Merkel sees 'long road ahead' for Europe

German Chancellor Angela Merkel said Saturday that Europe would have an uphill struggle to restore investor confidence after S&P downgraded nine eurozone countries, which EU leaders called "incomprehensible". Europe's new pact to tighten economic integration must be implemented quickly, Merkel said in her first reaction since the rating agency's decision late Friday. "We are now called upon to implement quickly the fiscal pact, to implement it with determination ... and not try again to soften it," she told reporters. Merkel also said that Europe's permanent bailout fund must be effective as soon as possible. "The decision confirms my conviction that we in Europe still have a long road ahead of us until investor confidence is again restored." "But it's also apparent that we have pursued resolutely this road of a stable currency, solid finances and sustainable growth," she said. European leaders on Saturday called "incomprehensible" credit rating downgrades by Standard and Poor's that included stripping France and Austria of their top triple-A rating. Only Germany escaped unscathed, as all other eurozone members were either downgraded -- some by two notches -- or else warned that their current ratings were being re-examined amid fears about sovereign debt. Merkel stressed that S&P was just one of three ratings agencies. And she pointed out a need for balance after a report earlier in the week by the Fitch ratings agency that it did not foresee a downgrade for France in 2012 unless the country suffered significant economic shocks. Merkel also commented that she did not believe the ratings downgrade would affect Germany's contribution to the European Union's bailout fund, currently the EFSF with a lending capacity of 440 billion euros ($557 billion). Its successor, the European Stability Mechanism, is due to take effect in July 2012 with funding of 500 billion euros. The temporary EFSF fund uses guarantees issued by eurozone governments to raise financing on money markets which are then lent to debt-wracked eurozone countries. European Union leaders, apart from Britain, agreed last month to write a new pact to toughen budget discipline across the bloc and will gather on January 30 in Brussels to discuss it again. The aim of the pact is to convince the markets that the eurozone can prevent a new crisis like the one that has forced Greece, Ireland and Portugal to take bailouts and is driving Italy and Spain to the edge. The Austrian government said it was "incomprehensible when one of three US rating agencies decides to go it alone and downgrade eurozone countries' ratings or give them a negative outlook". The European Union's internal market commissioner Michel Barnier said he was "surprised" by the timing of the S&P downgrades just when the bloc is toughening budget rules. Earlier, Economic Affairs Commissioner Olli Rehn called the downgrades "inconsistent". As news of the report card leaked out the euro plunged to a 16-month low against the dollar, on what was a grim Friday the 13th for EU policymakers, and in particular for France's President Nicolas Sarkozy. The right-wing leader is facing re-election in three months and his main rival in the presidential race was quick to point out that Sarkozy had staked his reputation on keeping the prized rating -- and had failed to do so. "It is (his) politics that have been downgraded, not France," said Francois Hollande, the Socialist candidate who opinion polls say will win the vote to be held in April and May. French Prime Minister Francois Fillon said Saturday the downgrade had been expected and should neither be "dramatised" nor "minimised", and that budgetary "adjustments" would be made if necessary. The first test for France's credit worthiness will come on Thursday when it will try to raise between 7.5 and 9.5 billion euros for periods of between two and 28 years. In a statement released after US markets closed Friday, S&P said an EU fiscal pact agreed last year "has not produced a breakthrough of sufficient size and scope to fully address the eurozone's financial problems". The statement said France and Austria's top AAA rating had been cut by one notch to AA+ -- with a negative outlook -- while it left European powerhouse Germany unchanged at AAA, stable. The US firm cut its long-term ratings on Cyprus, Italy, Portugal and Spain by two notches; Malta, Slovakia and Slovenia by one notch. Belgium, Estonia, Finland, Ireland, Luxembourg and The Netherlands all had their current ratings confirmed, but were placed on "negative watch" -- meaning they could be downgraded in due course. There was further bad news Friday from debt-wracked eurozone minnow Greece, when a group representing major private lenders said they had failed to reach an agreement to slash its debt burden.