Wednesday, November 30, 2005

Backstory: In this huddle the partisan divide vanishes

from the November 22, 2005 edition - http://www.csmonitor.com/2005/1122/p20s01-alsp.html

By Gail Russell Chaddock Staff writer of The Christian Science Monitor

WASHINGTON - Partisan tempers turned raw in the last hours before the House of Representatives recessed on Friday, as shouts, finger jabbing, gavel rapping, and cries for "order!" sometimes drowned out a debate on the immediate withdrawal of US troops from Iraq.

At the center of the action, Rep. Harold Ford (D) of Tennessee surged across the aisle to confront a group of Republicans, until led back to the Democratic side. But, in the lobby just off the House floor, he was still simmering, telling a knot of reporters, "We're talking about a war here! This is one of the worst examples of politicization since the war started."

About then, up walked Rep. Patrick McHenry (R) of North Carolina,viewed by Democrats as one of the shrillest GOP partisans.

More angry words? Not this time. Instead, both men broke into big smiles and high-fived each other.

For this moment, they weren't partisan warriors but teammates - "Pee-Wee" McHenry and cornerback Ford. Two nights before, along with a ragtag crew of congressmen (and one congresswoman warming the bench in yoga pants), they had battled a younger, faster, and (vastly) fitter US Capitol Police team to a draw - in a driving rain ... on a muddy field ... at night.

It's a side of congressional life that the public often doesn't see. But it's personal ties that can keep Congress moving, especially when votes get tough. The venues for establishing such ties are as varied as the members. Last week, it was a muddy field.

For Tom Osborne, a college football coaching legend and three-term Nebraska congressman, the first annual "Longest Yard Fall Classic" marked a series of career firsts.

"I'd never played on a field quite that bad," he said, referring to the storm that quickly converted the gridiron at host Gallaudet University in northeast Washington to a sole-sucking bog.

"I never had my best player pull both hamstrings in warm-up and then fall down in the mud. I never had a 5'6", 160 lb. player at defensive tackle. Oh, and having a guy almost lose his ear, that's a first, too," he added.

It was all for a good cause. The Capitol Police Memorial Fund - created to help the families of two officers, Jacob Chestnut and John Gibson, who were shot and killed in the Capitol in 1998 - was running low. Learning of the need, Rep. Rick Renzi (R) of Arizona hit on an idea for a fundraiser: a flag football game between House members and the Capitol Police. And who better to coach it than Mr. Osborne, who had led his Nebraska Cornhuskers to 25 bowl games and three national championships.

In the end, about 30 members volunteered, including Rep. Mary Bono (R) of California, who says she was benched for skipping practice. No one was rejected. Mr. Renzi assured his player colleagues that "Everyone is going to get a certificate signed by Coach Osborne saying that he played on the team. We're not going to cut anybody." "You may want to rethink this," Osborne quipped.

"Sometimes you have speed. Sometimes you have strength and size. And sometimes you have neither," the coach said, after the first practice. "I thought we'd be fortunate if we came within three or four touchdowns."

Yet few get to the US Congress without a will to win, and no one was giving up. The coach reached deep into his playbook for moves to adapt for the seven-man flag football team he'd been dealt.

"We didn't do anything fancy," explained Osborne. To counter the Guards' speed, "we did use some misdirection.... That did help to some degree."

Each member had an assignment. Plays were diagrammed on laminated cards. Rep. Zach Wamp (R) of Tennessee walked the field the day before the game. (Think George C. Scott on the field at Carthage before the tank battle in "Patton.") On the morning of the game, Osborne called one last practice, "to go over the plays one more time."

The Capitol Police, while grateful for the interest in their charity, were also in no mood to lose.

About 100 of the Capitol Police's finest tried out; 60 made the cut, including several women.

Their captain, Sgt. Ron Russ, had played two seasons of pro football in Germany. "I wanted to run up the score on them," he says.

Game day began warm, but a cold front moved in and with it a drenching rain. No one considered calling the game. With Congress within two days of recess, there'd be no easy way to reschedule. And members felt the cause was too important to let slide.

By the 8 p.m. kickoff, the field was already deep in mud and by the fourth quarter temperatures had dropped 25 degrees. The congressional team, in white jerseys marked "Inmates," - a reference to the film, "The Longest Yard" - sent out "Pee-Wee" McHenry, their shortest player, to take the toss.

"Just play along," he whispered to the police chief in a blue "Guards" jersey taking the toss for the other side. McHenry won the toss, elected to receive, then pushed the officer ... hard.

"It was to set a tone," said McHenry. "Just because the average age on our team is 10 years older, just because they're 100 pounds bigger and a foot taller, we would not be the demure members of Congress. We would actually be aggressive."

