Policymakers to resume debt crisis talks

European officials will push on today with a long-term plan to tackle the region’s debt crisis, as banking and government negotiators zero in on a deal that will lighten Greece’s debt burden.

EU finance ministers will meet in Brussels to discuss new budget rules, a financial firewall to protect indebted states, and a Greek debt swap, with EU leaders racing to cobble together a firm rescue response in the coming weeks. Meanwhile, cash-strapped Greece and private bondholders said they had made progress in talks over the weekend in Athens.

As investors ignored this month’s euro area downgrades by Standard & Poor’s and sent the single currency to its first gain in seven weeks, leaders including German Chancellor Angela Merkel are set on exploiting the moment to lock in a final response to the crisis.

The euro rose 2% to $1.2931 last week, the biggest weekly gain since the middle of October. Spain, Greece and the European Financial Stability Facility sold bonds at lower rates, signalling greater demand for the assets.

The European Central Bank provided assistance last month by issuing €489bn in unlimited three-year loans to eurozone banks, an injection that diminishes the chances the debt crisis could turn into a financial crisis.

“While it obviously can’t solve deep fundamental issues facing euro area economies, it certainly has dramatically reduced the chances of a systematic banking crisis,” Goldman Sachs Asset Management chairman, Jim O’Neill wrote in a note to investors yesterday.

In Athens, private creditors and Greek officials cited progress in talks aimed at lowering the country’s debt and drawing a second round of international financing before it faces a €14.5bn bond payment on March 20. Officials and private bondholders agreed in October to implement a 50% cut in the face value of more than €200bn of Greek debt, by voluntarily exchanging outstanding bonds for new securities, with a goal of reducing borrowings to 120% of GDP by 2020.

Ministers, today, will also discuss a separate draft accord on Europe’s planned permanent rescue fund that eases earlier provisions on debt restructuring.