By Agencies

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Nicolas Sarkozy has told European leaders that their countries' economies are facing an "unprecedented crisis", in remarks he made after talks with Spain's prime minister, Mariano Rajoy.

The French president, addressing a joint news conference in the Spanish capital, Madrid, on Monday, said the economic crisis will force European leaders to act and find a new path to growth.

"We are confronted by an unprecedented crisis that forces us to cut spending, lower our deficits but also to find the path to new growth by resolving our competitiveness problems," Sarkozy said.

His comments came just three days after a credit downgrade of France that revived fears over the financial stability of the eurozone.

Standard & Poor's, a New York-based ratings agency, cut the credit rating of nine debt-laden European countries on Friday, including depriving France of its top-notch AAA rating and lowering Spain by two notches to A from AA-.

However, the Moody's ratings agency has confirmed it is keeping France's AAA credit rating.

'Strength to act'

Sarkozy has been optimistic, saying on Sunday that the crisis would give France "the opportunity to make decisions quickly, because the situation demands it".

"Courage gives the strength to act. France is a big country," Sarkozy said during an address at a public ceremony in France prior to his visit to Spain.

"During its history France often went through hard times. France resisted during the three years of the crisis, and France will overcome this crisis and will come out of it stronger."

However, Sarkozy said deficit-cutting measures could not alone resolve the eurozone crisis.

"We all have to understand that to get Europe out of the crisis we must, in addition to the indispensable deficit-reduction measures that we have already taken, give priority to growth, to employment and competitivity," he told Spain's conservative daily ABC in remarks made before arriving in Madrid.

"That message will resound in Spain, which posted an unemployment rate in the third quarter of 2011 of 21.5 per cent - the highest in the industrialised world.

Spain's government has announced 8.9bn euros ($1bn) in budget cuts, tax increases to bring in 6.28bn euros and an anti-tax fraud battle to recoup another 8.17bn euros to help balance the public finances.

Rajoy said on Saturday that Spain now had an "astronomical" figure of 5.4 million jobless.

Meanwhile in France, Valerie Pecresse, France's budget minister, said that a downgrade of her country's credit rating would not lead to a rise in the country's borrowing costs.

She said she did not expect "mechanical consequences" of the downgrade because France had "credibility" and was a "sure value".

The downgrades by Standard & Poor's were largely expected and traders said pressure on Italian and Spanish bond yields on Monday were offset by the European Central bank stepping in to buy the bonds.

Greek debt crisis

Uncertainty over fixing Greece's debt crisis is more of a threat to Europe's stability than the downgrades, George Osborne, the British finance minister, said on Monday.

Greece needs a deal with the private sector, the EU and the IMF to avoid going bankrupt when 14.5bn euros of bond redemptions fall due in late March, but talks with its creditor banks broke down without an agreement on Friday.

Lucas Papademos, the Greek prime minister, promised a debt swap would be clinched in time after he dispatched senior officials to Washington to break the deadlock in talks.

A leading representative for the creditors said Greece was not the problem in the talks, suggesting the issue lay with terms insisted on by foreign lenders keeping Greece afloat with aid.

Inspectors from the EU, the IMF and the European Central Bank, due in Athens on Tuesday for talks on a second, 130bn-euro bailout, have warned that they need the deal with the private sector to achieve that debt-reduction goal before they agree to give more aid.

Greece, in its fifth year of recession, has continuously missed its fiscal targets, prompting speculation that the country may need further financial support to put its debt on viable footing.