"That little guy earned his respect, and we went back to the sidelines really pumped," said Rep. Jesse Jackson Jr. (D) of Illinois, an ideological bookend to McHenry.

While the rules of flag football don't include tackling, you wouldn't know it from the head-banging pileups on the field.Rep. Bill Shuster (R) of Pennsylvania, an offensive lineman, emerged from the bottom of a pile with a torn ear. "I was blocking one of the police officers and he didn't want to get blocked - and it's football," he said.

"I was impressed with the congressmen," said Osborne. "They seemed to be willing to go out there and throw their bodies around in the mud," At the two-minute half, truncated by the torrential rains, players huddled to hear his motivational speech, also truncated: "Let's get this thing over with," he said.

Along with the hits and slips in the mud, there was plenty of good-natured banter across the scrimmage line. "Just remember when you're out there that we control your pension!" said Renzi, after an especially solid hit from the men in blue. "You've still got to come through my post to make that vote,'' shot back Sergeant Russ. Members also forged ties across the aisle.

"When you meet with members of the other party in these settings," said Mr. Wamp, "you gain an appreciation for them you'd never have on the floor or in committee. You see the person behind the ideology."

"I liked being on the same side with Jesse Jackson Jr., for a change," said Rep. Jim Gerlach (R) of Pennsylvania. "He's very intense, very competitive, and had a lot of spirit ... trying to pump up people to play their best."

The final score was 14-14. The "Inmates" scored on an option play in the first quarter and on a bootleg pass in the third quarter, both to Gerlach. The game also raised $40,000 for the Capitol Police Memorial Fund.

"If we tied against a Capitol Police team that was stronger, younger, and more talented, that counts as a victory," says Rep. Paul Ryan (R) of Wisconsin.

"We also drilled and practiced with players like [Democrats] Harold Ford, Jesse Jackson [Jr.], Tim Ryan, and Kendrick Meek. Any time you're on a team with anyone, it's a bonding experience."

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GOP lawmakers see more openings to buck their leadership

from the November 21, 2005 edition - http://www.csmonitor.com/2005/1121/p03s02-uspo.html

They take stronger stands on the environment and other issues. Still pending: key tax and spending bills.

By Gail Russell Chaddock Staff writer of The Christian Science Monitor

WASHINGTON - With the White House embattled over the war in Iraq, staff legal woes, and slumping approval ratings, Republicans in Congress are struggling to hold their ranks - and to shape an identity apart from the president.

After a bitter debate on the war on the House side, lawmakers recessed Friday with key tax and spending bills still pending - a setup for more drama when legislators return to complete work in December.

These factors are already changing the dynamics in both parties. Both conservatives and moderates in GOP ranks are taking stronger stands on issues ranging from social spending to the environment. And Democrats are exhibiting a disciplined opposition more solid than at any time in the Bush presidency.

"Clearly the [Republican] Party doesn't have the lock-step discipline today that [it] had over the last 10 years," says Chris Edwards, an economist at the Cato Institute in Washington and author of a new book, "Downsizing the Federal Government." "With the elections [of] 2006 coming into people's minds, there are different views on how individuals guarantee their seats and the majority keeps the majority."

Last week, House moderates forced the GOP leadership to adopt broad concessions in their blueprint for $49.5 billion in spending cuts, including dropping a provision that allowed oil and gas drilling in the Arctic National Wildlife Refuge (ANWR). Even with these concessions, 14 Republicans, mainly from states that Sen. John Kerry carried in the 2004 presidential election, voted against the GOP leadership's proposed blueprint. It narrowly passed the chamber.

"For members like me, coming from a district where less than 50 percent of voters are Republicans, we look at issues and have to vote on legislation differently from other Republican members," says Rep. Jim Gerlach (R) of Pennsylvania, who voted against the spending cuts.

The move for deeper budget cuts had been prompted by a revolt of House conservatives, led by Rep. Mike Pence (R) of Indiana. They were concerned that the party's base thought the Bush administration and GOP-controlled Congress weren't serious about cutting deficits and curbing big government.

"The [GOP] moderates have an unbroken string of victories over the last four years on spending and the size of government," says Rep. Jeff Flake (R) of Arizona. And the moderates are winning the "compassion" debate within the Republican caucus.

"We used to bristle at the argument by Democrats that how much you care can be measured by how much money you spend. Now, it's in everything the GOP conference puts out," he adds.

For the House leadership, the 217-to-215 vote in the early morning hours on Friday was a huge symbolic win. It came at a time when critics, including those within GOP ranks, were saying that the leadership team, without indicted majority leader Tom DeLay, was fumbling.

But for the cuts to take effect, the House and Senate must negotiate a compromise on their respective budget reconciliation bills, and both chambers remain far apart.

The Senate version includes $35 billion in cuts, which take less of a bite out of programs for the poor. Senate GOP leaders say they also hope to move the ANWR provision back into the package. House moderates say such a move would defeat the bill.

