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EU Leaders Angry About Credit Downgrade

In this photo taken with a fisheye lens, flames from a fire set alight in a container by activists of the Frankfurt Occupy movement are seen in front of the European Central Bank and a sculpture of the euro symbol in Frankfurt, Germany, November 21, 2011

European leaders hit back Saturday at the downgrade by Standard & Poor's of the credit ratings of nine European nations, calling the move unfounded and inconsistent.

From Larnaka to Brussels, European Union officials were on the defensive Saturday, downplaying the downgrades while vowing to push through fiscal reforms.

In a widely anticipated move, the rating agency downgraded by a notch the ratings of five European countries, including the region's second-largest economy France. It downgraded four others - Italy, Portugal, Spain and Cyprus - by two notches.

The finance minister of Cyprus called the move "arbitrary and unfounded." The Austrian government also criticized the measure. European Economic and Monetary Commissioner Olli Rehn called the downgrades inconsistent.

Other politicians, like French Prime Minister Francois Fillon, sought to put a positive spin on the news.

At a press conference on Saturday, Baroin said that while S&P had downgraded France's once-sterling AAA to AA+, the agency had also confirmed the French economy was solid, diversified and resistant. It noted the government had implemented the necessary reforms and applied a credible strategy to reduce its debt and deficit.

Baroin also said a new fiscal discipline pact agreed to by European leaders last month showed they were proactive in addressing the eurozone crisis. In Germany, which retained its AAA rating, Chancellor Angela Merkel called on European leaders to move quickly to adopt the pact, which was spearheaded by France and Germany.

But S&P has criticized the European Union pact as an insufficient answer to the crisis, an assessment shared by analysts like Tomasz Michaelski of the HEC business school in Paris. Michaelski also doesn't believe the downgrades will prompt European leaders to take bolder steps when they meet at the end of January.

"I don't believe that there's going to be a general solution to the problem reached at a common European summit," said Michaelski. "I don't believe that can happen. There are so many different interests. Each country is going to have to heal itself."

In practical terms, the downgrades mean that some countries may have to borrow money at higher costs. The EU's bailout fund may also be affected. But some analysts believe that since so many countries have been downgraded, including the United States last summer, it may have little tangible impact.

Still others, like Michaelski, say the markets may have anticipated the downgrade and may not react dramatically when they reopen on Monday.

Correction - Previously, French Finance Minister Francois Baroin was mistakely identified as Francois Filon