Credit rating agency Fitch has expressed doubts that the budgetary discipline pact European states intend to adopt will be able to solve the euro zone debt crisis.
"Fitch has concluded that a comprehensive solution to the euro zone crisis is technically and politically beyond reach" after the crisis summit last week, it said.
While it praised summit announcements that private bondholders would no longer be asked to accept losses and the euro zone's permanent bail-out fund would be brought into operation sooner, it said it was concerned by the absence of a credible financial backstop, adding that a more explicit commitment from the ECB to help struggling countries was needed.
The warning came as Fitch said it was reviewing the credit ratings of six euro zone countries, including Ireland, Spain and Italy, warning that their debt rating could be downgraded.
The agency has kept France's triple-A rating but changed its outlook to 'negative', which usually means there is a possibility of a downgrade in the next 12-18 months.
Fitch placed Belgium, Spain, Slovenia, Italy, Ireland and Cyprus on Ratings Watch Negative. This means that their ratings "are under active review and are subject to a heightened probability of downgrade in the near-term," said Fitch.
Belgium currently has an AA+ rating from Fitch, Spain AA-, Slovenia AA-, Italy A+, Ireland BBB+, and Cyprus BBB.
Fitch downgrades six banks
Ratings firm Fitch has downgraded six major global banks, citing increased challenges in their business and the prospect of financial turmoil ahead.
Fitch lowered the long-term ratings on Bank of America and Goldman Sachs in the US, British bank Barclays, French bank BNP Paribas, German bank Deutsche Bank and Swiss bank Credit Suisse.
The downgrades "reflected challenges faced by the sector as a whole, rather than negative developments in idiosyncratic fundamental creditworthiness," Fitch said in a statement. By contrast, Fitch affirmed the ratings on Morgan Stanley, Société Générale and UBS.
Fitch said the banks "are particularly sensitive to the increased challenges the financial markets face. "These challenges result from both economic developments as well as a myriad of regulatory changes," the French-owned ratings firm said.
Banks have been under the gun since the 2008 financial crisis, hit by regulation after they helped plunge the global economy into recession and faced with tougher market conditions.
Fitch said the banks had made "significant progress" in building capital and liquidity buffers to withstand shocks. But they remained vulnerable to market sentiment and confidence.
Some familiar problems remain. "The complexity of their business models make it more difficult to assess the size of loss that could emerge rapidly from unexpected events," Fitch warned.
The agency also predicted further consolidation in the sector as new market conditions - including lower earnings and increased costs - would reduce the field.
Still, the big global banks "are much better placed to deal with difficult market conditions today than in 2008," it said. Fitch said the rating actions were based on its assessment of creditworthiness against the relatively high rating levels that the banks previously had.
Bank of America, Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley and UBS were rated "A". BNP Paribas and SocGen were ranked one notch lower, at "A-plus."
Last night's move was just the latest in a series of downgrades for the global banking sector, as agencies attempt to come to terms with the possible impact of the European debt crisis. The ratings agencies were heavily criticised for failing to spot the 2008 financial crisis as it approached.
Fitch's move comes weeks after fellow ratings agency Standard and Poor's downgraded major global banks, including US banks Citigroup, Goldman Sachs, Wells Fargo, JPMorgan Chase, Morgan Stanley and Bank of America.
Fitch earlier this week said it had downgraded five European financial firms citing stronger headwinds in Europe's banking sector. The agency downgraded France's Banque Federative du Credit Mutuel and Credit Agricole, Denmark's Danske Bank, Finland's OP Pohjola Group and the Netherlands' Rabobank Group.