"There are definitely 14 solid votes to sink the bill if ANWR is on it. You can take that to the bank," says Rep. Charles Bass (R) of New Hampshire, a leading GOP moderate on the environment.

On Thursday, 22 House Republicans voted down the compromise worked out between the House and Senate over a $602 billion spending bill for Labor, Health and Human Services, and Education. This sank legislation that the leadership had hoped to get to the president before Thanksgiving. It's back on the "to do" list for December.

At the same time, Democrats opposed the budget savings package 200 to 0. The increasing success of the Democratic leadership in enforcing unity on key votes makes GOP unity all the more crucial.

Another big spending bill, for 2006 Defense appropriations, could hang up in conference on a Senate amendment banning torture of detainees in the war on terror. The White House is threatening to veto it.

In the end, House leaders did not bring to the floor their $56.1 billion tax bill. Instead, they called for a vote on a referendum on remarks by Rep. John Murtha of Pennsylvania, a respected Vietnam combat veteran and leading Democratic hawk, who last week called for a rapid withdrawal of American troops from Iraq.

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The forces that molded Judge Alito

from the November 21, 2005 edition - http://www.csmonitor.com/2005/1121/p02s01-uspo.html

Family and the law figure prominently in shaping the character of court nominee.

By Warren Richey Staff writer of The Christian Science Monitor

The man who could be the nation's next Supreme Court justice is smart, hard-working, quiet, self-effacing, even shy. But if you really want to understand appeals court judge Samuel Alito, focus on three things, say those who know him best: his family, the law, and the Philadelphia Phillies.

They paint a picture of a busy judge, the father of two, sorting through legal briefs among spectators in the stands at school swim meets, or taking his kids - and law clerks - to root for his beloved Phillies.

"When he was coaching his son's baseball team, he would leave the office wearing a full baseball uniform," says Jeffrey Wasserstein, a law clerk for Judge Alito in 1997-98. "Here is a federal judge leaving the office in cleats and those stirrup socks and everything."

Since his nomination to the US Supreme Court by President Bush on Oct. 31, Judge Alito has come under attack by liberal analysts and a coalition of women's rights and civil rights groups who say he is a conservative ideologue. But longtime associates and friends of the Alito family say Alito is very much a reflection of his parents, Rose, who still lives in Alito's boyhood home in Hamilton Township, N.J., and Sam Sr., who died in 1987. He is motivated more by intellect and public service, they say, than a quest for wealth or political power.

"His father came [from Italy] as a 14-year-old immigrant, and by the time he was in his 20s he was teaching high school English," says Jack Lacy, a former Hamilton Township councilman and family friend for 50 years. "To me that is quite an accomplishment, considering he came here speaking Italian."

Sam Sr. went on to run the Legislative Services Commission at the New Jersey legislature. It was a nonpartisan research office tasked to assist lawmakers in the intensely partisan state legislature.

"Sam Alito Sr. was a highly principled man who would not bend to political pressure," Mr. Lacy says. "Regardless of who was in power, Mr. Alito did not lower the standards of that office to meet political expediency."

Albert Parroni worked closely with Alito's father and now runs the same office. "I think young Sam knew what Sam Sr. was going through" working at the center of what could be at times a partisan hornet's nest, says Mr. Parroni. He says Judge Alito has carried his father's tight-lipped, nonpartisan stance onto the federal bench.

Others agree with this assessment. "Sam is in my view a genuinely apolitical person," says Daniel Rabinowitz, a classmate at Yale Law School who also served with Alito in the US Attorney's Office in Newark, N.J. "He was imbued with a sense of nonpartisan public service from his dad."

Mr. Rabinowitz, who describes himself as a "yellow dog Democrat," adds: "That's why I have a hard time fitting Sam into any kind of partisan category. We've been friends for 30 years, I assume he's a registered Republican, but I don't even know that."

David Loretto, an Alito clerk in 2002-03, describes a similar experience.

"I'm extremely liberal," he says. "I've had friends come up to me and say, 'I didn't know you worked for such an extremely conservative judge.' "

Mr. Loretto smiles. "My reply was: Neither did I."

Alito's reticence makes it almost impossible to tell how and where his conservatism was shaped - and even how conservative he may be. A rare break in that nonpartisan posture came 20 years ago when Alito was applying for a job in the Reagan administration. "I am and always have been a conservative," his cover letter began. He detailed his admiration for the writings of William F. Buckley and his opposition to many of the liberal rulings of the Supreme Court under Chief Justice Earl Warren. He emphasized that it was his strong personal belief that "the Constitution does not protect a right to an abortion."

Last week, the judge backed away from those comments, saying he was "an advocate seeking a job" 20 years ago and is now older and wiser.

