Leaders feel the heat from S&P punishment

EU GOVERNMENTS FACE TASK OF MAKING CONCRETE REFORMS

Brussels (AFP) Two weeks before a new summit, European leaders are under pressure to deliver a credible solution to the debt crisis after Standard & Poor’s punished their policies with stinging credit downgrades.

Eurozone governments fa ce an uphill battle as t hey s cramble t o avoid a messy debt default i n Greece, boost a bailout fund considered too small to save bigger countries a nd s e a l a f i s c a l pact aimed at tightening budget discipline.

After a relatively calm start to the year, the crisis ret urned with a vengeance on Friday t he 1 3th as negotiations between Greece and bank creditors on a huge debt writedown hit a snag and Standard and Poor’s downgraded nine Eurozone nations.

The credit ratings agency justif ied its action saying that EU policies in recent weeks “may be insufficient

EURO

to fully address ongoing systemic stresses in the Eurozone”.

And wi t h r e c e s s i o n l ooming, Standard and Poor’s warned that the focus on all- out austerity could backfire against the economy.

More t han two years into the crisis, bailouts of Greece, Portugal and Ireland, the creation of an emergency fund and a slew of continent-wide austerity measures have once again failed to calm fears of a Eurozone breakup.

“This is more a downgrade of the Eurozone’s management of the crisis,” said Sony Kapoor, head of Re-define economic think

1.2680 tank. “Standard and Poor’s had given EU leaders fair warning but t hey have wasted t he month t hey have had to change course and come up with a credible crisis resolution strategy,” he said.

European leaders, all except Britain, agreed last month to seal a “new f iscal compact” by March to tighten budget discipline and deepen integration in order to convince markets that there will be no repeat of the crisis.

Exclusive club

But Standard and Poor’s, i n additi on t o ki cki ng France and Austria out of the exclusive club of AAArated nations, warned that “a reform process based on a pillar of f iscal austerity alone risks becoming selfdefeating.”

EU leaders plan to discuss how to spur growth and jobs at their January 30 summit, but the new fiscal treaty will also figure high on the agenda. After years of toothless fiscal oversight in the EU, the pact would require governments to enshrine balanced budgets in their constitutions and threaten more automatic sanctions against count r i es t hat r un excessive deficits.

G e r m a n C h a n c e l l o r Angela Merkel, who has c h a m p i o n e d s t r i c t e r budget rules, said Saturday t hat t he downgrade m e a n s E u r o p e m u s t q u i c k l y i mpl e ment t h e new t reaty, “and not t r y again to soften it”.

“The [ St a n d a r d a n d Poor’s] decision confirms my conviction that we in Europe still have a long road ahead of us until investor confidence is again restored,” Merkel said.

The ra t i ngs a gency’s move has al s o f uell ed doubts about the Eurozone’s ability to boost its bailout fund, the European Financial Stability Facility (EFSF).