French banks downgraded before talks to save Greece, euro
Jacek Rostowski - Photo EP
(PARIS) - Moody's ratings agency downgraded two top French banks in a new lurch for the eurozone crisis on Wednesday which Polish Finance Minister Jacek Rostowski warned could destroy the European Union.
Moody's cut the rating for Credit Agricole bank, one of the biggest in Europe, from Aa1 to Aa2 and Societe Generale's from Aa2 to Aa3 because of fears over their exposure to Greek sovereign debt. It left French banking major BNP Paribas on negative watch.
Despite the downgrade, shares in Credit Agricole rose by 2.13 percent in early trading on Wednesday, while shares in Societe Generale and in BNP Paribas fell by about three percent.
Shares in all three banks have plummeted in recent weeks amid turmoil over the eurozone debt crisis.
"Europe is in danger," Rostowski, whose country holds the rotating EU presidency, told the European Parliament in Strasbourg ahead of emergency talks between leaders from Germany, France and debt-hit Greece.
"If the eurozone breaks up, the European Union will not be able to survive, with all the consequences that one can imagine," he said of the currency bloc that comprises 17 of the 27 EU countries.
European Commission head Jose Manuel Barroso described the crisis as "the most serious challenge of a generation. This is a fight... for the economic and political future of Europe."
Moody's warned in June that it was looking at French banks with a view to possible downgrade because of their exposure to the Greek financial crisis and the risks of contagion, and the markets had largely anticipated the downgrade.
US President Barack Obama called on Tuesday for greater efforts by the EU to contain its crisis.
German Chancellor Angela Merkel, French President Nicolas Sarkozy and Greek Prime Minister George Papandreou are to discuss the Greek emergency at a teleconference scheduled for 1600 GMT on Wednesday.
The teleconference was decided in view of informal talks between EU finance ministers and central bankers in Wroclaw on Friday and Saturday.
Merkel fought on Tuesday to soothe alarm on markets over Greece, saying everything would be done to avoid an "uncontrolled insolvency" and stressing that the eurozone would remain intact.
Commerzbank analysts commented: "The question of whether or not Greece will default is pretty much solved for the financial markets though. From the point of view of the markets a short-term default of Grece is more or less unavoidable.
"As a result, the forex market is more interested in the consequences of a default and as a result above all the question whether there is a risk of contagion effects for other countries."
Merkel's comments followed a stern warning from Obama that the global economy was unlikely to recover until the eurozone debt crisis was contained.
The US president added that it would be a "significant topic" for the next G20 meeting in France.
US Treasury Secretary Timothy Geithner is to attend exceptionally Friday's meeting of EU finance ministers and central bankers.
The emerging economies of Brazil, Russia, India, China and South Africa, which constitute the BRICS group, are to discuss possible aid to Europe to ease the crisis, Brazilian Finance Minister Guido Mantega said.
He and his counterparts are to discuss the issue in Washington on September 22. They will be in the US capital next week for the annual meetings of the International Monetary Fund and World Bank.
Many analysts are concerned that Italy could be the next eurozone domino to fall, with enormous debt which stands at 120 percent of gross domestic product.
Italian Finance Minister Giulio Tremonti met the head of China's biggest sovereign wealth fund CIC last week, but officials denied he had asked Beijing to step in and purchase its bonds.
Battling to prevent a debt crisis that has already claimed Greece, Portugal and Ireland, Silvio Berlusconi's government hopes deputies will on Wednesday pass an austerity package to balance the books by 2013.
In Greece, authorities braced for a new round of strikes to protest against new civil service pay and job cuts, as well as a surprise property tax translating into hundreds of euros per person on average.
EU officials have warned repeatedly that Athens will not receive the next slice of aid, worth eight billion euros, unless it can persuade EU and IMF auditors, about to resume work, that it can overcome its deficit crisis.