London: European leaders are divided and behind the curve in their response to the sovereign debt crisis while the European Central Bank is playing a "constructive role," Standard & Poor's said.

The policy response to the crisis "has not kept up" with the risks, Frankfurt-based Moritz Kraemer, S&P's managing director of European sovereign ratings, said on Saturday. A December 9 summit that agreed to pursue stricter budget limits via a fiscal pact, was no "breakthrough."

Challenges ‘rising'

S&P analysts said the challenges posed by the crisis are rising.

"The risks in the Eurozone remain firmly tilted to the downside" in S&P's forecast horizon of one-to-two years, meaning more downgrades are possible, Kraemer said.

Europe's leaders are struggling to keep the euro region intact as the debt crisis that emerged in Greece in late 2009 buffets Spain, Italy and France. Merkel and French President Nicolas Sarkozy are due to travel to Rome on January 20 for debt-crisis talks, even as the threat of the euro area's first sovereign default rises with talks on a Greek debt swap stalled.

While policymakers have engaged in an "open and prolonged dispute" over the appropriate course of action, the ECB has been "using its flexibility" through its decisions to lower interest rates, aid banks and step up sovereign bond purchases, he said.

"The ECB has in our view taken strong measures to avoid a significant downturn of the crisis, has greatly alleviated the funding crisis of the banks," he said. "For the time being they have had a constructive role that they played."