Italian Prime Minister Mario Monti and European Council President Herman Van Rompuy met in Rome Monday to press Mr. Monti's case for a stronger focus on economic growth.
Mr. Monti, speaking after Standard & Poor's cut Italy's sovereign credit rating to triple-B-plus from single-A, noted the rating agency had in fact applauded his government's fiscal efforts and "pointed out the failures of European Union governance."
Mr. Van Rompuy said that, despite market skepticism, "real progress" has been made in overhauling the economic governance norms of the EU and euro area. He also said it was time to "refocus" on economic growth and job creation, operating on both the supply and demand sides. There is no quick fix to the crisis and "sustained, committed" efforts will be needed, Mr. Van Rompuy said.
He said it was essential to avoid a credit crunch in the region, praising the European Central Bank's decision to offer longer-term liquidity but insisting that governments must also do more to make sure that smaller companies have access to funding and venture capital.
Mr. Van Rompuy also praised Mr. Monti's efforts in his first 60 days in office and said he expected even more "extraordinary" successes in Italy's technocrat government's first 100 days.
Mr. Monti promised to unveil new liberalization and infrastructure measures this week. He has also pledged to loosen Italy's labor laws.
"The Italian agenda is the European agenda," Mr. Van Rompuy said. "There is no distinction between what you are pursuing here than what is being pursued in Brussels."
Standard & Poor's issued a raft of downgrades late Friday, including one that stripped France and Austria of their triple-A status, thereby increasing doubts about the current design and funding levels of the European Financial Stability Facility as a vehicle to protect the currency union's sovereign debt markets.
Mr. Van Rompuy said it was critical that agreed measures be swiftly implemented, and promised that the new "fiscal compact" agreed by 26 of 27 EU members last month would be agreed on at a summit later this month, signed in early March, and be operative by July.
Mr. Monti also said it was critical to narrow the divergence between the U.K. and the euro area. He will travel to London Wednesday to meet Prime Minister David Cameron. Mr. Van Rompuy said talks were continuing with member states and international partners about boosting the International Monetary Fund's resources.
Elsewhere on Monday, the EU responded to the downgrade decisions by saying that they ignore growth-enhancing initiatives and fiscal-consolidation policies in place in euro-area member states.
"We think there are elements missing in their analysis … when it comes to the growth strategy … there is no space for maneuver for fiscal impetus but we believe that a growth strategy will have to rely mainly on structural reforms," Olivier Bailly, an EU spokesman, told reporters.
Mr. Bailly also called the timing of the S&P decisions "very odd" citing fiscal policies adopted to weather the crisis in the downgraded countries as well as the two successful debt auctions in Spain and Italy last week.
"We think that there is a strange timing in this announcement considering the signals from the markets," Mr. Bailly said. He added that a discussion on suspending credit-rating decisions for bailout countries is ongoing and should conclude "in a few weeks." The overall goal is to reduce EU reliance on decisions made by these firms altogether.
"We want to 'downgrade' the reliance of EU financial institutions on credit agencies," Mr. Bailly said, adding that "the general aim here is to not depend on credit-ratings agencies' analysis and if we had that, we would have had a different reaction [to the downgrades] from financial institutions on Friday."
These comments were echoed by German Finance Minister Wolfgang Schäuble, who sharpened his tone toward credit-rating firms in the wake of Standard & Poor's sweeping euro-zone downgrade, questioning its rationale and impartiality and predicting a fresh political offensive to reduce their clout.
The U.S. rating agency isn't giving Europe enough credit for its efforts to reduce budget deficits and move toward a fiscal union, Mr. Schäuble said in an interview with Deutschlandfunk radio. "We know that there is uncertainty about the euro zone," he said. "I don't think that S&P really has understood what we have already accomplished in Europe."
European stocks hardly budged early Monday and the euro even recovered somewhat in the first European trading since the much-anticipated downgrade was announced Friday. S&P stripped France and Austria of their prized triple-A credit ratings and reduced the ratings of seven other euro-zone nations, including Italy, Spain and Portugal. Germany, Finland, the Netherlands and Luxembourg were spared, along with Belgium, Estonia and Ireland.
Mr. Schäuble suggested the downgrade was motivated by political and business interests, accusing the agencies of competing for attention. S&P expressed reservations about the predictability and effectiveness of European political efforts to contain the region's chronic debt crisis.
France was furious in November when S&P mistakenly suggested it had downgraded the country, sparking a sell-off in French government bonds. Days later, the European Commission proposed stricter rules for rating firms, including measures to weaken their clout.
"We have indeed agreed to reduce the influence of rating agencies," the German finance minister said. "I believe that decisions such as the one we witnessed Friday, will accelerate that process."
Many leaders are still angry with the ratings firms for their role in the financial crisis that began in the U.S. in 2007 and spread to Europe in 2008. Mr. Schäuble said that the firms helped develop some of the financial products that contributed to the crisis and then compounded the grief by giving them a top rating.
Moritz Kraemer, managing director of European sovereign ratings at S&P, rejected Mr. Schäuble's suggestion that politics played a part in its decision.
"We have no political agenda," Mr. Kraemer told Deutschlandfunk radio in a separate interview later Monday, saying that S&P bases its scores on credit risks alone.
French leaders have assailed the S&P for focusing on France and the U.K., which retains a top rating even though its deficit is one of the highest in Europe.
Questioned about that, Mr. Kraemer cited as factors in the U.K.'s favor its independent central bank and the government's ambitious deficit reduction plan.
Friday's downgrade increases the odds that the European bailout fund will also lose its top rating, as that score depends on the credit standing of contributing euro-zone governments. That could raise the fund's borrowing costs, making it less effective.
Mr. Schäuble insisted the European Financial Stability Facility would still be able to fulfill its function and reaffirmed Germany's opposition to raising its ceiling of €211 billion ($267.48 billion) in guarantees to the bailout fund.
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