France and Germany have pledged to take "all necessary measures" to ensure the stability of the euro area after rating agency Standard & Poor's said the two countries risked losing their triple-A ratings.
"France and Germany, in full solidarity, confirm their determination to take all the necessary measures, in liaison with their partners and the European institutions to ensure the stability of the euro area," they said in a joint statement in which they "take note" of the possible S&P action.
S&P had earlier placed Germany, France and 13 other euro zone members on a negative credit watch, warning that they could be hit with downgrades.
Its move came just hours after crisis talks between President Nicolas Sarkozy and Chancellor Angela Merkel on the debt crisis.
"Systemic stresses in the euro zone have risen in recent weeks to the extent that they now put downward pressure on the credit standing of the euro zone as a whole," S&P said in a statement.
The warning threatened the AAA ratings of Germany, France, the Netherlands, Finland, Luxembourg and Austria.
S&P said it would complete a review of euro zone sovereign ratings "as soon as possible" following the EU summit on the debt crisis on Thursday and Friday.
Depending on the results of that summit, S&P said, "we believe ratings could be lowered by up to one notch for Austria, Belgium, Finland, Germany, Netherlands, and Luxembourg, and by up to two notches for the other governments".
France, Germany wants new treaty by March
France and Germany want a new EU treaty by March with tougher budgetary rules to deal with the euro zone debt crisis, President Nicolas Sarkozy and Chancellor Angela Merkel said after crisis talks today.
The two leaders made the announcement after crunch talks in Paris at the start of a crucial week for the euro, teetering on the brink because of its indebted member states ahead of a key EU summit in Brussels on Thursday.
"The goal that we have with the chancellor is for an agreement to have been negotiated and concluded between the 17 members of the euro zone in March, because we must move quickly," Sarkozy said, warning of a "forced march to re-establish confidence in the euro and the euro zone".
Sarkozy said that the new treaty would be either for all 27 EU members or for the 17 members of the euro zone, with other nations signing on a voluntary basis. The Franco-German proposal is to be detailed in a letter to EU president Herman Van Rompuy on Wednesday, the day before the EU summit convenes in Brussels.
The two leaders backed automatic sanctions against EU member states whose deficits go over 3% of GDP and called for a "reinforced and harmonised Golden Rule" on the deficits of euro zone states.
The European Court of Justice should be tasked with verifying that national budgets obey deficit rules, but it should not be able to declare budgets "null and void", Merkel said.
With debt contagion threatening to spread throughout the euro zone, Italy kicked off a critical week by presenting a draconian package of cuts, taxes and pension reforms to parliament as Europe tries to pick up the pace to keep the euro alive.
The call in Paris for tighter discipline and the austerity measures in Rome saw Italy's long-term borrowing rate fall back below the key 6% threshold soon after.
The rate of return on Italian government 10-year bonds fell to 5.983% this afternoon, dropping below 6% for the first time since the end of October. Experts consider borrowing rates above 6% to be unsustainable in the long term for countries with slow growth and low inflation.
It was hoped that today's proposals would be seen as a credible guarantee that euro zone governments will at last bring their deficits under control and thereby satisfy restive markets.
European Central Bank chief Mario Draghi has said he could then take action, and many hope the bank will intervene to protect European banks from a credit crunch and buy bonds to rein in soaring rates on government borrowing.
However, Sarkozy said that Germany and France were "in complete agreement to say that eurobonds are in no case a solution to the crisis, in no case." "How can we convince others to make the efforts we are making ourselves if we pool our debts as of now? None of this makes any sense."
Sarkozy called for European summits to be held every month while the euro crisis raged, and for the meetings to have "precise agendas" with markets having in the past accused euro zone leaders of dithering.
Amid concern that the euro zone crisis will trigger a global economic downturn, US Treasury Secretary Timothy Geithner has also been dispatched to Europe, where he arrives tomorrow to pressure leaders to take effective action on the debt crisis.
