Fitch: comprehensive euro zone deal "beyond reach"

Fri Dec 16, 2011 6:28pm EST
 
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By Gavin Jones and Stephen Brown

ROME/BERLIN (Reuters) - The credit rating agency Fitch said on Friday it thought a comprehensive solution to the euro zone's debt crisis was beyond reach, putting six euro zone economies including Italy on watch for potential near-term downgrades.

It reaffirmed France's top-notch triple-A rating but even here said the outlook was now negative, meaning it could be downgraded within two years.

Underscoring the tensions within the bloc over a crisis that has spread relentlessly over the past two years, Italy's prime minister urged European policymakers to beware of dividing the continent with their efforts to fight its debt crisis.

In a swipe at Germany, he warned against a "short-term hunger for rigour" in some countries.

Germany has led resistance to allowing the European Central Bank to ramp up its buying of government bonds on the open market to a big enough scale to douse the crisis, but Fitch added to the pressure for just such a move.

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," it said. "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."

It put Belgium, Spain, Slovenia, Italy, Ireland, and Cyprus on negative watch, which could mean a downgrade within three months. Later another agency, Moody's, downgraded Belgium's credit rating by two notches, and said a further downgrade was possible within two years.   Continued...