Most European countries have embraced the austerity prescribed by Chancellor Angela Merkel of Germany to resolve what markets have identified as the big problems: high debts and budget deficits.

But in their zeal to mend balance sheets, European leaders have rarely been heard talking about how to take advantage of the crisis — as Germany has with past crises — to rebuild their economies by investing in new technologies or making their labor markets more flexible.

“In one sense, the resources — human, natural — of Europe are not much different than before the crisis, so our potential is not that different,” Joseph E. Stiglitz, the Nobel laureate, said in an interview before S. P. announced its downgrades on Friday. “But what’s clear is that misguided policies and market failures are leading Europe not to use its resources well, by not investing in people and capital, or improving technology, in a way that will help them be more competitive with what’s going on in Asia.”

In addition to France, S.. P. downgraded the debt of Austria, Italy, Spain, Cyprus, Portugal, Malta, Slovakia and Slovenia.

The ratings agency’s assessment revealed little new about the European crisis. But it was a potent reminder that underlying the euro zone’s problems — including its fragile banks and political disarray — was a gap in competitiveness between Europe’s wealthy northern countries and the more spendthrift south.

“The current financial turmoil stems primarily from fiscal profligacy at the periphery of the euro zone,” Standard Poor’s said in a statement. But the agency said the biggest underlying problem was the “divergences in competitiveness between the euro zone’s core and the so-called ‘periphery.’ ”

In this view, politicians, especially in southern European countries like Greece, Portugal and Spain, are focusing so intently on cutting spending and raising taxes to placate international investors that they are not devoting enough resources toward renewing their economies to be more competitive with their northern neighbors and more potent forces like China and Eastern Europe.

In a conference call on Saturday, Moritz Krämer, a managing director at S. P., said politicians had missed the mark in their diagnosis of the crisis.

“All countries are focusing so much on budget remedies by reducing their excessive deficits, especially in the peripheral countries,” he said. “But the euro crisis is due primarily to a divergence in competitiveness that has not stopped growing between certain euro countries since the introduction of the single currency.”

From that perspective, the focus on stricter budgetary discipline is not enough to cure Europe’s problems, economists say. A few years ago, for instance, Germany’s budget deficit was higher than Spain’s, but the competitiveness of the German economy far outpaced that of its southern neighbor.

A major reason is that Germany had spent the better part of a decade reworking its inflexible labor market and revising a costly and cumbersome social safety net. Those changes have helped turn Germany into the economic powerhouse it is today.

To be sure, being in the euro zone helped. Because the single currency also made the price of German goods less costly, Spain, Portugal and other countries in the south snapped up German products when times were good. Now that their economies have crumbled, they view Germany’s portrayal of them as lazy southerners as unfair.

The issue, economists say, is how to improve productivity, and they ask whether southern European economies can ever be diligently reformed, as Germany’s was. Workers in southern countries, for example, often cite studies showing that they work longer hours than the Germans.

Jack Ewing contributed reporting from Frankfurt.

Article source: http://www.nytimes.com/2012/01/16/business/global/investors-may-put-euro-zone-to-the-test.html?partner=rss&emc=rss