EUOBSERVER / BRUSSELS - The European Commission is due to unveil a bill specifying conditions under which patients can seek health care in other EU member countries on Wednesday (2 July).

The proposal comes after a huge opposition from MEPs and some national capitals to Brussels' previous attempt to tackle the issue last December, and the commission signalling earlier this year it would not revisit the topic during its current mandate, set to expire in autumn 2009.

Brussels is to take up again the controversial issue of patients' mobility across the EU (

But after a switch in personnel in the post of EU health commissioner, the new Cypriot delegate, Androula Vassiliou, decided to give it a try and address opponents' concerns in a new approach towards the controversial subject.

Previously, the EU executive hewed close to several verdicts by the European Court of Justice, stating that the bloc's general principle of freedom to receive and provide services should apply equally to the health sector, while recognising "the specific character of these services."

EU trade commissioner Peter Mandelson has fired back at criticism by French President Nicolas Sarkozy, arguing that Mr Sarkozy's statements were "undermining" the EU's position in world trade talks.

"I am being undermined and Europe's negotiating position in the world trade talks is being weakened and I regret that," Mr Mandelson told the BBC's Newsnight programme on Tuesday (1 July).

The trade commissioner is "mystified" by Mr Sarkozy's criticism

"It is very disappointing because the mandate under which I am negotiating in the world trade talks - and trying on Europe's behalf to bring them to a successful conclusion - has been agreed by all the member states," he added.

Speaking on French national television on Monday - on the eve of the launch of the French EU presidency - France's president again accused the British commissioner of offering too many concessions during the talks.

"[WTO chief] Mr Lamy and Mr Mandelson want to make us accept a deal under which Europe would commit to cutting farm output by 20 percent and reduce farm exports by 10 percent," Mr Sarkozy told national television channel France 3 on Monday.

After weeks of internal debate, the German government agreed on a draft 2009 budget on Wednesday, July 12. The government expects to spend 288.4 billion euros ($456 billion) next year, a 5 billion euro increase.

The proposed 2009 budget includes a modest 1.8 percent spending increase over this year. Germany's Finance Minister Peer Steinbrueck has been eager to keep new spending down in a bid to cut back on borrowing.

Yet Steinbrueck and other cabinet members largely avoided proposing painful budget cuts that could put them on the defensive ahead of national elections which will likely be held in September 2009.

With France now in the driver's seat, EU officials on Wednesday unveiled new bloc-wide social policies aimed at putting an end to discrimination in all areas. It will be up to the 27 member states to implement them.

The European Commission on Wednesday, July 2, presented a comprehensive social package that ranges from anti-discrimination laws to health care abroad to labor rights.

 

After Ireland's clear No to the European Union's reform treaty last month, Brussels is looking for ways to win back the support of the people.

 

"It's important to us to understand the message of the Irish voters," said Francois Fillon, the prime minister of France, which began its six-month EU presidency on July 1. "They're telling us: fewer discussions about institutions, more concrete solutions for the problems in Europe."

 

A gay politician would have better chances than a retiree of getting elected in Europe, a new survey shows.

European Union citizens would prefer to elect a gay leader than have one they consider too old, a study released in Brussels revealed Tuesday, July 1.

A Eurobarometer study of 27,000 EU citizens across the bloc found that just 17 percent of Europeans would be totally comfortable with someone over the age of 75 in their country's highest elected post.

That is less than half than the 36 percent who would be at ease with a homosexual leader, and well below the support for a leader drawn from an ethnic minority (26 percent totally comfortable) or a different religion (30 percent totally at ease).

It is also substantially below the support for a national leader who is younger than 30 -- an idea with which one in four Europeans said they were completely comfortable.

Lech Kaczynski's newfound skepticism of the Lisbon Treaty is yet another blow to the European Union in the wake of Ireland's 'No' vote. German papers warn that Brussels needs to recognize the growing sense of mistrust among EU citizens.

 EU and French flags at the Elysee Palace in Paris. As the French six-month presidency of the European Union kicked off on Tuesday, it looked increasingly as if the Lisbon Treaty was in the process of unravelling.

Following the rejection of the EU Reform Treaty by Irish voters in June, Polish President Lech Kaczynski announced on Tuesday that he was unwilling to sign the treaty (more...). He told the Polish dailyDziennick that it was now "pointless" to sign the treaty even though Poland's parliament had already voted in favor of ratification.

