Germany was on the brink of a new and volatile political era last night, after a deal was agreed that will see the conservative leader Angela Merkel become the country's first ever woman chancellor.

Three weeks of wrangling over last month's indecisive election ended yesterday when the chancellor, Gerhard Schröder, announced he was resigning. Mrs Merkel will now become chancellor and lead a "grand coalition" between her Christian Democrat party and its Bavarian ally the Christian Social Union, and Mr Schröder's Social Democrats.

But there were doubts yesterday over how long such a coalition would last. Mr Schröder's resignation came with a big price tag. The Social Democrats emerged from days of secret negotiations with eight seats in Germany's new cabinet and virtually all the big portfolios - including foreign, finance, health, environment, and transport.

Mrs Merkel's conservatives, by contrast, have only six cabinet posts. They include the industry ministry, as well as defence, home affairs and education. Mrs Merkel, relaxed and grinning, denied that the Social Democrats had got all the best jobs, hailing the distribution of posts as "fair" and describing the coalition as a "new beginning for Germany".

See also Merkel in (finally...) here on ET.

Tony Blair faces the threat of an ambush over the EU budget, with the European commission proposing a £4.6bn fund to help Europe cope with globalisation. While the British government, which currently holds the EU's presidency, wants to postpone the budget negotiations until December, the commission plans to table its proposals at a special summit at Hampton Court this month.

Jose Manuel Barroso, the commission president, believes his proposal could break the budget deadlock. He is proposing that a €7bn (£4.6bn) fund be set up to help all 25 EU countries cope with job losses. Mr Barroso, who was criticised last week by Jacques Chirac, the French president, for failing to protect 1,240 Hewlett Packard workers in France from losing their jobs, wants the money to be spent on retraining and re-equipping workers.

The plan is designed to appeal to Mr Blair, who has said the EU budget should focus on research and development to meet current challenges, rather than spend 40% on farm subsidies. This lay at the heart of the acrimonious European summit in June, when Mr Chirac rejected the prime minister's proposal to place Britain's EU budget rebate on the table in exchange for reform of farm subsidies.

Mr Barroso hopes to appeal to Mr Chirac by saying that the fund would be new money and would not threaten France's farm subsidies. But Britain is keen to limit the budget to 1% of the EU's GDP and will not welcome fresh spending proposals.

Talks on a global trade agreement were given a big boost after months of stalemate, as the US and Europe moved closer to a deal to cut drastically their multibillion dollar farm subsidies.

An offer by the Americans yesterday to eliminate agriculture export subsidies by 2010 and reduce trade-distorting payments by 60 per cent was welcomed by European negotiators, although officials were yesterday studying the details. Agricultural subsidies have been a crucial obstacle in the negotiations, with developing countries and non-government organisations demanding reductions in subsidies, which are worth $180bn (£102bn) to US and European farmers.

European negotiators know that only if they dismantle export subsidies and reduce domestic payments will developing countries open more of their markets to industrial goods and services.

Crucially, yesterday's offer by the US put a series of figures on the table for discussion. It also appeared to vindicate the EU's strategy, which made an earlier offer to get rid of export subsidies if other sides do the same.

PARIS, Oct 10 (Reuters) - French industrial output rose slightly more than expected in August, data showed on Monday, providing some positive news for the conservative government of Prime Minister Dominique de Villepin.

National statistics office INSEE said industrial output rose by 0.8 percent in August compared with the previous month -- slightly higher than the rise of 0.7 percent predicted by economists in a Reuters poll.
Industrial production excluding energy, agri-food businesses and construction, which INSEE considers the best measure of manufacturing output, increased by 0.7 percent in August.

The French figures came after German data showed last week that industrial production in Europe's largest economy contracted by more than expected in August as record oil prices and summer holidays hit output at manufacturers and utilities.

The rise in French output is good news for Villepin's government, which has been trying to stimulate economic growth to reduce an unemployment rate of almost 10 percent.

FOR those who yearn for a well-aged, full-bodied vintage wine but lack the funds to feed the habit, the solution may lie with a Japanese boffin, a zany-looking contraption, a couple of metres of latex tubing and a few hundred volts of electricity.

Squirrelled away in his chemical engineering laboratory in rural Shizuoka, Hiroshi Tanaka has spent 15 years developing an electrolysis device that simulates, he claims, the effect of ageing in wines. In 15 seconds it can transform the cheapest, youngest plonks into fine old draughts as fruit flavours are enhanced and rough edges are mellowed, he says.

Reds can become more complex, and whites drier. A wine costing £5 a bottle could taste the same as one costing twice that, which "will create huge changes to the global wine industry".

