Sarkozy: Spain has role in 'refounding the euro'

France president is first foreign leader to visit the new Spanish prime minister, Mariano Rajoy, since he took office last month after voters angry about Spain's grim economy ousted the ruling socialist party.

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PARIS // Spain has a role in "refounding the euro", and Europe "needs Spain", the French president, Nicolas Sarkozy, said during a one-day visit to Madrid.

Mr Sarkozy was in Spain to meet the country's new prime minister. His visit was the first of a foreign leader for the Spanish prime minister, Mariano Rajoy, since he took office last month after voters angry about Spain's grim economy ousted the ruling socialist party.

The Standard & Poor's rating agency on Friday stripped French government debt of its coveted AAA rating, bumping it down to AA+. But the Moody's rating agency yesterday maintained its AAA rating for France.

Mr Sarkozy is expected to run for re-election this year. He trails socialist nominee Francois Hollande in polls.

Spain and Italy were hit by double downgrades in the S&P report card, piling pressure on governments and the euro in the run-up to an EU summit on January 30 that is supposed to confirm details of an austere new fiscal pact.

European stock markets stabilised after opening slightly down but the true test of the effect of France's humiliating downgrade will come on Thursday, when it conducts its first large-scale bond auction as a AA+ economy.

France will try to sell between €7.5 billion and €9.5 billion (Dh34.9bn - Dh44.2bn) in bonds - with maturities of between two and 28 years - and markets will be keen to see how much interest Paris will have to pay to find buyers.

If Mr Sarkozy's government finds itself saddled with high yields after its downgrade it will call into question the credibility of his deficit reduction plan and plunge the eurozone into further turmoil.

* Associated Press with additional reporting by Bloomberg and Agence France-Presse