France and Germany stand by eurozone plan

Angela Merkel and Nicolas Sarkozy at Paris meeting - 5 December
Image caption Mrs Merkel and Mr Sarkozy said the eurozone needed a new treaty

France and Germany have reaffirmed their commitment to reform the eurozone, after ratings agency Standard and Poor's put most of the zone on "credit watch" over debt crisis fears.

The two countries said proposals for a treaty change agreed on Monday would reinforce governance of the eurozone.

They said their priority was to press ahead with the proposals.

S&P's move means six countries with top AAA ratings would have a 50% chance of seeing their ratings downgraded.

It was announced hours after French President Nicolas Sarkozy and German Chancellor Angela Merkel announced proposals they hoped would begin to restore confidence in the battered eurozone.

The ratings move came as a surprise to investors and saw stocks fall back on early gains as the euro also fell.

The BBC's Chris Morris, in Brussels, says there will be widespread anger at the timing of the agency's decision, which raises the stakes another notch ahead of an EU summit on Friday that is being seen as crucial for the future of the single currency.

Ahead of the summit, US Treasury Secretary Timothy Geithner is arriving in Europe to hold talks with top financial officials in several countries. On Tuesday, he will hold a meeting at the European Central Bank in Frankfurt before meeting German Finance Minister Wolfgang Schaeuble.

Our correspondent says that many details of the French and German proposals have not been revealed and other countries will reserve judgement until they have seen them.

Ratings decision

On Monday, S&P's announced that it had placed its "long-term sovereign ratings" on 15 eurozone nations on credit watch "with negative implications".

The ratings agency said the decision was prompted "by our belief that systemic stresses in the eurozone have risen in recent weeks to the extent that they now put downward pressure on the credit standing of the eurozone as a whole".

As well as Germany and France, Austria, the Netherlands, Finland and Luxembourg also currently have top AAA rating.

S&P's announcement means that there is a one in two chance that those countries would see their credit rating fall within 90 days.

Analysts also say S&P's move reflects uncertainty about what would happen were a larger eurozone country - such as Italy - to default in future.

The agency's decision is uncontroversial, says the BBC's Robert Peston, because eurozone banks have been struggling to borrow, a number of eurozone economies are buckling under the burden of big government and household debts and there is a significant risk of recession.

Mr Sarkozy and Mrs Merkel said they would "take note" of S&P's warning.

French Finance Minister Francois Baroin later said that - for its part - Paris did not plan to expand the austerity measures it had already has announced.

Speaking on French radio on Tuesday morning, Foreign Minister Alain Juppe said that Monday's plan was "precisely the response to one of the major questions of this ratings agency that mentions the insufficiency of European economic governance".

Eurogroup Chairman Jean-Claude Juncker, meanwhile, described S&P's move as "a wild exaggeration and also unfair".

"I am not unsettled by this, but I am astonished, after the significant efforts in recent days to overcome the crisis, such as savings programmes in Italy and Ireland," Reuters news agency quoted him as telling German radio.

The only two countries not put on credit watch on Monday were Cyprus, which is already under review, and Greece, whose rating has already been severely downgraded.

'Structural changes'

At their joint press conference on Monday afternoon, Mr Sarkozy said things in Europe "cannot continue as they are" and that the Franco-German wish was for "a forced march toward re-establishing confidence in the eurozone".

"We are conscious of the gravity of the situation and of the responsibility that rests on our shoulders," he said.

Mrs Merkel said France and Germany were "absolutely determined" to maintain a stable euro and wanted to see "structural changes which go beyond agreements".

The two leaders said the treaty changes would ideally be implemented by all 27 EU member states, but that if that was not possible, just the 17 states which have adopted the euro.

Discussions on the changes should be concluded by March "because we must move quickly", said Mr Sarkozy.

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