Fitch, the credit ratings agency, believes a comprehensive solution to the euro debt crisis is unreachable. Fitch also put multiple euro nations including France and Italy on credit watch downgrade. It kept France’s AAA rating, but put them on outlook negative.
“Of particular concern is the absence of a credible financial backstop. In Fitch’s opinion this requires more active and explicit commitment from the ECB to mitigate the risk of self-fulfilling liquidity crises for potentially illiquid but solvent Euro Area Member States,” Fitch said.
The ratings agency put Belgium, Spain, Slovenia, Italy, Ireland and Cyprus on credit watch negative. Standard & Poor’s also warned 15 euro nations of potential downgrades.
Under pressure from Bundesbank, Merkel has led a push for automatic sanctions for countries who violate their fiscal responsibilities according to the newest treaty. Many economists are concerned that even more belt tightening in southern euro countries could send their economies into an even more negative spiral with no hopes of getting out of the the current crisis.
Mario Monti, Italy’s Prime Minister, said the EU’s response to the crisis “should be wrapped in a long-term sustainable approach, not just to feed short-term hunger for rigour in some countries.”
Monti added, “To help European construction evolve in a way that unites, not divides, we cannot afford that the crisis in the euro zone brings us … the risk of conflicts between the virtuous North and an allegedly vicious South.”
The EU needs to start forming a better solution for the crisis now or risk credit downgrades for their strongest countries including France. The markets will continue to be ruled by uncertainty as long as this debt crisis looks like it will never be solved.