In addition to the 1985 cover letter, supporters and detractors are poring through his extensive record on the federal bench - participation in some 3,500 decisions, including 300 opinions written by him - to draw a bead on his politics.

In the meantime, there appears to be no shortage of Alito supporters - from his hometown of Hamilton Township to the halls of the US Attorney's Office in Newark, N.J., and the Third US Circuit Court of Appeals in Philadelphia.

"Judge Alito really is a wonderful person, a terrific guy," says Monica Dolin, who was an Alito law clerk in 1993-94 and who says she's a registered Democrat. "I'm not positive what kind of justice he is going to be, but I trust him enormously."

Ms. Dolin is among a group of former Alito clerks who signed a letter to the US Senate urging his confirmation. Of the 54 clerks Alito has hired since 1990, all but three signed the letter. (The three said such an endorsement would conflict with job obligations.)

One potential bump on Alito's road to confirmation is whether he failed to abide by a 1990 pledge to recuse himself from deciding cases involving a mutual fund, a brokerage house, and his sister's law firm.

Alito has denied any wrongdoing. "To my knowledge I have not ruled in a case for which I had a legal or ethical obligation to recuse myself," he wrote in a letter to Senate Judiciary Committee Chairman Arlen Specter. "I am proud of the record I have established during my 15 years on the federal bench, not only in terms of my jurisprudence but my integrity."

The issue is likely to arise again during his confirmation hearing in January. Associates and long-time friends say ethics questions about Alito are a nonstarter.

"I've seen him under stress when difficult decisions needed to be made, and in every instance his views were informed not only by his extensive learning, high intelligence, and wit, but also [by] bedrock decency and honesty," says Rabinowitz, the Yale classmate and former colleague.

As a student at Yale Law School Alito was known to prefer studying over socializing, living a conservative lifestyle. "He didn't drive flashy cars or go out dancing all night. He went home and studied," says Mark Dwyer, a classmate at Princeton and Alito's roommate at Yale Law.

Bill Agress, who hasn't seen Alito since 1966 when they were debate team partners in high school, remembers something else. "We won most of our debates," he says. But "when we were doing research some people back then in high school played a little loose with the facts. Statistics suddenly changed," Mr. Agress says. "Sam would never do that. When Sam did the research the facts were the facts."

Such earnestness has not dampened Alito's sense of humor. When a neighboring judge in the federal court-house in Newark positioned a pair of ornamental lions in the hallway guarding the door to her chambers, Alito deployed plastic pink flamingos outside his chambers.

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Tuesday, November 29, 2005

Economist.com Cities Guide: San Francisco Briefing - November 2005

News this month

Not going away

Two recent crimes were grisly reminders of San Francisco's chronic homelessness problem. In October, a schizophrenic homeless woman threw her three young sons into the San Francisco Bay. The mother, Lashuan Harris, had been living with her children in an Oakland shelter, and had stopped taking her medicine because she believed she was cured. But voices, she later told police, told her to throw her sons into the water. Relatives told the press that they had sought custody of the boys, but that social workers had failed to act. Less than two weeks later, a homeless man, Johnell Kirk junior, died after being set on fire by another drifter, who was said to suffer from schizophrenia.

San Francisco has struggled to deal with the many homeless people who come to the city for its temperate climate and generous welfare programmes. Gavin Newsom, San Francisco’s mayor, has made the issue a priority. His controversial “Care Not Cash” initiative, which offers homeless people services rather than welfare cheques, took effect in May 2004, and there are signs of success. The programmes have reduced the street population by 28% and housed nearly 1,500 people. And on November 8th, Prince Charles and Camilla, the Duchess of Cornwall, met a number of homeless people in San Francisco, along with Mr Newsom and his homelessness-policy managers, to trade programme tips. (Homelessness is one of the prince's pet causes.) But the city has a lot more work to do.

Raiding the bank

Oakland’s residents have good reason to resent their hometown football team, the Raiders: an agreement between the government and the team is costing taxpayers up to $20m a year. In early November, Oakland officials and the Raiders struck a new deal to keep debt in check. But the scheme is unlikely to erase the $180m the city and county already owe for the team's stadium.

The trouble stems from ten years of mismanagement. In 1995, local officials, desperate to lure the Raiders from Los Angeles to their former home in Oakland, agreed to spend $200m renovating the city's stadium. To raise the money, they sold bonds they hoped to pay back by selling seat licenses to fans to be held for a decade. But with prices ranging from $250 to $4,000 a pop, not enough fans bought them. This failure, combined with the Raiders’ inability to sell out home games, forced local officials to redirect money from the city’s coffers to pay the interest and principal on the bonds. Under the new deal, local officials and the Raiders have agreed to scrap the plan to sell personal seat licenses, which would have cost taxpayers an extra $3m next year. Still, taxpayers have little reason to celebrate: officials say the public subsidy for the Raiders is not expected to dip below $15m a year, and the team may not stay in Oakland after their lease expires in 2011.

