Eurozone crisis beyond fixing, says Fitch

CREDIT rating agency Fitch told the eurozone last night it thinks a comprehensive solution to the bloc’s debt crisis is beyond reach, as it put a number of the bloc’s economies including Ireland on watch for potential downgrades.

It reaffirmed France’s top-notch triple-A rating but even here said the outlook was now negative over a longer term.

Underscoring the tensions within the bloc over the crisis that has spread relentlessly over the past two years, Italy’s prime minister earlier urged European policymakers to beware of dividing the continent with their efforts to fight its debt crisis, warning against a “short-term hunger for rigour” in some countries, in a swipe at Germany.

Germany has led resistance to allowing the ECB to ramp up its buying of government bonds on the open market to a big enough scale to douse the crisis.

Fitch said that following the EU summit a week ago it had concluded that “a ‘comprehensive solution’ to the eurozone crisis is technically and politically beyond reach”.

“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.

It put Belgium, Spain, Slovenia, Italy, Ireland, and Cyprus on negative watch. Another ratings agency, Standard & Poor’s, had already warned 15 of the currency bloc’s 17 members that they were close to a downgrade.

Meanwhile, a first draft of a planned fiscal union treaty among eurozone countries and aspiring members, published yesterday, showed that countries could be taken to the European Court of Justice if they fail to meet agreed budget targets.

Italian Prime Minister Mario Monti said Europe’s response to the debt crisis “should be wrapped in a long-term sustainable approach, not just to feed short-term hunger for rigour in some countries.

“To help European construction evolve in a way that unites, not divides, we cannot afford that the crisis in the eurozone brings us ... the risk of conflicts between the virtuous north and an allegedly vicious south,” he told a conference in Rome.

Eurozone officials said potential downgrades, particularly from S&P, could raise the cost of borrowing for the region’s existing EFSF bailout fund, but would not make a big difference to its operations.

EFSF chief Klaus Regling told the Rome conference there was about €600bn available to fight the crisis.

Meanwhile, Fitch downgraded the credit ratings of Deutsche Bank and five other leading banks, including: Bank of America, Barclays, Credit Suisse Group, Deutsche Bank and BNP Paribas.

— Reuters