Ratings agencies pile pressure on European countries


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The Independent Online

Eurozone economies faced fresh pressure from credit rating agencies as the UK hit back at "simply unacceptable" calls by senior French politicians for London to be put under tougher scrutiny.

The Fitch agency said last night that it was keeping Paris in the highest band but giving it a negative outlook after concluding a comprehensive solution to the single currency crisis was "beyond reach".

Standard and Poor's is still reviewing several countries' ratings including France, and another, Moody's, last night downgraded Belgium's debt by two notches as the crisis continued to bite.

French prime minister Francois Fillon had joined the head of the French central bank in questioning why France's its cherished AAA rating was under threat when the UK was "even more indebted than us and carrying a bigger deficit".

"What I see is that the ratings agencies so far don't seem to have noticed," he said.

French finance minister Francois Baron further inflamed the situation by calling the UK's situation "very worrying" and suggesting France was better off economically.

Officials in Brussels yesterday set out initial details of how efforts towards securing a "fiscal compact" to resolve the crisis in the single currency would be conducted.

Despite Prime Minister David Cameron's veto last week of efforts to agree a pan-European Union deal to rescue the single currency, British officials will take part in "technical discussions" in what is seen as an olive branch both to the other EU countries and to Deputy Prime Minster Nivk Clegg, who has expressed bitter disappointment at the outcome of the summit.

Number 10 said the officials would be there "to ensure that the views of the UK are represented and our national interest is maintained".

Mr Cameron has been engaged in phone calls with other EU leaders - with German Chancellor Angela Merkel, who with Mr Sarkozy is leading the reform process, among those who telephoned him today.

He has also had a number of conversations with counterparts among the other nine EU member states which do not use the single currency.

The UK was alone in refusing to sign up to a deal of all 27 member states a week ago, but cracks have appeared within in the group of 26.

Hungary and the Czech Republic have said they would not join the new agreement unless plans for tax harmonisation were dropped.

Downing Street rejected suggestions that Mr Cameron was agitating against the deal however.

Under the framework published in Brussels, the new agreement on "Reinforced Economic Union" will come into force when at least nine of the participating EU member states have ratified the deal.

Up to 26 of the 27 countries will sign on, but only the 17 eurozone member states are automatically bound by the new rules on debt and deficit limits.

All "contracting parties" must enshrine the new accord in national law, and are bound by automatic "excessive deficit procedure".

The document also stipulates that the rules will be enforced if necessary by the European Court of Justice, and any judgment will be binding.

There will be close co-ordination between representatives of national parliament economic and finance committees, with informal "Euro summit" meetings at least twice a year.

Tory former chancellor Lord Lamont said that without faster progress the single currency risked exploding.

"The markets do not believe this is credible," he told BBC Radio 4's Today programme..

"All we ever get is headline, headline, headline and the detail hardly ever gets filled in. When we do get some of the detail, inevitably some people are separating themselves from it.

"We need to get on with this a bit faster if the euro is going to survive in any sort of form. The choice is between contraction or explosion.

He went on: "There is not time left. Italy and other countries cannot go on with interest on their bonds near to 7 per cent. At some point there is going to be a real crisis.

"One of the big dangers is the longer it goes on, the more likely it is that a big financial institution somewhere is going to get into trouble because of its holding of sovereign bonds.

"This is going to happen if a crisis solution is not found very soon."