To ban, or not to ban

A controversial measure to regulate farming was defeated on November 8th, when citizens of Sonoma County, north of San Francisco, voted against a ban on genetically modified crops. The ban, Measure M, had been hotly contested in a county that is home to some of California’s finest vineyards and produces some $525m in crops each year. Opponents and supporters spent more than $800,000 to sway voters, making the battle over the measure one of the most costly in Sonoma’s history.

On one side were owners of wineries and small organic farms, who say “wholesome” growing methods yield grapes and other crops that are more nutritious and more attractive to the discerning consumer. On the other side were vintners, ranchers and corporate farmers, who say that bioengineered crops cut labour costs and are safer in the long run because their higher resistance to pests means farmers use fewer pesticides. Furthermore, they claimed, the ban would merely put local farmers at a disadvantage to farmers in neighbouring counties. Only three counties in America—including Marin, just across the bay from San Francisco—have banned the cultivation of genetically modified crops, and all three are in California.

A royal visit

Prince Charles—a noted opponent of genetically modified crops—and his new wife, Camilla, ended their first American tour together with a visit to the Bay Area in early November. The couple had begun their trip in New York, then visited Washington, DC, and hurricane survivors in New Orleans before landing in California. During their stay, Charles and Camilla hobnobbed with the local elite, including: Gavin Newsom, San Francisco’s mayor; Jerry Brown, Oakland’s mayor; Maria Shriver, the wife of California’s governor; and Alice Waters, the area’s reigning chef.

But the couple generated the best press—the kind that once belonged exclusively to Charles’ late wife, Diana—when they chatted easily with the locals. They charmed the area’s environmentalists by touting climate control and sustainable agriculture during trips to two farmer’s markets, an organic farm and an “edible” school garden in Berkeley. That most English of passions, gardening, is just as popular in the sunshine state.

Friends in high places

The University of California’s provost and second-in-command, M.R.C. Greenwood, resigned on November 4th amid allegations of favouritism. The University of California (UC) is investigating whether Ms Greenwood improperly promoted a friend, and whether her staff helped her son land a well-paid internship at the UC’s new campus in Merced.

Ms Greenwood came under attack after the San Francisco Chronicle reported that she had owned rental property with Lynda Goff, the vice provost at UC Santa Cruz whom Ms Greenwood promoted to a prestigious new post. Ms Greenwood is also being criticised for receiving $125,000 from UC last year to move from Santa Cruz to her new provost position in Oakland. UC has denied any wrongdoing, saying that such payments are typical for top administrators. But papers such as the Chronicle have charged that the compensation violated university policy. Ms Greenwood's lot isn't helped by the fact that UC is in a fiscal crunch: any talk of wanton payment will come under intense scrutiny, given that the university has raised student fees.

Catch if you can

November 2005

Sandow Birk’s Divine Comedy

Until January 8th 2006

If Dante Alighieri were writing today, he might set his inferno in an American traffic jam—at least that is the conceit of this exhibit at the San Jose Museum of Art. Sandow Birk, an artist from southern California, has created a visual interpretation of “The Divine Comedy”, Dante's 14th-century masterpiece. In a series of paintings and prints, Mr Birk re-imagines Dante’s tale as a witty, politically provocative, American narrative. Viewers experience Dante's journey through the circles of hell, purgatory and, ultimately, heaven in a world filled with freeways, strip malls, behemoth SUVs and police helicopters descending on Los Angeles.

San Jose Museum of Art, 110 South Market St, San Jose. Tel: +1 (408) 271-6840. For more information, visit the museum’s website.

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Economist.com Cities Guide: Brussels Briefing - November 2005

News this month

Brussels burning

The riots across France sparked some copy-cat fires in Brussels, spurring some politicians to re-examine Belgium’s social tensions. On November 6th, five cars were burned near Brussels’ South Station (the Gare du Midi). A week later, nine cars and five rubbish bins were set on fire, with police filling the centre of Brussels to deter riots on November 12th. And on the northern edge of Brussels, a van containing a gas cylinder was set alight next to a railway line. Still, the country remained relatively calm, compared with the violence across the border in France.

The incidents called attention to some latent problems. National statistics put seasonally adjusted unemployment at 8%, but an estimate quoted in the Brussels regional parliament on November 5th puts the number of jobless in the city at 90,000, a fifth of the city’s active working population. Jean-Luc Vanraes, leader of the Flemish liberal group, addressed the issue in a pamphlet over the summer, pointing to bad education and language skills as key barriers to employment.