The EU leaders had initially agreed to go ahead with ratification (more...) in the other 26 member states with the hope that the Irish government could somehow find a way around its citizens' "No" vote. However, it now looks as if the Irish referendum result could have given a boost to euroskeptics across the continent. Czech President Vaclav Klaus has already said he thinks the treaty is "finished." The Czech Constitutional Court is currently assessing whether the charter is compatible with the national constitution.

Polish President Lech Kaczynski on Tuesday (1 July) toned down his rhetoric against the Lisbon treaty, with the French EU presidency also downplaying the mini-crisis and analysts saying Mr Kaczynski's stance is a bargaining tool for foreign policy concessions.

"If the Irish change their mind, not under pressure, but of their own free will, there will not be the slightest obstacle to ratification from the Polish side...I will also sign the treaty," he said on a visit to Georgia, PAP reports. "I had a big role in negotiating this treaty, and I support it."

Mr Kaczynski: playing games with Lisbon

The comments come after Mr Kaczynski in a newspaper interview earlier the same day said signing the treaty would be "pointless" after the Irish voted No in June. The Polish parliament approved Lisbon in April but the president must now ink a so-called Ratification Act.

"The Polish president is an honest, politically-engaged man and I don't doubt for a moment he will keep his word," French leader Nicolas Sarkozy said at a press conference in Paris on Tuesday. "I can't imagine that someone who negotiated the treaty and signed it would question their own signature."

As rising energy and food prices continue to fuel inflation, the economies in industrialized countries are beginning to stagnate. The mix, known as stagflation, presents politicians and central bankers with virtually insurmountable problems.

 The European Central Bank is meeting Thursday. It is expected to raise interest rates to try to deal with inflation. A leading politician sometimes encounters real life on the premises of his own ministry. One such place is the grand chamber of Germany's Finance Ministry. That was where Finance Minister Peer Steinbrück, a member of the center-left Social Democratic Party (SPD), had summoned his workforce to a general meeting the Friday before last. The minister expected his staff to arrive in good spirits, especially since this year Germany's public sector employees are getting their first perceptible pay increase in a long time.

But the civil servants Steinbrück encountered seemed less than enthusiastic, bluntly informing their minister that while they may be getting a raise, the rising cost of fuel and food is eating up most if not all of their additional income. "Inflation is really getting to my people," Steinbrück concluded. They aren't the only ones. Workers everywhere are complaining that they are deriving little or no benefit from pay increases. Although wages and salaries increased by 2.8 percent in the first quarter in Germany, prices rose even faster, by close to 3 percent, reflecting a tendency that has been in place for some time. In the eurozone as a whole inflation hit a record 4 percent in June.

The EU and the US are edging closer to a deal ensuring data privacy as the two increasingly share sensitive information on their citizens such as credit card details and travel histories in the fight against terrorism.

A senior EU official said on Tuesday, July 2 the European Union could  strike a deal with the United States next year to protect personal data collected on their citizens to bolster the fight against terrorism but warned that important questions still needed to be resolved.

"The work is not over yet, there's still more to be done, but we may look forward I think, if things continue to go well, to an international agreement probably some time next year," Jonathan Faull, director of the European Commission's justice and interior affairs department said at a news briefing in Brussels.

Faull said he and US officials have been holding informal talks over the past 18 months to draft common standards on how data such as credit card details, e-mails or passenger travel records should be handled by authorities.

STOCKHOLM, Sweden - Swedes may cherish openness and transparency, but not enough to accept a new law giving the government the right to snoop on all e-mails and phone calls crossing the country's borders.

Outrage over the statute has led to 2 million protests - filed by e-mail.

The online petition drive comes as other European Union countries consider granting authorities unprecedented spying powers over their own citizens amid fears of a mounting terror threat.

"This would have been totally unthinkable before Sept. 11," said Anne Ramberg, secretary-general of the Swedish Bar Association, calling for challenges to the law in Swedish and European courts.

Andreas Hellsten, a 37-year-old engineer, said the new law reminded him of something the dreaded East German police would have dreamed up had e-mail been around during the Cold War.

"It looks too much like the Stasi," he said. "It is surprising when Sweden passes a law like this."

A barrage of gloomy corporate news hit sterling on Wednesday and sent the currency lower across the board.

Shares in Taylor Wimpey, the UK's largest housebuilder, halved after the company said it may breach its banking covenants if the housing market did not recover. Also, Marks and Spencer, the bellwether UK retailer, said sales had fallen sharply in the first quarter.

