Low growth prospects and high debt levels prompted Moody's Investors Service to drop Spain's credit rating two notches after it warned France of a possible cut.
The downgrade, following similar Spanish cuts by Fitch Ratings and Standard & Poor's, and the warning of a downgrade against France -- which French officials vowed would not come to pass -- came ahead of a weekend summit of European Union leaders to seek ways of resolving the eurozone sovereign debt crisis.
German Chancellor Angela Merkel said Tuesday the summit would not solve the crisis.
"These sovereign debts have built up over decades, so they won't be ended with one summit," she told reporters in Berlin.
The weekend meeting will be followed by a Group of 20 industrialized nations meeting in Cannes, France, Nov. 3 and 4 to discuss the economic and financial problems plaguing the European and U.S. economies.
Moody's cut Spain's credit rating two levels to A1, four steps below the highest possible grade for credit quality, from Aa2.
The ratings agency maintained a negative outlook on Spanish debt because it said the European crisis could escalate. But it removed Spain from review for a possible further downgrade.
Spain's real gross domestic product growth next year will be 1 percent "at best," it said, down from an earlier projection of 1.8 percent.
The drop followed S&P's downgrade of Spain and 10 Spanish banks Friday and Fitch's cut Oct. 7, the day it also downgraded Italy.
The Moody's downgrade came as Spain's public-works ministry said Spain's housing-price index fell 5.5 percent between July and September from a year earlier -- the fastest drop since 2009 -- and 18 percent during the past three years.
"Spain is living three crises at the same time," Maria Elena Ferrer, principal of the non-partisan Humanamente consulting firm of Valencia, Spain, and suburban New York, told United Press International Tuesday night. "The global crisis is compounded by the bursting of a construction bubble, and this is made worse by cuts in Spain's funding by the European Social Fund."
The fund supports Spain's growth and employment, and promotes economic and social cohesion, "so it can maintain EU membership standards," but this funding was drastically reduced in 2007, she said.
"On top of all that, Spain's government, trying to be positive, denied the crisis existed until it exploded in front of everybody," Ferrer told UPI. "So it reacted very late."
French Finance Minister Francois Baroin said on French TV shortly after Moody's warning Paris would "do everything" needed to maintain a triple-A bond rating.
A strong credit rating is necessary "to keep interest costs down and finance France's social model," Baroin said.
France is one of the few top ratings left among major Western economies.
But Moody's said France was "the weakest" of Europe's triple-A nations and its obligations under the new bailout and bank programs could cause trouble.
As the No. 2 economy in the 17-nation eurozone, France is responsible for about $200 billion of the planned $600 billion European rescue fund -- an amount equivalent to about 8.5 percent of France's annual economic output, The Washington Post reported.