On trial

Brussels began its largest-ever terrorism trial on November 3rd. The defendants are 13 alleged members of the GICM, the Moroccan Islamic Combatant Group, who were arrested in June 2004 for allegedly helping the terrorists who bombed Madrid in March 2004. The case is a milestone for Belgium, as it is the first to be tried under anti-terrorism laws introduced in 2003. But it has already hit a stumbling block: it was adjourned immediately over a dispute whether arguments should be heard in Dutch or French. The trial began again on November 16th, and hearings are set to continue until December 20th. Arguments are being heard in French.

A more conventional hearing ended on November 9th, when Nordin Benallal, described as Belgium’s most dangerous criminal, was sentenced to 12 more years in jail. He was convicted of attempting to kill two policemen while on the run from an earlier imprisonment. (He had been sentenced to 27 years in jail in 2004, for robbing more than 50 cars and homes.) It was his fourth prison break in five years.

A stalemate

Trade unions and the government are still at loggerheads over proposals to revamp pensions and social security. The reforms, known collectively as the Generation Pact, have caused a rift between government socialists, who support them, and the unions, which are opposed, particularly as the pact would raise the minimum retirement age to 60. Xavier Verboven, head of the main socialist union, has accused the party of betraying workers and aligning itself with the middle class.

The debate brought Brussels to a standstill twice in October, when workers staged massive strikes on the 7th and 28th; the latter protest saw 80,000 demonstrators gathered in Brussels. The labour unions held the strikes to strengthen their position before their scheduled talks with the government, which had agreed to consult them about the legislation. But Guy Verhofstadt, Belgium’s prime minister, has stressed that he would not revise the pact’s key principles.
Negotiations resumed on November 14th, and ministers agreed to refine the pact days later.
This may include concessions for workers in the steel industry on their so-called bridge pension, which allows them to retire earlier. Whereas the Generation Pact would have done away with these bridge pensions from 2011, the compromise is that they will be allowed for people 56 and over but will be phased out. Their duration will be reduced as well.

The great Asian sales pitch

Guy Verhofstadt, Belgium’s prime minister, spent early November touring Asia in an effort to drum up foreign investment. Accompanied by his finance minister, Didier Reynders, Mr Verhofstadt visited six countries, where he outlined the advantages of a new corporate tax break specifically aimed at foreign investors. The European Commission had invalidated the tax, claiming it was a form of state aid and violated European Union law.

Mr Verhofstadt’s visit included stops in Singapore, Seoul, Tokyo, Bangkok and Hong Kong, and one in Uzbekistan on the way to the Far East. In each spot, the prime minister stressed the need for further co-operation between Europe and Asia on trade, economic development and security. But the key message of his trip rang out clear in a speech in Tokyo on November 9th. Hailing Brussels as “the gateway to Europe and its 450m consumers”, Mr Verhofstadt said he had cut red tape and labour costs—factors that had discouraged investment in the past—and urged the crowd to “invest in Belgium” to “increase your profits”. Some Asian executives have taken the prime minister’s advice. On November 11th Mr Verhofstadt announced that Li-Ka Shing, Hong Kong’s leading businessman, is taking over an old Renault factory just north of Brussels. Mr Li plans to make the factory a distribution centre for his chain of perfume shops and drugstores in the Benelux countries, France and Germany.

Holy justice

A Belgian priest implicated in the genocide in Rwanda will return to Belgium to face trial. Guy Theunis was arrested in September while passing through Kigali, the Rwandan capital, and charged with helping to incite the mass killings in 1994, when Hutu militias killed 800,000 Tutsis and moderate Hutus. After strong lobbying by Karel De Gucht, Belgium’s foreign minister, Rwanda’s High Court ruled on November 9th that Mr Theunis be sent to Belgium, which permits its courts to try genocide crimes committed elsewhere.

Mr Theunis lived in Rwanda from 1970-94 as a missionary for the Catholic order of the White Fathers. He founded a human-rights organisation there and campaigned for a free press. His defenders say his only offence has been to investigate reports of assassinations by senior members of the Rwandan Patriotic Front, the ruling party. Officials in Rwanda, a former Belgian colony, charged the priest with ten counts of genocide, stemming mostly from his reprinting of articles that encouraged Rwanda’s Hutus to kill Tutsis. Mr Theunis has denied any wrongdoing, and said he was “delighted” to be returning to Belgium, where a prosecutor will examine the evidence and decide whether to indict him.

Catch if you can

November 2005

Design Brussels

November 19th-27th 2005

Belgians will flock this month to Design Brussels, a large fair filled with contemporary home and interior designs in the Brussels Expo. The fair includes work by both established and young designers, along with some exhibitions, a symposium to discuss the future of design (on November 19th and 20th), and a “design route” through the city centre, highlighting the work of Brussels- and Berlin-based designers.

Brussels Expo, Hall 6. Belgiëplein 1. Open: daily, 11am-6pm; until midnight on November 25th. Visit the fair's website for details.