Adding to the pound's woes were figures showing activity in the UK construction sector in June declining at its fastest since 1997. Data from the Bank of England showing mortgage equity withdrawals falling to their lowest since 2001 also weighed on sterling.

Jonathan Loynes, of Capital Economics, said that with the Bank of England unable to cut interest rates aggressively because of rising inflationary pressure, the prospects for the UK economy looked bleak. He said: "Recent news has suggested that things are likely to be even worse than we had previously thought, with a strong chance that the economy enters a technical recession."

By midday in New York sterling, which on Tuesday hit a three-month high of $2.0006 against the dollar, fell 0.1 per cent to $1.9930, eased 0.6 per cent to £0.7915 against the euro and fell 0.1 per cent to Y211.20 against the yen.

Greek and Turkish Cypriot leaders on Tuesday agreed to start direct talks on a peace settlement, reviving hopes of ending the island's 34-year division.

Demetris Christofias, the Greek Cypriot president, and Mehmet Ali Talat, the Turkish Cypriot leader, appeared to have resolved a deadlock over questions of sovereignty and citizenship after more than four hours of discussions held under United Nations auspices.

A UN statement said the leaders "agreed in principle" but would discuss "details of implementation during full-fledged negotiations". They are due to meet this month to review preparations over the past three months and set a starting date for the talks.

Analysts said Tuesday's agreement that Cyprus would have a single sovereignty and citizenship, rather than becoming a confederation of separate Greek and Turkish states, was a significant step forward.

"The momentum for reaching a settlement is there. Once the direct talks start, there's no way back," said Philip Savvides, an Athens-based analyst.

MEPs want to torpedo the Free Internet on July 7th

Brussels, July 1st, 2008 - updated : July 2nd, 2008
One week before a key vote in the reform of European law on electronic communications ("Telecoms Package"), La Quadrature du Net (Squaring the Net) denounces a series of amendments aimed at closing the open architecture of the Internet for more control and surveillance of users.

European Internet users could be blocked from lawful activities by mandatory spyware, in the interests of their security. The right to use free software for internet access would therefore not be assured anymore. The neutrality of the Internet is also directly attacked, as is the principle that technical intermediaries have no obligation to prior surveillance of contents. Other amendments will de facto enable administrative authorities to obligate ISPs to work with content producers and rights-holders' private police, including the sending of intimidating messages, with no judicial or regulatory oversight.
These measure goes further than the French "graduated response" project, which has been subject to widespread opposition, including by the European Parliament on April 10th. That is undoubtedly why those amendments have turned up on early july, and why those drafting them use subtle rhetoric and crossed-references to make the overall text harder to understand (more than 800 amendements on 5 directives were tabled).

"The politicians who engage in these summer manoeuvres dishonour Europe and their mandate. They rely on the fact that nobody watches them a week before Parliamentary holiday, to divert the Telecoms package from its primary objectives of consumer protection. They pave the way for the monitoring and filtering of the Internet by private companies, exceptional courts and orwellian technical measures. It is inconceivable for freedom but also for European economic development. We call on all MEPs to oppose what they have already rejected." said Christophe Espern, co-founder of La Quadrature du Net (Squaring the Net).

Netzpolitik.org summarises thus:

• A very complex law (5 directives, more than 800 amendments), and crucial votes on the beginning of the summer in a very opaque process.


• Various amendements (from Mavromatis, Guardans, Harbour, Trautmann, etc.) seem to do the opposite of the announced goal of the text of increasing the consumer protection.

That I'd call a trojan law, then.

See also futurezone@orf.at: EU-Pläne bedrohen das freie Internet

The ‘Telecoms Package’ and the copyright amendments – a European legal framework to stop downloading, and monitor the Internet / by Monica Horten, PhD researcher in European communications policy at University of Westminster, Communications and Media Research Institute. – Draft, 2008-06-30

MOSCOW: Russia's new president, Dmitri Medvedev, less swaggering than his predecessor but as touchy about criticism from abroad, said in an interview that an America in "essentially a depression" was in no position to lecture other countries on how to conduct their affairs.

With soaring oil revenues bolstering the Russian economy and Kremlin confidence, Medvedev brushed aside American criticism of his country's record on democracy and human rights. He also said that a revived Russia had a right to assume a larger role in a world economic system that he suggested should no longer be dominated by the United States.

