Allies rally behind US but China scolds over downgrade

US allies in Europe and Asia voiced confidence in the world's largest economy Saturday despite an unprecedented ratings downgrade but China lashed out at Washington's "addiction" to debt.

Key US partners including Britain, France, Japan and South Korea rallied to back the US economy and warned against over-reaction after Standard & Poor's cut the US rating from the top notch triple-A to AA+ on Friday.

But Beijing, the largest foreign holder of US Treasuries, said in a stinging English-language commentary carried by the official Xinhua news agency that it had "every right" to demand Washington address its structural debt problems and safeguard Chinese dollar assets.

Sign over an entrance to the New York Stock Exchange is seen on August 5, 2011. The Dow Jones Industial Average closed up 60.93 points at 11,444.61

Washington needed to "come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone," Xinhua said.

"To cure its addiction to debts, the United States has to re-establish the common sense principle that one should live within its means," the commentary added.

Other nations were quick to voice trust in the US economy, however.

"France has total confidence in the solidity and the fundamentals of the US economy, and the American government's determination to implement the plan (to reduce the deficit) approved by Congress this week," French Finance Minister Francois Baroin said.

"Standard & Poor's rating is only one element in the appreciation of the United States financial situation," he noted, adding that "G7 finance ministers are in constant touch to monitor the situation on the markets and discuss what action is necessary."

British Business Secretary Vince Cable said the downgrade had been "entirely predictable" and did not raise questions about the security of the US economy.

"This was an entirely predictable consequence of the mess that the Congress created a few weeks ago when they couldn't agree on lifting the debt ceiling," Cable told Sky News.

"But they have now agreed that, and the United States' position is pretty secure."

British Prime Minister David Cameron and French President Nicolas Sarkozy discussed the eurozone and US debt crises in telephone talks Saturday, a Downing Street spokesman said.

"Both agreed the importance of working together, monitoring the situation closely and keeping in contact over the coming days," the spokesman said.

Officials in Japan, which has the second-largest US debt holdings, also said their confidence in US Treasuries remained unchanged.

"The trust we have in US Treasuries and their attractiveness as an investment will not change because of this action," an unnamed senior Japanese government official told Dow Jones Newswires.

Officials in Taiwan and Hong Kong, both leading holders of US debt, said they did not expect the downgrade to have a significant impact and noted that it fell within market expectations.

South Korea's Vice Finance Minister Yim Jong-Yong also said "there is no need to be concerned excessively about our economy and financial markets" after the downgrade.

Russia said it was untroubled by the downgrade and said it would maintain the level of US dollar investments in its national reserve funds.

"It's such a small change that it can be disregarded from the point of view of the management of investments in the long-term," Deputy Finance Minister Sergei Storchak told the Interfax news agency.

A German government spokesman refused to comment on the downgrade when reached by AFP.

Economy Minister Philipp Roesler told newspaper Bild am Sonntag: "We do not comment on the ratings of the different agencies. It is however clear that the economic competitiveness of other states is a very important subject for us."

Standard & Poor's gave a negative outlook for the US, saying there was a chance its rating could be cut again within two years if progress is not made cutting the government budget gap.

Friday's downgrade followed days of heavy losses on stock markets around the world, as investor confidence was hammered by fears for the US economy and a warning that the eurozone debt crisis had likely spread.

AFP

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