More from the Brussels cultural calendar

Economist.com Cities Guide: Dubai Briefing - November 2005

News this month

Shop till you drop

Dubai's investors continue their multi-billion dollar shopping spree, snapping up swish properties on either side of the Atlantic. On November 10th, the royal family’s investment firm bought a landmark building above New York’s Grand Central Terminal for $705m. On the same day, Dubai’s government bought a controlling stake in the London Eye, a tourist attraction in Britain. Dubai paid British Airways $166m for a 33% share, doubling its original share.

The deals were the latest in a string of acquisitions, financed largely by the recent surge in oil wealth. The emirate itself is home to very little oil, but investors from neighbouring OPEC producers—including Kuwait, Saudi Arabia and Abu Dhabi—have funnelled up to $100 billion into Dubai over the past two years, according to Rasmala Investments, a local firm. Much of this money has gone on foreign investments. In 2005 alone, Dubai has bought the Tussauds Group, a leisure company, for $1.5 billion, bought a $1 billion stake in DaimlerChrysler, a carmaker, and reportedly launched a $5 billion bid for P&O, a British port and ferries group. Meanwhile, state-backed real estate developers such as Emaar and Dubai Properties have unveiled multi-billion dollar projects in Morocco, Egypt and Istanbul.

Looking to score

Manchester United, an English football club, is opening a football school in Dubai in a bid to cash in on the game’s popularity in the Arab world. The club's manager, Sir Alex Ferguson, visited Dubai in early November to launch the training camp, saying he hoped it would discover young Arab players who could one day become stars. Organisers expect 500 aspiring footballers to participate in the academy’s first session, which will run from mid-December to mid-April.

In recent years, leading European clubs such as Manchester United and Spain’s Real Madrid have promoted their brands in Asia, hoping to boost sales of television rights and football paraphernalia. But clubs have largely neglected the Arab world, despite a growing population of young people with a passion for football and, thanks to high oil prices, money to spend. This now looks set to change.

A better connection

On November 14th, negotiators from the United Arab Emirates (UAE) and Pakistan agreed to revive a telecoms deal. Etisalat, a telecoms firm with a monopoly in the UAE, had agreed in June to pay $2.6 billion for a controlling stake in Pakistan Telecommunications Company, a state-owned firm. But the deal fell through in late October after Etisalat failed to pay a final instalment of $2.3 billion. Sources say that the payment schedule has been extended to 20 months, but negotiators in Abu Dhabi, where Etisalat is based, have been quiet about the details. Many observers said the deal was overpriced—Etisalat’s winning bid was about 40% higher than that of its nearest rival.

A princess goes public

Princess Haya Bint Al Hussein, the wife of Dubai’s Crown Prince Sheikh Mohammed, has joined the United Nations World Food Programme as a goodwill ambassador. The new role, though largely ceremonial, is a departure from the usual duties of a princess. Traditionally, royal women have rarely made public appearances, and then only wearing the full black abbaya gown. But the 31-year-old princess, a daughter of Jordanian royalty and a champion equestrian, is bucking the trend. She even wore western clothing when she announced her new job.

Women seem to be taking a slightly greater role in public life. In September, Dubai’s government promoted Salma Hareb to head the Jebel Ali Free Zone, a tax-free area in Dubai. And Sheikha Lubna Al Qassimi, minister of economy and planning, has made numerous international appearances since she became the UAE’s first female cabinet minister in November 2004. Before that, she held senior posts within government-owned companies. Still, there are limits to this trend. Princess Haya, for example, may be a goodwill ambassador, but royal succession remains a male preserve.

Too close for comfort

A Dubai-based British couple spent almost two weeks in an Iranian jail after sailing their yacht too close to Abu Musa, an island claimed by both Iran and the UAE. Stuart and Linda Wise were arrested by Iranian navy officers and taken to Iran, where they spent 13 days being interrogated. The couple was not allowed to contact British diplomats for several days.

Iran and the UAE have long squabbled over Abu Masa and two neighbouring islands, Greater and Lesser Tunbs. But neither party wants the issue to become a major diplomatic spat. There is a large Iranian expatriate community in the UAE, and Iran has strong trade links with Dubai, which is only a short boat ride away.

Catch if you can

November 2005

Dubai International Film Festival

December 11th-17th 2005

Dubai’s second film festival has much to live up to. The inaugural event last year won rave reviews from the city’s culture-starved residents and visitors. This year's festival will feature 85 films, with a greater emphasis on Arab cinema, including offerings from the UAE’s own film industry. The festival will also show mainstream films such as “Pride and Prejudice” (pictured), starring Keira Knightley, Britain’s dewy starlet of the moment. Whether actors from any of these films attend the festival is still unknown, but fans have reason to hope: last year included appearances from established stars such as Orlando Bloom and Morgan Freeman.

