Reacting this evening to the announcement from Standard & Poor’s that it was downgrading the credit ratings of several European countries, including two AAA countries (France and Austria), Guy Verhofstadt, Liberal and Democrat group leader in the European Parliament said:

“Lowering the credit rating of sovereign countries struggling to reduce their excessive debts only compounds the problem further, undermines their recovery and means that tough austerity measures to save money is just gobbled up by international investors requiring higher interest on their loans. We are at great risk of entering a downward spiral of higher debt and further downgrades until countries default or are forced out of the euro.”

“The action and timing of the ratings agencies is extremely prejudicial for the recovery of the European economy and the stability ultimately of the global economy if recession sets in. Maybe it will serve as a wake up call to President Sarkozy that promises of tougher discipline in the future is not enough on its own to assuage the markets.”

“European leaders continue to fiddle with largely symbolic Treaty changes while leaving Rome, Madrid, Lisbon, Athens and others to burn. By ignoring the urgent need to reduce today’s debt mountain they are prolonging the agony and causing investors to look elsewhere. Germany though seems to be one country reaping the benefits of the flight of capital from struggling economies as the spreads on bond yields remain far apart.”

“A European debt redemption fund, as suggested by the German economic advisory council, would reduce debts above 60% to sustainable levels, creditors would be repaid, borrowing costs would come down and more cash would be freed up for much needed growth initiatives. The logic is compelling but lack of solidarity and short sighted paranoia at mutualising a proportion of eurozone debt is blocking this obvious solution.”