The credit worthiness of France and eight other eurozone nations has been downgraded in a dramatic new blow to the struggling single currency.
Credit rating agency Standard & Poor's (S&P) stripped France of its gold-plated AAA credit rating, and also lowered the long-term ratings on Austria, Malta, Slovakia, and Slovenia, by one notch.
The rating levels for Cyprus, Italy, Portugal and Spain were dropped two notches. There was no change for Belgium, Estonia, Finland, Germany, Ireland, Luxembourg, and the Netherlands. The 17th eurozone nation, Greece, already in deep trouble, was not reassessed in the latest, devastating declaration from Standard & Poor's.
But the biggest blow is to France, its national pride and the fact that it will inevitably face higher borrowing costs. The move is key because France is partly responsible for underwriting the eurozone bailout fund, which is at the heart of efforts to ease fears of a eurozone collapse.
A statement from S&P warned: "The outlooks on the long-term ratings on Austria, Belgium, Cyprus, Estonia, Finland, France, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovenia, and Spain are negative, indicating that we believe that there is at least a one-in-three chance that the rating will be lowered in 2012 or 2013."
In an implicit attack on EU leaders' failure to reassure markets, it continued: "Today's rating actions are primarily driven by our assessment that the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone."
The "stresses" included tighter credit conditions, weakening economic growth prospects, and "an open and prolonged dispute among European policymakers over the proper approach to address challenges."
S&P, sensitive to criticism from the European Commission earlier this year that its ratings downgrades were unjustified and only worsened the economic crisis, explained the statement that the results of the last EU summit, in December, and statements since then by policymakers "lead us to believe that the agreement reached has not produced a breakthrough of sufficient size and scope to fully address the eurozone's financial problems.
S&P accused EU leaders of believing wrongly that blame for the economic crisis lay mostly on "fiscal profligacy at the periphery of the eurozone". That, said the statement, explained why the downgradings were coming now, in a reflection of S&P's view that "the effectiveness, stability, and predictability of European policymaking and political institutions have not been as strong as we believe are called for by the severity of a broadening and deepening financial crisis in the eurozone".
Economic Affairs Commissioner Olli Rehn declared in a late night statement: "I regret the inconsistent decision by Standard & Poor's concerning the rating of several euro area member states, at a time when the euro area is taken decisive action in all fronts of its crisis response."