut the ratings of nine eurozone countries on Friday night with France, as the area's second largest economy, the biggest of its scalps.

Amid gloomy warnings about the stalled progress of talks on rescuing the troubled Greek economy, the announcement raised fresh doubts about the euro's future.

S&P said action to date had not produced a breakthrough of "sufficient size and scope to fully address the eurozone's financial problems".

But Mr Barnier. the EU commissioner for internal markets and services, said: "At a time when all governments and all European institutions have been mobilised, I am amazed at the timing of the Standard and Poor's and the merits of its assessment that does not take into account the current progress."

If his views can be seen, in part, to reflect French indignation at seeing its credit status diminished, they were echoed by Olli Rehn, the EU's Finnish economic affairs commissioner, who condemned the decision as "inconsistent".

Mr Rehn also criticised the timing of the announcement, which he described as being at odds with the zone's "decisive action in all fronts of its crisis response''.

"It is now important to finalise as soon as possible the features and practicalities of the European stability mechanism and to advance its entry into force to July," he said.

The response of the markets was instant, the euro tumbling to its lowest level against the US dollar since August 2010, at just over $1.26, and the stock markets also fell following the S&P announcement.

France, along with one other Triple-A country, Austria, each lost a single notch, a consequence of the agency's concerns about the exposure of both countries' banks to sovereign debt.

Although France's discomfiture dominated headlines, the verdict on other eurozone members was harsher still with Italy, Spain, Cyprus and Portugal each given cuts of two notches. In the cases of Portugal and Cyprus, this reduced their status to BB or "junk" level.

Malta, Slovakia and Slovenia each lost a single notch, while Germany and the Netherlands kept the Triple-A grade and Belgium, Luxembourg, Estonia and Finland remained unchanged.

The German chancellor, Angela Merkel, said the negative assessment of the zone's response to crisis underlined the fact that Europe was a long way from rebuilding trust.

For the French president, Nicolas Sarkozy, S&P's move - coming, as many commentators noted, on Friday the 13th - was especially badly timed, just three months before he faces a potentially hostile French electorate to seek a second term.

Mr Sarkozy had set great store by defending France's top credit rating. He held crisis talks with senior colleagues on Friday night after his finance minister, François Baroin, had confirmed the downgrading on television, making no attempt to hide his disappointment but insisting that the decision was "not a catastrophe".

Pointing out that United States, the world's biggest economy, was similarly downgraded last year, he added: "We must be relative, keep our cool. It's necessary not to frighten the French people about it.''

The French prime minister, François Fillon, said yesterday France remained a "safe country" trusted by investors. He described the downgrading as an alert that should neither be dramatised nor underestimated.

Mindful of his stubbornly poor showing in opinion polls, Mr Sarkozy has previously ruled out further austerity measures on top of those already taken. His prime minister reiterated the belief that budgetary action to tackle debt was sufficient, but acknowledged that "adjustments" may be made when growth prospects become clearer.

While some French analysts argued that the country's economy could live with the downgrading, with its ability to borrow largely unaffected, there was also evidence of wounded pride.

Demonstrators gathered outside S&P's Paris offices to accuse the agency of declaring war on France and Mr Sarkozy's main electoral enemy, the socialist candidate François Hollande, said it was the president's failed policies and not France that had, in reality, been downgraded.

Press reaction was downbeat. Le Parisien examined the possible effect on ordinary French people and said businesses faced a fresh credit crunch while employees could end up with higher tax bills.

A leading regional newspaper, La Dépêche, reported that with Germany retaining Triple-A status, Europe had been left a little more divided.

And the plight of France, and most other eurozone countries, could worsen before it improves. S&P's report described the downgrading of France as reflecting its view of "deepening political, financial, and monetary problems within the eurozone" and warned there was at least a one-in-three chance the rating could be lowered further this year or next.

* Additional reporting by Agence France-Presse