Euro pact faces doubts, U.K. issues

LONDON - Doubts resurfaced Monday over Europe's ability to solve its debt crisis and rescue the imperiled euro, as investors worried that plans for a new fiscal pact would bring little immediate relief and Britain warned it could face new political hurdles.

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 and the 17 nations in the eurozone 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 nations such as Italy and Spain and 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 L.L.C.

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. European stocks closed sharply lower. Yields on Italian bonds rose to 6.76 percent, closing in on the 7 percent level that forced Greece, Ireland, and Portugal to take bailouts.

In the House of Commons, Cameron defended his move, 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," he said.

In Italy, workers angry about government austerity measures went on strike and held nationwide rallies. Strikes idled some Fiat auto plants and forced Milan's famed La Scala opera house to cancel a performance. It was the first of days of planned union walkouts and demonstrations against spending cuts and tax increases Italy's government seeks to restore investor confidence.

Twenty-three European countries, including Italy, say they are in favor of the fiscal pact announced Friday in Brussels, Belgium, while three more say they are open to the idea.

Under the deal, a central European authority would impose tougher spending controls. Participants would also agree to automatic penalties if countries spend too much.

Optimism about the deal soured Monday as traders sought more short-term support for European financial markets.

They were also disappointed that the European Central Bank sharply cut back its purchases of government bonds to only 635 million euros ($841 million) last week, underlining the bank's stance that indebted governments should dig out of their own debt problems.

Credit-ratings agency Fitch said, "It seems that a 'comprehensive solution' to the current crisis is not on offer." Moody's warned it still plans to review all EU governments' ratings for possible downgrades during the first three months of 2012.