As white farmers leave Zimbabwe, Namibia and South Africa in droves, they are being welcomed with open arms north of the Zambezi River, in Zambia. Many who have moved here to start a new life have managed to achieve record-breaking harvests in their adopted country.

Foto: GMS
Victoria Falls near Livingstone, ZambiaBusiness is booming for Chris Aston. He's already planted 100 acres in Virginia tobacco and another 320 acres in wheat. He also grows hot chili peppers for US spice conglomerate Tabasco. Even during the dry season, when the unforgiving Zambian sun scorches the earth, wreaking havoc on other farmers' crops, Aston's green wheat fields sway in the breeze.

He gets his water from the nearby, bluish-green Zambezi River, which flows tranquilly past his land before crashing down Victoria Falls about 12 miles downstream.

Because Aston emigrated to Zambia only two years ago, he isn't exactly a made man yet, but he's well on his way to striking it rich. His farm already boasts 200 employees.

The world he left behind is now virtually at his doorstep, a mere 500 feet across the Zambezi River, in Zimbabwe. It was where he spent his entire childhood, where he married and fathered children, where he became a tobacco farmer -- a country that was still called Rhodesia when Aston was born. But now he has vowed never to return to his former home, because it was in Zimbabwe where he lost everything.

The US formally handed Rhein-Main airbase back to Germany yesterday, ending a stay of 60 years during which the site was a hub of activity for American forces facing Warsaw Pact troops or reacting to tensions in the Middle East.

General Robert Foglesong, commander of the US air force in Europe, said moving operations to other bases in Germany would save money.

Spain and Morocco were locked in crisis talks last night in an attempt to resolve the humanitarian disaster created by dumping hundreds of migrants in the Sahara desert after they attempted to storm the walls of the EU country's north African enclaves.

Hundreds got through, but scores were wounded and at least 11 were killed.

Stung by searing images of desperate migrants left in the barren land on the remote Algerian border, Morocco began at the weekend rounding up those it had earlier abandoned, to deport them to their countries of origin.

Rabat initially denied reports by the medical group Médecins sans Frontières that hundreds, including pregnant women, children and injured people, had been taken to remote desert regions without water or food and left to their fate.

The European Union, the biggest donor to the Palestinians, is set to ramp up its aid in the wake of the Israeli pullout from the Gaza strip.
The Brussels body said it was contemplating doubling its aid to the West Bank and Gaza by up to 300 million euros (£203 million, $358 million) a year.

 This year the Commission has provided about 280 million euros. "We want to do more," said Benita Ferrero-Waldner, the EU's external relations Commissioner. "For the first time in years I think it's plausible to talk about the relaunch of the Palestinian economy."

However, the Commission said the increase in aid, the details of which will be announced early next year, would depend on progress on the stalled "roadmap" to Middle East peace and contributions by other donors.

The internet is taking China by storm, with millions of people logging on in record numbers and web cafes busier than ever.

Rising personal wealth means more people are able to buy computers or pay to go online. The vast majority are young people using the net to chat or play games.

But behind the boom, there is a downside.

Wang Yiming, 21, is a self-confessed internet addict, one of a growing number in China. He used to spend hours online each day, often going without food or sleep. His face is drawn and sallow.

...
For help, Wang Yiming went to China's first internet clinic, a low-rise, anonymous building in central Beijing.

All 15 patients when I visited were young men - the main social group affected by this problem - and they all told a similar story of how their addiction to the net destroyed their lives.

The clinic itself is part of a bigger addiction centre also treating those hooked on alcohol or drugs. The internet addicts go on a two-week course involving medical treatment, psychological therapy, and daily workouts.

Olli Rehn, the European Union's enlargement commissioner, yesterday warned Serbia-Montenegro it would be closely watched as he launched the country's negotiations to bring it closer to the EU.

Mr Rehn's warnings focused on two important challenges: the EU's requirement that Serbia arrest and extradite senior Serb war crimes indictees, and a possible referendum on Montenegrin independence, which could be held next year.

Failure by Serbia to continue co-operating with the United Nations' war crimes tribunal in The Hague would result in suspension of the talks that began yesterday, Mr Rehn said. The goal of the negotiations - a "stabilisation and assocation agreement" - is widely seen as a way station to full EU membership.

Mr Rehn also said the EU would watch closely to see if Montenegro's leaders "abide by international standards" as they proceed as early as next spring with a referendum on independence from Serbia. A Yes vote would make Montenegro a new sovereign state in the Balkans and trigger the collapse of Serbia-Montenegro, the union created at the EU's urging on the dissolution of Yugoslavia in 2003.

Beyond the headlines, a critically important battle for control of the Internet is being played out.