Medvedev made his comments on Tuesday in a meeting with a small group of foreign journalists a day after the American treasury secretary, Henry Paulson Jr., appealed in Moscow for Russian investment in the United States. The symbolism of the visit resonated here, in that only a decade had passed since the Russian economy was in shambles and the country was desperate for Western aid.

Medvedev seemed to be seeking in the interview to raise his profile before attending the Group of 8 meeting of industrialized nations next week in Japan. Medvedev leads Russia in tandem with his predecessor and mentor, Vladimir Putin, who is now prime minister and is still widely considered Russia's pre-eminent leader.

The Disk has been interpreted very differently. Several attempts to decipher it have been made, none clearly accepted and some very strange. The most consistent is the decoding produced by Jean Faucounau: Le déchiffrement du disque de Phaistos. Preuves et conséquences [The decoding of the Phaistos disc. Evidence and consequencesT], L'Harmattan, 1999. A former student has given me the book and I'm studying it.

(Sorry. I do not know how to insert images, links and these things. I am of the generation of the pencil in his ear. Yes, yes. I have seen the New User Guide. But even so! And my baby does not want to explain this to me.)

When Procrustes looks after you, you're sure to fit in.

The European Central Bank raised interest rates in the eurozone for the first time in more than a year on Thursday as it stepped up efforts to control mounting inflation pressures.

As expected, the ECB lifted its main interest rate by a quarter percentage point to 4.25 per cent - the first rise in eurozone borrowing costs since June last year.

The increase comes just days after official figures showed eurozone inflation had hit 4 per cent, the highest since the launch of the euro in 1999 and more than double the ECB's target of an annual rate "below but close" to 2 per cent.

Based on reconstructed-historic data, eurozone inflation was last higher in May 1992.

Jean-Claude Trichet, ECB president, is expected at a press conference on Thursday to stress the central bank's hawkish credentials and determination to prevent the inflation surge caused by high oil prices feeding through into wage settlements and other costs.

Financial markets will scrutinise his comments for signals on whether further interest rate increases are likely. With oil prices soaring to fresh highs, eurozone inflation rates are expected to rise still higher in coming months.

Environmentalists have long claimed that the U.S. Navy's use of sonar for training exercises unduly threatens whales, dolphins and other acoustically sensitive marine creatures.

The navy has adopted some procedures to mitigate the risk but has resisted stronger protections ordered by two federal courts. The Supreme Court has now agreed to address the issue.

The justices will not try to determine the extent of harm but rather the balance of power between the executive branch and the courts in resolving such issues.

In an effort to sidestep the courts, the Bush administration invoked national security to exempt the navy from strict adherence to the two federal environmental laws that underlay the court decisions.

The Persian Gulf may be sitting atop massive oil reserves. But with prices for crude skyrocketing, it makes more sense to sell it than to burn it. Instead, the Gulf is turning to coal for its energy needs -- to the detriment of the climate.

A coal-fired plant belonging to Evonik Steag in Turkey. The company is currently expanding in the Gulf. For Alfred Tacke, CEO of the Essen energy giant Evonik Steag, it's the yellowish-brown pall below that tells him the plane he's on is approaching the Persian Gulf. Beneath the haze, he knows, is Kuwait, which has five large-scale gas- and oil-fired power plants in operation. The power they generate provide around-the-clock electricity for Kuwait's gigantic seawater desalination plants and the country's enormous air-conditioning needs.

"Here, you only need to stick your finger in the sand and you're likely to strike oil or gas," says Tacke, whose energy group ranks fifth among Germany's electricity producers. But Tacke has his own ideas about how to make money in the region. And they center on a different kind of black gold: coal-fired power plants. "We're currently in the process of discussing the conditions for projects of this kind," he says.

As odd as the idea may seem, coal power in the gulf is just one more outcome of skyrocketing oil prices. In a world with dramatically disparate ideas on how or even whether to address the risks of global warming, demand for coal plants across the globe is growing rapidly to the detriment of efforts to increase the production of renewable energies such as solar, hydro and wind.

The Colombian authorities say they have rescued Ingrid Betancourt and three Americans held by rebels in Colombia.

Ms Betancourt, a French-Colombian politician, has been held for more than six years by the rebel Farc group and is said to be in very poor health.

She is the group's highest-profile hostage and the French government has made securing her release a priority.

The Farc group has been fighting to overthrow the Colombian government for more than 40 years.

The number of people out of work in the world's leading economies is expected to rise by 9 per cent to 34.8m by the end of next year under the impact of the credit crunch, the Organisation for Economic Growth and Development reported on Wednesday.

