S&P credit watch on 15 eurozone nations, bailout fund

— -- Standard & Poor's threat to downgrade 15 eurozone countries, including Germany, as well as Europe's bailout fund has added pressure on the region's leaders to find a lasting solution to their crisis at a summit this week.

German Chancellor Angela Merkel on Tuesday downplayed S&P's warning, but the possibility that a downgrade of eurozone countries could also weaken the creditworthiness of Europe's bailout fund complicates the region's fight against the crisis.

The first warning on Monday came just hours after Merkel and French President Nicolas Sarkozy urged changes to the European Union treaty that would centralize decision-making on spending and borrowing for the 17 countries that use the euro. Tighter political and economic coordination among euro countries is seen as a precursor to further financial aid from the European Central Bank, the International Monetary Fund, or some combination.

S&P's threat to cut Germany's prized AAA rating was particularly surprising. Its bonds are considered among the safest in the world and are the basis upon which Europe finances its bailout fund. S&P warned in a follow-up report that it could cut the AAA rating of Europe's bailout fund by up to two notches if it decides to downgrade one of the eurozone's top-rated countries.

The bailout fund needs the AAA rating to cheaply raise money on markets. Losing it would mean it would cost billions more to fund bailouts, hurting the rescued countries that ultimately have to pay the higher interest rates.

Investors mostly took the S&P warnings in stride on Tuesday. European stocks and bonds held onto the gains they made Monday.

"What a rating agency does is the responsibility of the rating agency," Merkel told reporters in Berlin, refusing to elaborate further.

She said, however, that she expected a meeting of European leaders later this week in Brussels would help restore markets' confidence.

She and Sarkozy on Monday outlined sweeping plans to change the EU treaty in an effort to keep tighter checks on overspending nations. The proposal is set to form the basis of discussions at an EU summit in Brussels on Friday.

The financial markets of Italy and Spain rallied after Merkel and Sarkozy unveiled their proposals, suggesting investor are more confident Europe can survive the crisis.

"I have always said this is a long process and an arduous one and it will continue, but we charted the course yesterday with the French president and we will continue to stay the course," Merkel said.

The warning on the bailout fund announced Tuesday follows S&P's notice late Monday that it may cut the credit rating of 15 eurozone countries, including Germany's, because the region's financial crisis is worsening without any imminent fix.

S&P said there was a 50% chance that the countries' ratings it put on review would be downgraded. And in a separate statement, it said it could downgrade the AAA long-term credit rating for the European Financial Stability Facility, the official name for the bailout fund, by one or two notches. It is now officially on S&P's "CreditWatch with negative implications."

Lower credit ratings mean those countries would have to pay higher interest on their loans, adding to Europe's debt woes. A major slowdown in Europe could depress the economy and stock prices in the U.S.