On the one side is the United States, which wants to retain supervision of the Internet and has managed to get the reluctant support of most of the global Internet community, which sees America as the least bad of the possible ultimate guardians of the system.

On the other side is a collection of states keen on getting as much as control as possible in order to curtail the Internet's power to undermine their regimes. With the theocracy of Iran as the standard-bearer, this group brings together Saudi Arabia, China, Cuba and Venezuela. North Korea is probably keen to join in as well.

The European Union seems to be in the middle, wavering back and forth - and in its wavering it has recently come down with a position that has brought it enthusiastic applause from Tehran, Beijing and Havana.

The battle is part of the run-up to the World Summit on the Information Society, scheduled to be held in Tunis in November. Much verbiage will come out of these talks, but at the end of the day they're all about the struggle for control.

Sydney - Eating chillis regularly could help people get a good night's sleep and keep their hearts healthy, an Australian university study has found.

Researchers at the University of Tasmania spent the past 18 months studying the potential health benefits of chillies on a group of 10 volunteers, national radio reported on Monday.

...
"Chilli might be a neutroceutical, in other words a naturally occurring agent that we can just take on a daily basis in a small amount and it may actually benefit our cardiovascular health," he said.

A 100-year-old motorist has been given an insurance discount because he hadn't had an accident in more than 80 years of driving.

Belgian Cyriel Delacauw still drives his car every day to the shops, the billiard hall or a local river to go fishing.

He said: "I've driven around here for eight decades and I've watched all the traffic lights and signs gradually grow around me, I know exactly where everything is.

"Today's beginner drivers act like they were born in a jungle. I may only ever go 25 miles an hour but at least I'm safe."

Delacauw says he plans to keep driving "until I'm 110".

MANAQUIRI, Brazil (Reuters) - The worst drought in more than 40 years is damaging the world's biggest rainforest, plaguing the Amazon basin with wildfires, sickening river dwellers with tainted drinking water, and killing fish by the millions as streams dry up.

"What's awful for us is that all these fish have died and when the water returns there will be barely any more," Donisvaldo Mendonca da Silva, a 33-year-old fisherman, said.

Nearby, scores of piranhas shook in spasms in two inches of water -- what was left of the once flowing Parana de Manaquiri river, an Amazon tributary. Thousands of rotting fish lined the its dry banks.

The governor of Amazonas, a state the size of Alaska, has declared 16 municipalities in crisis as the two-month-long drought strands river dwellers who cannot find food or sell crops.

Some scientists blame higher ocean temperatures stemming from global warming, which have also been linked to a recent string of unusually deadly hurricanes in the United States and Central America.

Rising air in the north Atlantic, which fuels storms, may have caused air above the Amazon to descend and prevented cloud formations and rainfall, according to some scientists.

Maybe I'm overoptimistic, but I see the first signs of Europe starting up again...

It will be interesting to follow this idea of a "globalisation fund". It is not clear to me: will it be an increase in the existing European Social Fund or a new one? Knowing the European Commission, I would look carefully at the details (who will manage it, the conditions and criteria...) that's where the devil dwells...

And the foreseen cuts in the farm subsidies is a good step forward.

A nice day to you all

"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet

Venezuela switches to Euros...currency collapse in US?

The U.S. economy faces utter collapse if OPEC and other oil-producing countries were to begin pricing their oil in euros rather than dollars.  When Iraq tried to switch to euros in 2000, they were attacked by the USA soon thereafter.  

Recently, Business Week reported that oil producer, Venezuela, "has moved its central bank foreign reserves out of U.S. banks, liquidated its investments in U.S. Treasury securities and placed the funds in Europe."  

The importance of this news should not be underestimated.

The Real threat from Iran

"One of the Federal Reserve's nightmares may begin to unfold in 2005 or 2006, when it appears international buyers will have a choice of buying a barrel of oil for $50 dollars on the NYMEX and IPE - or purchase a barrel of oil for €37 - €40 euros via the Iranian Bourse. This assumes the euro maintains its current 20-25% appreciated value relative to the dollar - and assumes that some sort of "intervention" is not undertaken against Iran. The upcoming bourse will introduce petrodollar versus petroeuro currency hedging, and fundamentally new dynamics to the biggest market in the world - global oil and gas trades."

This all follows on Jerome's post late last week:

Chavez to trigger Hurricane Uncle Sam?

There are many ways a currency crisis could unfold for the US. One main one would be selling of UST bonds. That effectively would be dollar flight, first out of TBonds into dollar cash, then out of dollar cash into say, Yen. Or Yuan, or Euros....

Now at the moment I don't see this happening but it definitely can.

