Euro Leaders Race to Salvage Rescue Plans

European leaders will this week try to rescue under-fire efforts to deliver new fiscal rules and cut Greece’s debt burden as they urge investors to ignore S&P’s euro-region downgrades. Greek officials will reconvene with creditors on Jan. 18 after discussions stalled last week over the size of investor losses in a proposed debt swap, raising the threat of default. German Chancellor Angela Merkel and French President Nicolas Sarkozy will also meet as the ECB warns governments against “watering down” a revamp of budget laws. The talks alongside sales of French and Spanish bonds may serve as tougher tests of the tentative recovery in investor sentiment than S&P’s decision to cut the ratings of nine euro- region nations, including France. History suggests fallout from the downgrades may be limited. JPMorgan Chase & Co research shows that 10-year yields for the nine sovereigns that lost their AAA status between 1998 and last year’s U.S. downgrade rose an average of two basis points the next week. Efforts to toughen budget laws and make Greek debt more sustainable “deserve far more attention than these rating changes, which as usual are lagging fundamental developments,” Joachim Fels said.