Europe's worries over government spending and debts heightened on Thursday, with Spain's credit standing downgraded as the continent's leaders get set for a summit to deal with the crisis.
Moody's Investors Service cut Spain's credit rating one notch to Aa2 and warned of possible further downgrades. The ratings service said it believes Spain will have to spend more than double the $28 billion the government estimates it will cost to restructure the finances of Spanish savings banks.
European leaders are planning to meet Friday in Brussels to help shape a new plan to deal with the government debts of some of the continent's countries, particularly those on the geographic periphery in Greece, Ireland, Portugal and Spain. Greece and Ireland reluctantly accepted bailouts last year to deal with their debt issues, and some European officials say they fear the Portugal could be next. The Lisbon government has staunchly rejected that view.
EU leaders could adopt some measures in an attempt to impose uniform spending practices in the 17 nations that use the euro currency. But there have been wide objections to an austerity plan proposed by Germany and France, the continent's two strongest economies. Countries with burgeoning government debts say they are worried about a loss of autonomy and prestige if a continent-wide plan emerges.
In Berlin this week, U.S. Treasury Secretary Timothy Geithner urged Europe to strike a balance between financial reforms and support for debt-burdened countries. Both Greece and Ireland are seeking to ease the interest rates and terms of the loans they agreed to last year, but so far their European counterparts have shown little support for doing so.
In his first day in office, new Irish Prime Minister Enda Kenny lobbied other European officials for a cut in the 5.8 percent bailout interest rate that it considers to be punitive. He is planning to press his case on the issue at the Brussels summit.
Moody's downgraded Greece's credit rating three notches this week. On Thursday, Greek Finance Minister George Papaconstantinou called on other European countries to take urgent steps to regulate the credit rating companies.