Ratings agency Standard & Poor's put more pressure on the euro zone on Monday, with its chief economist saying time was running out for the currency bloc to resolve its debt problems and that it might need another financial shock to get it moving.
Jean-Michel Six, chief economist of the agency that shocked financial markets last week by putting 15 euro zone countries on a watch for a potential downgrade, said last week's EU summit agreement was a significant step forward, but not enough.
S&P usually takes around three months to act after a warning, but has said that in this case it may do so more quickly.
There is probably yet another shock required before everybody in the euro zone reads from the same page, for instance a major German bank experiencing some real difficulties on the markets, which is a genuine possibility in the near term, Six told a business conference in Tel Aviv.
Then there would be a recognition that everybody is indeed on the same boat and that even German institutions can be affected by this contagion. I'm afraid this may still be required.
Twenty-six EU countries -- all, minus Britain -- agreed on Friday to go forward with further and deeper economic integration.
But the outcome has left financial markets uncertain whether and when more decisive action would be taken to stem the debt crisis, which began in Greece, spread to Portugal, Ireland, Italy and Spain and now threatens France and even economic powerhouse Germany.
Six said the summit had made progress in terms of getting the governments mentally ready to commit in writing in some constitutional format to a medium-term fiscal strategy which would allow the ECB to become what it is not at the moment, at least officially, a lender of last resort.
Many market analysts believe that having the European Central Bank act as a lender of last resort, effectively bailing out countries that get in trouble, would solve the confidence issue facing the euro zone.
But leading power Germany is opposed, fearing the impact on member states' fiscal discipline.
Six said S&P's downgrade threat was designed to send a strong signal that euro zone countries were facing significant risk of a major recession next year and a credit crunch.
He added that the credit agency would not base the downgrade decision entirely on the outcome of Friday's summit, saying there would be many other such gatherings before the crisis was resolved.
Obviously we would never determine actions so important as rating actions based on just one summit. But we did say this summit was a very important step towards the resolution of this crisis of confidence.
A series of downgrades, taking the likes of France out of the top rated AAA category, has been priced in to some markets. But it still has the potential to shake prices.
If we get an S&P downgrade, the markets will take another leg down, Said Eugen Weinberg, head of commodity research at Commerzbank in Frankfurt. It has not been discounted yet.
A new tRBRreaty could take three months to negotiate and may require loseable referendums in countries such as Ireland. Britain, the region's third largest economy, refused to join the other 26 countries in the fiscal union and was left isolated.
Time is running out and action is needed on both sides of the equation, on the fiscal and monetary side, Six said.
(Additional reporting by Steven Scheer. Editing by Jeremy Gaunt)