Sarkozy issued the warning in Madrid where he was the first foreign leader to meet with Spain’s new conservative prime minister, Mariano Rajoy, since his swearing-in December 21.

“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.

Standard & Poor’s cut the credit rating of nine debt-laden European countries Friday, including stripping France of its top-notch AAA rating and slashing Spain’s rating by two notches.

Moody’s Investors Service soothed some of the pain Monday, confirming France’s AAA rating while continuing to review whether it will maintain its “stable” outlook.

“Fundamentally it changes nothing,” said Sarkozy, who is facing an uphill battle for re-election in April.

“We have to reduce our deficits, cut spending, improve our countries’ competitiveness to rediscover growth,” he said, calling on people “not to panic” and to “react to these decisions by keeping our cool”.

“I don’t plan to take into account what this or that person says,” the French leader said, nevertheless describing the agencies’ ratings as “interesting elements”.

Spain’s leader, holding his first news conference since he took power, agreed.

“In the end, the most decisive thing is that each country follow its own path,” Rajoy said.

The new right-leaning Spanish government has announced €8.9 billion ($11 billion) in budget cuts, tax increases to bring in €6.28 billion and an anti-tax fraud battle to recoup another 8.17 billion.

Rajoy said at the weekend that Spain, which declared a towering 21.5-percent unemployment rate in the third quarter of 2011, now had an “astronomical” figure of 5.4 million jobless.

The Spanish leader gave his support to a French-backed scheme to impose a tax on financial transactions.

Sarkozy has said that France should not wait for other European countries to support the tax on financial market deals, a scheme dubbed a “Robin Hood tax” or “Tobin tax,” after Nobel Prize-winning economist James Tobin.

“Spain will support this tax,” Rajoy said, describing it as Sarkozy’s “war horse” to help beat the crisis.

Sarkozy was in Spain to be honoured for helping to battle the armed Basque separatist group ETA.

King Juan Carlos made Sarkozy a Knight of the Golden Fleece in recognition of his cooperation, saying he had been a constant ally in a ceremony in the Royal Palace.

“In your relations with Spain, you have always contributed in a constant, effective and generous manner to the fight against terrorism, always making the victims the aim and end of your solidarity,” the king said.

Spain credits Sarkozy with giving crucial aid in the fight against ETA, both as president and previously when he was French interior minister from 2002-2004 and 2005-2007.

Only on Saturday, French police arrested three suspected ETA members near Auxerre in eastern France.

ETA announced on October 20 last year the end of more than 40 years of shootings and bombings that killed 829 people. Its operations have been hammered by Spanish police working closely with France.

Spain’s highest chivalric honour, the Order of the Golden Fleece was created in 1430 by Philip III, Duke of Burgundy.