Although the Australian stock market was expected to be the first major market to react to the Standard & Poor's downgrade of nine European nations Monday, the response was relatively subdued.

Ric Spooner, chief market analysts at CMC Markets, explained the subdued reaction to the downgrades being widely anticipated and already priced.

"However, they set a nervous early tone for this week's markets as we approach more significant hurdles in the evolution of the eurozone crisis," Spooner wrote.

Matthew Sherwood, investment management head of fund manager Perpetual's Investment, said the downgrade would have a small, but significant effect on confidence because while it shows that the European situation has no solution yet, it is not remotely close to the Australian markets.

"There will be a progressive reaction across global financial markets, and Australia won't escape that, even though it doesn't have any instant implication for us - our position is very sound," Sherwood told The Australian.

Stan Shamu, markets strategist of IG Markets, wrote that although the S&P downgrade would be a cause for concern, it would unlikely be the main market mover on Monday. What will take the centre stage would be the reaction of the European leaders to the downgrades, he added.

On Friday, S&P stripped France and Austria of their AAA ratings while it downgraded the credit ratings of Italy, Portugal, Spain, Cyprus, Malta, the Slovak Republic and Slovenia. Germany and other European Union nations were untouched.

Australian Prime Minister Julia Gillard blamed the downgrade on the failure by national governments of EU members to institute tough reforms.

"For too many years, European governments have deferred the nation-building productivity-enhancing reforms which Australia has made the foundation of our dynamic and resilient economy," she told The Sydney Morning Herald.

She advised EU leaders to put in place credible medium-term plans for their budgets to achieve sustainable footing to meet taxpayers' expectation that the governments would manage their money prudently while global financial markets demand responsible fiscal management.

However, economist Shane Oliver of the AMP, warned that a swift response to solve the European budget deficits also runs the risk of reducing growth further.

"Fiscal austerity leads to economic deterioration and budget deficits blown out. It has the effect of worsening the economic outlook," he told The Age.

Although there was some progress at a national level such as the case of Italy and Belgium, S&P took into account the overall shortcoming of the eurozone's collective leadership as an overriding negative factor.

"The effectiveness, stability and predictability of European policymaking and political institutions have not been as strong as we believe are called for by the severity of a broadening and deepening financial crisis," S&P explained.

The rating agency pointed out that Italy has an improved policy environment after Mario Monti became prime minister, while Belgium is on the road back to being a wealthy, export-oriented and competitive economy.

German members of the European Parliament, despite Berlin being spared a downgrade, criticised the EU downgrades. Martin Schulz of the Social Democrats described the action as an Anglo-Saxon conspiracy, while Elmer Brok of the Christian Democrats accused S&P of furthering Anglo-American interests.

With a number of downgrades by S&P and other ratings agencies of EU nations, BNP Paribas economist Dominique Barbet pointed out that it is no longer the cut in the rating that is historic, but the depth of the euro crisis.

S&P had already warned the 17 eurozone nations on Dec. 15 that it will place the countries on watch for possible downgrades. In making good its threat, S&P explained that from the agency's assessment, "the policy initiatives that have been taken by European policy makers in recent weeks may be insufficient to fully address ongoing systemic stress in the euro zone."

French Finance Minister Francois Baroin downplayed the impact of the S&P action.

"It is not ratings agencies that dictate French policy.... It is clearly (related to) the governance of the euro zone and to its instability," he said.

When news came out on Friday that the downgrades were imminent, France's CAC-40 index was almost flat while Germany's DAX dipped 0.6 per cent. The Dow Jones Industrial Average went down 48.96 points to 12422.06.

Losing a triple-A rating takes extra effort for governments to get back that coveted rating. When S&P stripped Canada in 1992 of its triple A, it took Ottawa a decade to get it back. Australia took 17 years to regain its triple A rating in 2003 after S&P downgraded its rating in 1986.