Tuesday Watch

Bloomberg:
Leaders Race to Salvage Euro Rescue As Plans Rebuked by S&P Rating Downgrades. European leaders will this week try to rescue under-fire efforts to deliver new fiscal rules and cut Greece’s debt burden as investors ignore Standard & Poor’s euro- region downgrades. Greek officials will reconvene with creditors on Jan. 18 after discussions stalled last week and governments elsewhere are preparing for a Jan. 30 summit as the European Central Bank warns against “watering down” a revamp of budget laws. French borrowing costs fell today as the government in Paris sold 8.59 billion euros ($10.9 billion) in debt. The talks on Greece and budgets 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, chief global economist at Morgan Stanley in London, said in a note to clients yesterday. Europe Bailout Fund Loses Top Rating at S&P. The European Financial Stability Facility, the euro area’s bailout fund, lost its top credit rating at Standard & Poor’s after earlier downgrades of France and Austria. The rating was cut to AA

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