A DOUBLE-NOTCH downgrade of Spain's credit rating has piled pressure on European leaders to make convincing progress on solving the region's debt crisis at a summit next week.
Rating agency Moody's cut Spain's bond rating to A1 from Aa2 on Tuesday, taking it a notch below the ratings of Standard & Poor's and Fitch.
The blow came a day after the agency warned France its triple-A rating could come under pressure, and as Greeks began their biggest strike in years to protest against an austerity drive.
Markets are counting down to a summit of European Union leaders on Sunday that France has claimed will deliver a decisive outcome.
The Spanish rating cut, which highlights the threat of contagion from debt-stricken Greece, tempered a rally in shares on New York's Wall Street late on Tuesday.
German Chancellor Angela Merkel warned that leaders will not solve the debt crisis at a single meeting.
She said: "These sovereign debts have been built up over decades, and one cannot resolve them with one summit - it will take difficult, long-term work. Nonetheless, we will be able to take relevant, important decisions."
The hope is that Sunday's summit will agree new steps to reduce Greece's debt, strengthen the capital of banks with exposure to troubled eurozone national debt, and leverage the eurozone's rescue fund to prevent contagion to the bigger economies.
Scotching a media report that a deal had been struck between Paris and Berlin to scale up the European Financial Stability Facility by around five times to more than 2 trillion euros (US$2.76 trillion), a senior EU official said: "It is wrong."
A second source said: "It is naive to think you can make those calculations and come up with a nice round 2 trillion figure. It is not nearly as simple as that."
The summit is likely to agree to leverage the bailout fund by allowing it to underwrite a portion of newly issued eurozone debt, officials said, but the details are still being thrashed out.
Austrian Finance Minister Maria Fekter said: "The models to make the EFSF more flexible need significantly more preparation."
By guaranteeing the first 20-30 percent of any losses, the EFSF could stretch three to five times further. With about 300 billion euros of its 440 billion euro capacity still available, the fund could be expanded to more than 1 trillion euros, enough to support the refinancing needs of Spain and Italy for at least the next year or longer and ward off market attacks.
As well as trying to strengthen the rescue fund, eurozone leaders are trying to convince banks to accept "voluntary" writedowns of up to 50 percent on Greek debt and are trying to agree a blueprint for recapitalizing financial institutions at risk from the deepening crisis.
Source:shanghaidaily