Rising unemployment, however, should dampen fears of inflationary pay rises as workers worry more about retaining their job than using their bargaining power to increase real pay.

"The unemployment rate in the US for example was expected to rise to 6.1 per cent next year a percentage point higher than its recent 10 year average.

The average unemployment rate in Europe by comparison was expected to "remain essentially unchanged during the next two years". The biggest European rises in the jobless rates were likely to occur in Iceland, Ireland, Spain and Turkey while unemployment rates would fall in the Czech Republic, Poland and the Slovak Republic, said the OECD.

Employment growth has already slowed in the OECD area declining from 1.7 per cent in 2006 to 1.5 per cent last year. It is expected to fall to just 0.7 per cent this year and 0.5 per cent in 2009. Increases in the size of the labour force, partly driven by increased migration, however means that the jobless total will rise over the next two years, said Mr Gurría.

As investors digest a recent spate of rating downgrades for the bond insurers, concerns have surfaced about risks that could affect the last remaining insurers with triple-A credit ratings and further darken the outlook for the troubled industry.

Together with heavy losses on subprime mortgage-related bonds they guaranteed, bond insurers such as Ambac and MBIA are exposed to problems in their so-called "guaranteed investment contracts" (GIC) businesses. These problems could result in additional claims on capital at a time when they can least sustain them.

Meanwhile, FSA, one of the last triple-A rated bond insurers because it sidestepped writing protection on so-called collateralised debt obligations, also faces potential problems in its GIC business.

The deepening crisis for the bond insurance industry threatens banks with further writedowns on derivatives contracts they hold with the insurers, and investors with further downgrades and market losses on insured bonds they own.

Meanwhile, GIC funds are also facing pressure from investors pulling out their money, in some cases forcing the GIC to sell assets into distressed markets.

These investors are often structured finance vehicles that are themselves under pressure from market losses and have hit triggers that force them to unwind. Morgan Stanley estimates MBIA, Ambac and FSA have around $15bn of CDO-related funds invested in GICs.

We told you so." The Bank for International Settlements has long warned of the dangers of unrestrained credit growth and asset price inflation. In this year's annual report, ... it felt free to point out how right it had been.

As readers of BIS annual reports would expect, this one gives good answers to four big questions.

First, why did it happen? The report states that "loans of increasingly poor quality have been made and then sold to the gullible and greedy, the latter often relying on leverage and short-term funding to further increase their profits. This alone is a serious source of vulnerability. Worse, the opacity of the process implies that the ultimate location of the exposures is not always evident."

Obviously, internal governance and external oversight were deficient. "How," asks the report, "could a huge shadow banking system emerge without provoking clear statements of official concern?" How, indeed? Moreover, one of the features of the crisis is how widely distributed securitised loans turned out to be. The resulting uncertainty about who owns them, along with parallel uncertainty about what they are worth, has blighted money markets for almost a year (see charts).

Yet, insists the report, the drivers were not so much new inventions as old errors: a long period of easy money, asset price inflation and rapid credit growth.

This then brings us to a second question: how big are the risks now?

The answer is: very large. This is partly because the world economy is poised between deflationary financial and house-price collapses in several high-income countries and an inflationary global commodity price boom. Just as striking are the many huge uncertainties.

The divergence in possible outcomes is so large that nobody can credibly claim to know what lies ahead. The combination of a massive re-rating of risk with global inflationary pressure is unprecedented and still quite scary.

The third big question is what policies we need right now. The BIS view is that the right bias in monetary policy is towards being "much less accommodating". Better, it suggests, a sharp global slowdown than a big inflationary upsurge.

The BIS also stresses the need for policymakers and private actors to recognise reality: "If asset prices are unrealistically high, they must eventually fall. If saving rates are unrealistically low, they must rise. And if debts cannot be serviced, they must be written off."

The most interesting part of the BIS analysis of the lessons is that it focuses not on what is new - the paraphernalia of the modern financial system - but on what is old - "the inherent procyclicality of the financial system and excessive credit growth". The important point here is that fiddling with details of the regulatory regime or tightening supervision of individual institutions is not the heart of the matter. What matters is the operation of the system as a whole.

This is why the BIS takes such a strong stance on the need to tighten monetary policy when credit growth soars and asset prices explode, even if that temporarily reduces inflation below target levels. This, argues the BIS, would be a more symmetrical use of policy instruments. It is also why the report stresses "macroprudential" policies. These would focus not on the misbehaviour of specific institutions but rather on systemic risks, such as their shared exposure to common shocks and possible adverse interactions among and between institutions and markets.

