S&P action turns up heat on EU leaders

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S&P action turns up heat on EU leaders

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European leaders are under pressure to deliver a credible solution to the debt crisis.

15 January,2012 03:35 pm

Two weeks before a new summit, European leaders are under pressure to deliver a credible solution to the debt crisis after Standard & Poors punished their policies with stinging credit downgrades.Eurozone governments face an uphill battle as they scramble to avoid a messy debt default in Greece, boost a bailout fund considered too small to save bigger countries and seal a fiscal pact aimed at tightening budget discipline.After a relatively calm start to the year, the crisis returned with a vengeance on Friday the 13th as negotiations between Greece and bank creditors on a huge debt writedown hit a snag and Standard and Poors downgraded nine eurozone nations.The credit ratings agency justified its action saying that EU policies in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone. And with recession looming, Standard and Poors warned that the focus on all-out austerity could backfire against the economy.More than 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 eurozones management of the crisis, said Sony Kapoor, head of Re-Define economic think tank.Standard and Poors had given EU leaders fair warning but they have wasted the month they 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 fiscal compact by March to tighten budget discipline and deepen integration in order to convince markets that there will be no repeat of the crisis.But Standard and Poors, in addition to kicking France and Austria out of the exclusive club of AAA-rated nations, warned that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating.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.