Spain, France vow action on eurozone crisis

The leaders of France and Spain vowed concerted action on the eurozone as they met amid IMF calls for new measures to control the debt crisis threatening the global economy. French President Francois Hollande and Spanish Prime Minister Mariano Rajoy also downplayed the International Monetary Fund's pessimistic growth forecasts for next year. But shortly after their meeting Standard & Poor's cut Spain's sovereign debt rating by two notches to just above junk level, citing the deepening recession and strains from the country's troubled banks. "France and Spain share the same concept of what needs to be done," Hollande said at a joint press conference after the two met in Paris ahead of an EU summit on October 18 and 19. At the summit "we must move forward as much as possible" on issues including bank supervision, the role of the European Central Bank and a banking union, Hollande said. Asked about the IMF's prediction of 0.4 percent growth for France next year, against a government forecast of 0.8 percent, Hollande said measures being taken within the eurozone should help stimulate growth. "If we resolve the questions about the eurozone, if we apply the decisions (taken at June's EU summit) with control over public finances and support for industrial investment, we will have different growth figures than predicted," Hollande said. Rajoy said European leaders were meanwhile working to help Greece resolve its debt problems and remain a part of the eurozone. "I am convinced that between us we will find formulas so that Greece can respect its commitments and so the others can take timely decisions that allow Greece to remain in the euro," he said. But he had problems of his own as S&P cut Spain's rating to BBB- from BBB+, just one level above "speculative" or "junk" grade debt, which could have sent Madrid's borrowing costs skyrocketing to untenable levels. "The downgrade reflects our view of mounting risks to Spain's public finances, due to rising economic and political pressures," S&P said. The ratings agency also attached a "negative outlook" to the rating, a warning of a possible further downgrade over the medium term. The Paris meeting came after the eurozone this week launched its much-awaited 500-billion-euro ($643 billion) European Stability Mechanism rescue fund. This safety net is seen as a major bulwark in building the bloc's defences against the debt crisis which has pushed it back into recession. The IMF urged the European Union on Wednesday to take more steps to deal with the crisis, which it said is heaping extra pressure on an already-strained global financial system. "(European) policymakers need to take additional measures to restore confidence," said the fund's Global Financial Stability Report, released ahead of the IMF's annual meeting this week in Tokyo. On Tuesday, the IMF added to concerns about the health of the global economy as it warned of a possible recession and cut its growth forecast for this year to 3.3 percent, from July's estimate of 3.5 percent. "Risks to global financial stability have increased and financial markets have been volatile as European policymakers grapple with the ongoing crisis," the report said. Its recommendations included cutting public debt and deficits "in a way that supports growth" and a "clean-up of the banking sector, including recapitalising or restructuring viable banks and resolving non-viable ones". And the IMF was cool towards the latest initiatives by the eurozone. "Unless more action is taken soon, recent improvements in financial markets could prove fleeting," it cautioned. Hollande headed into the talks with Rajoy -- and will go to next week's EU summit -- with his influence strengthened by the French National Assembly's passing on Tuesday of the EU fiscal pact on limiting budget deficits. Despite vocal criticism of the pact from the French left, Hollande's Socialists were able to get the pact approved without needing to rely on the support of right-wing deputies. The upper house Senate is expected to approve it later this week. Meanwhile Greece's two trade union confederations have called a 24-hour general strike on October 18 to protest at austerity measures as the European Union leaders meet, a union source said Wednesday.