The next 25 years could prove "far more interesting and more challenging" for investors than the past 25, according to Tobias Levkovich, chief US equity strategist at Citigroup.

"Near-record margins will be difficult to maintain over the next 25 years. Following a period in which corporate margins rebounded to levels not seen since the 1960s, it seems difficult to conceive that profit trends will be able to match the 1980s-1990s golden period of improvement. Thus stock market gains could become more muted," he says.

Inflation is also likely to be higher because of global demographic changes. "Lower inflation supplied favourable interest rates and valuations. Low interest rates as a result of muted inflationary threats over the past 25 years meant valuations could expand. Yet it would seem that this is unlikely to persist, with negative ramifications for investors in financial assets," Mr Levkovich says.

Finally, he says, markets might have to contend with "the end of American global predominance, particularly if commodity strength and dollar weakness endure". The US position could be threatened by an overstretched international military presence; too much government debt; and a growing challenge from China and Russia.

But there are also reasons for optimism. "Given the American spirit, a flexible economy, strong profit motives and technological innovation, the US may stumble but is unlikely to fall," he says.

The US housing slump is likely to be extended and "continues to pose a considerable downside risk to the US economy", the US Treasury secretary warned in a speech in London on Wednesday.

"We should not be surprised at continued reports of falling home prices," Hank Paulson warned in a speech at Chatham House, the international affairs think-tank.

Among the measures necessary to prevent repetitions of the housing meltdown, he said, were stronger oversight of the way mortgages are extended to housebuyers and national licensing standards for mortgage brokers - measures which in the past had been vigorously resisted by the housing industry.

Separately, Mr Paulson underlined the need to overhaul the US's "balkanised" financial regulatory system, in which a multitude of bodies participate.

Among the most pressing matters to face US regulators - particularly since the near-bankruptcy of investment bank Bear Stearns in March - was the fact `Americans have come to expect the Federal Reserve to step in to avert events that pose unacceptable systemic risk'.

The US needs a new "market stability regulator" with the authority to avert system-wide melt down in financial markets, he said. Such a regulator would allow banks to fail as a result of their own risky behaviour while protecting the rest of the system from contagion.

Less than a year ago, diplomats in the Middle East were taking bets on the likelihood of a US military attack on Iran, with some assessing it at higher than 50 per cent.

Those odds subsided after the National Intelligence Estimate, the co-ordinated view of US intelligence agencies, concluded in December that Iran had halted its weapons programme in 2003.

But now the betting is back on.

As Tehran has accelerated its uranium enrichment programme instead of suspending it, speculation has mounted that Israel is preparing to do the job itself, possibly even before the US presidential elections in November.

Suspicions were fuelled by recent Israeli military manoeuvres over the Mediterranean, which some US officials described as target practice for an Iran strike.

Admiral Mike Mullen, the chairman of the joint chiefs of staff, flew to Israel over the weekend for meetings with defence officials. Although the Pentagon said little, some analysts interpreted the trip as a show of American concern over Israel's plans for Iran.

America's top military officer has said opening up a third front in the Middle East through a strike on Iran would be "extremely stressful" for US forces.

Adm Mike Mullen, chairman of the Joint Chiefs of Staff, was commenting on the likelihood of US or Israeli military action over Iran's nuclear programme.

Tensions have risen amid reports Israel could be planning a possible strike against Iran's nuclear facilities.

Iran denies its nuclear programme is anything other than peaceful.

The BBC's Justin Webb in Washington says it has been clear for some time that Adm Mullen does not want to attack Iran.

Normal business cycles are self-correcting. De-leveraging cycles are self-reinforcing because the destruction of debts and assets feed on one another until excess leverage has been eliminated. The current de-leveraging is unleashing two major deflationary forces.

First, the re-capitalisation of banks, and the restructuring of their balance sheets. Second, the long overdue correction of household balance sheets, especially in the US and UK, but also elsewhere where personal debt levels have risen rapidly.

If we don't see the full effects of de-leveraging immediately in economic data, it is probably because economic decisions made by banks and households take much longer to affect the economy than in the case of businesses, which have to make production and employment decisions quickly. This de-leveraging downturn, therefore, will last a long time, perhaps until 2010.

Today, significant securitised asset losses have already been recognised and over $200bn of new capital has been raised. But more losses, especially on residential, commercial, home equity, and consumer loans will come to light