In such a scenario, if other foreign central banks did not all join to support the USD, it would be very possible that the USD could collapse not in weeks, but possibly in a day or even if things got hot, in an hour. Electronic money is so fluid that markets could be flooded in only an hour. Then the US would have to halt trading here, but of course there are foreign markets. I doubt the US could get the international forex markets to close too... in which case, the collapse would continue.

Well, there is a meme developing here, so this bears watching. Something to chew on over your European Breakfast...


"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia

Young 'cannot afford' first homes
More younger UK households than previously thought cannot afford the cheapest local housing, a report says. [BBC News]

Delphi bankruptcy result of `generational war'

The bankruptcy of Delphi, a car parts maker employing 180,000 people worldwide, marked a "flash point" between the interests of current and former workers, its chief executive said on Monday.

Warning of "hard choices ahead", Steve Miller, who previously managed US steel and airline bankruptcies, said the conflict offered a foretaste of an "inter-generational warfare" facing much of the industrialised world.

(...)

Mr Miller rejected the widespread assumption that the filing would automatically lead to the termination of its pension fund by passing the liability for its $4.3bn shortfall to a government-backed insurance scheme.

Instead, Delphi hoped to meet its pension obligations by forcing through even tougher wage and benfits cuts for existing workers and moving more labour-intensive productions overseas.

The strategy poses a stark choice for unions leaders as many thousands of former workers who took early retirement would receive a fraction of their pensions if the plan was passed to the federal insurer.

(...) the company argues that the bigger problems relate to the fundamental uncompetitiveness of many industrial companies with ageing workforces.

"Delphi is simply a flash point, a test case, for all the economic and social trends that are on a collision course in our country and around the globe," he said.

"I fear something like inter-generational warfare, as young people increasingly resent having their wages reduced and taxed away to support social programs for their grandparents' income and health care concerns."

Angolan oil loan likely to raise transparency issues

Angola's state-owned oil company is raising a $2bn syndicated loan in a transaction likely to focus fresh attention on financial transparency in Africa's second-largest oil-producing country.

France's Calyon is lead manager for the seven-year loan to Sonangol, which is now in syndication. Banking sources said the loan, to be backed by oil revenues, is priced at 250 basis points over Libor and will go towards financing oil production and gas projects and to repay a previous oil-backed loan.

Anti-corruption campaigners have reacted critically to rumours of the loan. It will be large by the standards of syndicated lending to Africa, especially to a corporate borrower.

Global Witness, a non-governmental organisation whose backers include US philanthropist George Soros, recently called Angola "one of the most corrupt and impoverished countries in the world" and criticised western banks for "aiding and abetting" the country's government.

"Banks participating in this deal will be complicit in perpetuating the country's chronic corruption and poverty," the London-based group said. A Calyon spokeswoman declined to comment on the loan yesterday.

In 2004 Standard Chartered was the lead arranger for a similar $2.35bn (€1.9bn, £1.3bn) loan.

Angola has no current financing agreement with the International Monetary Fund, which has criticised it in the past for poor financial transparency. According to the IMF, between 1997 and 2001, some $8.45bn worth of public money was unaccounted for.

More than a meal ticket to the French

Invented in Britain in 1954, just after post-war food rationing had come to an end, Luncheon Vouchers are now firmly out of fashion in the land of their birth.

(...)

To put it more bluntly: a concept invented in Britain is being globalised successfully by France, a country more commonly portrayed as a victim of "Anglo-Saxon" capitalist hegemony.

As new uses for vouchers proliferate, the stock market is becoming interested. (...) Analysts at Lehman Brothers recently suggested that Accor could seek a partial spin-off of the division through an initial public offering of a minority stake. Referring to it as a "cash-generative jewel", they estimated that Accor Services was worth €3.7bn (£2.6bn) including debt, almost half that of Accor's hotels arm.

(...)

The growing popularity of vouchers reflects the desire of governments and companies to discharge their obligations to citizens or employees without actually taking on the burden of providing the service themselves. In a consumer-driven society, vouchers are the equivalent of a light tug on the reins for those who want to retain some control over the behaviour of the masses while at the same time recognising the individual's right to shop around.

(...)

Meal vouchers support France's famously rich restaurant and café industry by encouraging workers to spend a little extra on a two- or three-course lunch rather than take the more economical option of a sandwich eaten at their desk.

In the case of the Borloo plan, the hope is that government tax breaks in the familiar form of a voucher will encourage households to spend more on everything from gardeners to home helps for aged relatives.

This would create jobs in the underdeveloped service sector and should also steer today's cash-in-hand handymen away from the black market and into the licit - and taxable - economic mainstream.