British Prime Minister David Cameron was the only leader among the European Union’s 27 members to refuse last week to join a plan under which nations submit their budgets for central EU review and limit the deficits they can run.
As the rift between Britain, which has its own currency, and the 17 euro nations fed uncertainty about the deal’s implementation, ratings agencies Moody’s and Fitch warned the plan would make little difference.
The summit produced “few new measures” and Europe remains in a “critical and volatile stage,” Moody’s said in a published report.
It noted that the pact does not address Europe’s immediate problem: the crushing debt loads of some nations and their rising borrowing costs.
The agreement “kicks off a process that has a chance of solving the next crisis, not this one,” warned Guy LeBas, chief fixed income strategist at Janney Montgomery Scott.
Stocks plunged and the euro hit a 10-week low against the dollar as market confidence in the plan and Europe’s ability to end the crisis ebbed.
On Wall Street, the Dow Jones industrial average dove as many as 243 points before closing down 163, while European stocks also closed sharply lower.
Cameron defended his rejection in the House of Commons, telling U.K. lawmakers the fiscal pact that envisions using the EU’s executive arm as a budget watchdog could face even more political hurdles.
“The choice was a treaty without proper safeguards or no treaty, and the right answer was no treaty. It was not an easy thing to do, but it was the right thing to do,” Cameron said.