Ammon News - AMMONNEWS - One of the world's leading credit-rating agencies has warned that it may carry out an unprecedented mass downgrade of European countries if regional leaders fail to reach an agreement on how to solve the debt crisis in a summit later this week.

The ratings agency Standard & Poor's on Monday placed the ratings of 15 eurozone countries, including top-rated Germany and France, on "credit watch negative," meaning they could be downgraded within three months.

However, S&P said that it expected to conclude its review "as soon as possible" following a European Union summit on Friday at which leaders will discuss plans, drawn up by France and Germany on Monday, to tackle the eurozone crisis.

France and Germany, the eurozone's two largest economies which currently both have an AAA-rating, quickly came out against the S&P move.

"Germany and France reaffirm that the proposals they made jointly today will reinforce the governance of the euro area in order to foster stability, competitiveness and growth," they said in a joint statement.

"France and Germany, in full solidarity, confirm their determination to take all the necessary measures, in liaison with their partners and the European institutions to ensure the stability of the euro area."

'Adding urgency'

Agnes Crane, a financial columnist for the Reuters news agency in New York, told Al Jazeera that the move by S&P was a warning to the eurozone to solve their economic problems fast.

"To put this in context, the S&P warning is essentially trying to add some urgency to something that we all recognise as urgent", Crane said.

"The reality is that this is what credit agencies do - this is our financial system. We haven't done much to take ratings out of the system, so this is what we have to live with.

"S&P is going to have to see that the plan is ratified and then they're going to have to take a look at the details to see whether it is credible or not," Crane added.

Martin Hennecke, the associate director of the Tyche Group, an independent investment and financial advisory firm in Hong Kong, told Al Jazeera the forecast downgrade came as no surprise.

He explained that as early as 2005, the ratings agency issued a projection warning that France Germany and the UK were headed towards possible junk status and default.

"Now, 2010, 2011, we have the stronger eurozone countries bailing out essentially weaker eurozone countries. So the balance sheet since then of those supposedly stronger eurozone nations will only have substantially weakened," he said.

"It's not just losing the AAA, but actually down the road, they said we may see the national bankruptcies of Germany and France."

S&P said it would conclude its review after the EU summit, making clear that it wanted to see political as well as financial solutions.

It highlighted "continuing disagreements among European policy makers on how to tackle the immediate market confidence crisis and, longer term, how to ensure greater economic, financial, and fiscal convergence among eurozone members".

Of the 17 countries in the eurozone, Cyprus' rating had already been put on credit watch negative by S&P, and Greece is rated double-C, which already denotes a high chance for default in the near term.

If the downgrade materialises, countries such as Austria, Belgium, Finland, Germany, Netherlands, and Luxembourg would likely have their rating cut by one notch. Other countries could suffer downgrades of up to two notches, S&P said.

The other two major rating agencies, Moody’s and Fitch, have already said they could soon review the ratings of top-rated eurozone countries, but they still maintain a stable outlook on them.



* Al Jazeera and agencies