S&P warns of mass downgrade of euro zone countries

Standard & Poor's (S&P) has warned of an imminent mass downgrade of euro zone countries if EU leaders failed to come out with a convincing agreement on how to solve the region's debt crisis during a summit on Friday.
 
The rating agency has threatened to downgrade 15 countries all the way up to AAA-rated Germany and France. The announcement comes in the backdrop of a Franco-German budget deficit discipline initiative across the 17-member zone through EU treaty changes, scheduled to be unveiled at a meeting on Friday.

French President Nicolas Sarkozy and German Chancellor Angela Merkel told reporters that their plan provided for automatic penalties on states that failed to control deficits, as also an early launch of a permanent bailout fund for distressed euro states.
 
They said they wanted an agreement on treaty change by March and ratification after the conclusion of French presidential and legislative elections in June. Sarkozy said they needed to go fast.

Italy, the biggest of the troubled nations in the euro zone, offered some hope for survival of the bloc amid a crisis that is threatening the survival of the common currency. Its borrowing costs tumbled after its new technocrat government announced an austerity programme.
S&P's statement left out any references to the programme, and according to French finance minister Francois Baroin, it did not take into account the announcement by Sarkozy and Merkel.
 
France for its part did not plan for expansion of the austerity measures it had announced already, he added.
 
S&P told the governments its review would conclude as soon as possible following the summit. It made it clear that it wanted to see political as well as financial solutions.

Meanwhile, Asian stocks were down as a benchmark gauge headed for its first loss in seven days, after Standard & Poor's announced it may cut credit ratings of Germany, France and 13 other members of the euro zone amid the worsening debt crisis.

The MSCI Asia Pacific Index was down 1.5 per cent at 116.45 in Tokyo. All the 10 industry groups on the measure were down, with around eight stocks retreating for each that gained.

Japan's Nikkei 225 Stock Average was down 1.4 per cent, while Hong Kong's Hang Seng Index fell 1.3 per cent. South Korea's Kospi Index declined 1 per cent.