European leaders vowed today to speed up plans to strengthen spending rules and get a permanent bailout fund up and running as soon as possible, a day after US agency S&P cut its rating of several euro zone countries' creditworthiness.
The move by S&P to downgrade nine out of 17 countries in the single currency area, including formerly top-rated France, drew criticism from some leaders who had expected action but on a smaller scale.
In Germany - whose top AAA rating survived unscathed - Chancellor Angela Merkel said the downgrades underlined why a so-called 'fiscal compact' must be signed by member states quickly, and the next bailout mechanism, known as the ESM, should be funded soon.
"We are now challenged to implement the fiscal compact even quicker ... and to do it resolutely, not to try to soften it," she said at a meeting of her conservative Christian Democrats (CDU) in the northern city of Kiel.
"We will also work particularly to implement the permanent stability mechanism, the ESM, so soon as possible - this is important regarding investor trust," she added.
European Central Bank policyamker Joerg Asmussen warned that Europe's agreement to tighten fiscal rules was being softened, considering the latest draft of the agreement a "substantial watering down" of budgetary discipline because it would allow extra spending in extraordinary circumstances, the Financial Times Deutschland reported.
S&P said policymakers had not done enough to address Europe's debt crisis and were overlooking a key cause: sharp differences in economic competitiveness among countries that use the euro.
Leaders including Ms Merkel have urged countries to tighten their belts with higher taxes and deep spending cuts to rein in massive budget deficits. But that has heightened market concern about their ability to grow their way back to health, pushing borrowing costs even higher for heavily indebted governments.
In an interview with Reuters, John Chambers, chairman of S&P's sovereign rating committee, said it would take further increased commitments from the remaining AAA-rated guarantors, including Germany, for the EFSF fund to retain its AAA status.
Ms Merkel however rejected that idea today, saying Germany should not have to do more than other countries as a result of the downgrades.
"The necessary tasks that the EFSF must fulfil in the coming months, I very much believe, can be fulfilled with the current methods," she said. "The work of the EFSF will not be torpedoed. I see no need to change anything regarding the EFSF."
Reuters