ROME/BERLIN (Reuters) – A comprehensive solution to the euro zone debt crisis is beyond the region's reach, rating agency Fitch said, warning that six of its economies including Italy and Spain could be hit with credit downgrades in the near future.
The warning late Friday, the second time in two weeks that the bloc has been threatened with multiple ratings markdowns, heightened pressure on leaders to get to grips with the turmoil.
Fitch also said it might also cut AAA-rated France within two years and urged the European Central Bank to take a more active firefighting role.
One ECB policymaker said Saturday that time was running out to come up with solutions to a crisis that could spark a global slump. Another said the bank would not expand the bond buying program it launched to keep a lid on vulnerable states' debt costs.
Underscoring tensions within the bloc, a week after a key EU summit failed to reassure financial markets the crisis was being tackled, Italy's Prime Minister Mario Monti urged EU policymakers Friday to beware of dividing the continent.
ECB ratesetter Erkki Liikanen said that, to prevent a flurry of ratings downgrades and a credit freeze, the continent's leaders needed to act fast to beef up the rescue funds designed to provide a safety net for debt-laden member countries.
"The worse scenario is that the negative cycle continues, uncertainty grows, which would lead to a global recession," Liikanen - a member of the bank's governing council -told Finnish public broadcaster YLE in an interview Saturday.
International Monetary Fund head Christine Lagarde had said no country was immune from the crisis and each needed to act to head off the risk of a global depression.
In a swipe against Germany, Italy's Monti said Europe's response "should be wrapped in a long-term sustainable approach, not just to feed short-term hunger for rigor in some countries."
Pushing for governments to eliminate their bloated budget deficits, Germany has led resistance to allowing the ECB to ramp up its bond purchases to a big enough scale to douse the crisis.
But Fitch added to the pressure for just such a move.
The agency said that, following the EU summit, 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."
A second ECB policymaker, Juergen Stark, said expanding bond buys would not end the crisis, while swift implementation of the plan on closer fiscal union agreed at the summit was crucial.
"Don't ask too much of the central bank," Stark - who steps down from the executive board at year-end - was quoted as saying Saturday in pre-released extracts from a German magazine interview.
Graphics on euro zone crisis http://r.reuters.com/hyb65p
Interactive timeline http://link.reuters.com/rev89r
MULTIPLE DOWNGRADE THREAT
Fitch put Belgium, Spain, Slovenia, Italy, Ireland, and Cyprus on negative watch, which could mean a downgrade within three months.
"The systemic nature of the euro zone crisis is having a profoundly adverse effect on economic and financial stability across the region," it said.
Less than two weeks earlier, citing continuing disagreements among policymakers over how to tackle the crisis, rival agency Standard & Poor's put the ratings of 15 euro zone states, including Germany and France, on review for one- to two-notch downgrades.
The third main agency, Moody's, Friday cut Belgium's credit rating by two notches, saying the crisis raised funding risks for countries with high public debt burdens, and said a further downgrade was possible within two years.
Belgium's Finance Minister Steven Vanackere told Reuters on Saturday the cut was not a big surprise but had added pressure on the country to hit next year's budget deficit target of 2.
A first draft of a planned new 'fiscal compact' among euro zone countries and aspiring members, published Friday, showed that countries could be taken to the European Court of Justice if they did not meet agreed budget goals.
German Chancellor Angela Merkel - under pressure from the Bundesbank to force debt-saddled euro zone countries to reform and save their way out of crisis with austerity measures - has led a push for automatic sanctions for deficit "sinners."
This has fed concerns that excessive belt-tightening in southern countries could send their economies into a negative spiral with no prospect of growing out of crisis, while feeding resentment in the prosperous north.
In France, officials have sought to prepare the public for the likelihood that Paris will lose its top-notch rating for the first time since 1975, playing down the potential setback and focusing attention instead on questioning neighboring Britain's AAA rating. President Nicolas Sarkozy had vowed to keep the top rating, and it could become an issue in next year's election campaign.
EFSF FIREPOWER
Euro zone 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 said Friday about 600 billion euros was available to fight the crisis.
"If Italy and Spain were to ask for support, their gross financing needs for 2012 are less than that and I don't think they would need to be taken off the market," he said.
Euro zone countries will hold talks next Monday on the draft text of the euro zone fiscal compact and on bilateral loans to the International Monetary Fund, officials in Brussels said. Slovak Finance Minister Ivan Miklos told Reuters they would commit 150 billion euros to boost the IMF's lending capacity.
The United States has refused to offer additional funding and it remains to be seen how much countries such as China, Russia, Brazil and India are willing to commit.
Commercial banks appear to be resisting pressure from governments to help debt-choked euro zone countries by using cheap money lent by the ECB to buy more sovereign bonds.
The chief executive of UniCredit, one of Italy's two biggest banks, said this week that using ECB money to buy government debt "wouldn't be logical."
Euro zone governments need to sell almost 80 billion euros of fresh debt in January alone, and the stand-off between policymakers and banks could turn the slow-burning debt crisis into a conflagration in the New Year.
(Additional reporting by Steve Scherer in Rome, Annika Breidthardt in Berlin, Gareth Gore, Natsuko Waki, Kirsten Donovan and Ana Nicolaci da Costa in London, Martin Santa in Bratislava, Ingrid Melander in Athens; Writing by John Stonestreet, Paul Carrel and Paul Taylor; Editing by Mark Trevelyan)
