Standard & Poor's issued a slew of downgrades to European nations Friday due to "insufficient" action by policymakers to address the continent's debt crisis.
Germany, seen as a stalwart of economic stability in the region, maintained its AAA rating. However, France and Austria both lost their top-notch ratings, being knocked down to AA+.
"In our opinion, the political agreement does not supply sufficient additional resources or operational flexibility to bolster European rescue operations," the agency wrote.
However, it also warned that simple budget cuts by struggling nations like Italy and Greece would not be sufficient to right the ship. While "fiscal profligacy" at these nations did contribute to problems, an equally problematic issue is the growing imbalance in competitiveness between the core of the eurozone and its peripheral nations.
With that in mind, the agency warned that a solution based just on budget tightening would fail to address that latter problem, and could even make it worse.
"We believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers' rising concerns about job security and disposable incomes, eroding national tax revenues," the agency wrote.
Woes in Europe continue to post a major threat to the United States' economic recovery, which seems to be gaining some steam following a pair of promising jobs reports.
Stocks in the United States took a turn for the worse Friday, as rumors percolated that the rating agency was prepping a number of downgrades for Europe. The Dow Jones Industrial Average dropped more than 100 points early on, but ultimately recovered to end the day down roughly 49 points.
Cyprus, Italy, Portugal and Spain were downgraded by two notches, while Austria, France, Malta, Slovakia and Slovenia were downgraded by one notch. And Belgium, Estonia, Finland, Germany, Ireland, Luxembourg and the Netherlands all had their existing ratings affirmed by S&P.
The downgrades came roughly two weeks before Treasury Secretary Timothy Geithner is set to travel to Switzerland for a meeting of world economic leaders. The Treasury Department said Geithner would use the trip to discuss "the global economic outlook and Europe’s strategy to reinforce the institutions of the euro area."