Locations across Dubai including Madinat Jumeirah and Dubai Media City on Dubai’s Beach Road. For more information, visit the festival's website.

More from the Dubai cultural calendar

Monday, November 28, 2005

Bar-room brawl

Drinking

Nov 24th 2005 MANCHESTER
From The Economist print edition

How a city fell in and out of love with drink

MANY British towns have a street or a neighbourhood packed with pubs, bars and nightclubs—a magnet for hedonists that the sober and the over-30 tend to avoid, especially on Friday and Saturday nights. Manchester has four such areas within a square mile. Such excess is appropriate in a city that, more than ten years ago, pioneered a boozy development strategy that has since been widely emulated. But Manchester's enthusiasm for drink now seems less like high spirits and more like a ruinous addiction.

Alcohol and its ill effects are now the salient “doorstep issues” in local politics, according to Marc Ramsbottom, a Liberal Democrat councillor. That is partly because of the 2003 Licensing Act, the most important parts of which came into force this week. The Act sweeps away fixed closing times, making it easier for drinking dens to stay open later. It is opposed by the Liberal Democrats and the Conservatives, by most newspapers and by 62% of the general public, according to a recent poll for the Times. In Manchester, though, the Act has merely sharpened opposition to the drink trade. Resentment runs deep.

The city council took the stopper out of the bottle in the mid-1990s. Gingerly at first, and then with gusto, it encouraged clubs and bars to open in deserted warehouses and shops. Such sites were plentiful: in common with other northern towns, Manchester's heart had been torn out by the departure of the textile industry. The hope was that alcohol would fuel a new, “24-hour” city, kick-starting the urban economy and luring residents and more sober business.

To begin with, the plan seemed to work well. “When I opened, this was a dark, dingy street with no lighting and buggered pavements,” says Andrew O'Dwyer, who owns a bar and nightclub in a now-buzzing area. Thanks to entrepreneurs like Mr O'Dwyer and the IRA, which in 1996 detonated a bomb in a particularly ugly corner of the city, Manchester began to smarten itself up. Retailers have flocked to the city centre: between 2002 and the end of next year, Manchester is expected to add a million square feet of retail space.

The problem is that the city is increasingly sodden with drink. Manchester's bars and clubs can accommodate more than 125,000 drinkers, and often pull in more than half that number. A combination of low prices, pushed down by stiff competition, and rising levels of disposable income has had the expected effect on drinking habits. The nation as a whole is imbibing more: the average Briton consumes 17% more than he did in 1995, even as Americans and many Continental Europeans have cut back on the bottle (see chart). Over-indulgence is compounded by the way Britons like to drink: noisily, in large groups and in public.

Manchester's legions of drinkers are sometimes policed by as few as 50 officers. Such an imbalance is not unusual in a British city, though it is no less inadequate for that. Last year, some 836,000 English and Welsh adults were attacked by strangers, most of whom were drunk at the time, according to the British Crime Survey. That is a 7% increase on the 1997 level.
Drunken punch-ups are more noticeable because many other kinds of criminality have declined. Overall crime has fallen by 35% in the past eight years.

But the 24-hour city's biggest problem is that it proved such a success. Sober folk flocked to it, just as the early 1990s boosters predicted. In 1991, only about 1,000 people lived in the centre of Manchester. Some 15,000 do so today, according to the city council. As a hedonistic playground came to be seen by an increasing number of Mancunians as a residential back yard, conflict became inevitable.

“We brought the area up, people moved in, and then they started to complain about the noise,” complains Mr O'Dwyer. “And the odd thing is, I have yet to see an advertisement for a city-centre flat that does not mention the vibrant night-life.”

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Three into two

Nepal

Nov 24th 2005 DELHI AND KATMANDU
From The Economist print edition

A novelty for King Gyanendra: a united opposition

THE battle-lines in Nepal's bitter triangular conflict have become clearer. After talks in Delhi last week, two of the three sides—the Maoist insurgents and the mainstream political parties—announced on November 22nd that they were ganging up on the third, the monarchy. King Gyanendra, who seized absolute power in February, is as isolated at home as he is unpopular with Nepal's main allies abroad. But he is still solidly in charge.

Ever since the royal coup, the Maoists, whose insurrection has cost more than 12,500 lives in the past nine years, have been edging closer to a coalition of seven democratic parties. The king has shunned dialogue with either the Maoists or the parties. Seeing a chance to move into the mainstream, the Maoists decided to pursue an alliance with the parties and, to build trust, declared a three-month unilateral ceasefire in September, which the army did not reciprocate. Analysts say that the insurgents recognise that it is not possible to overrun Katmandu, and may be looking for a “soft landing”. A steady trickle of guerrillas is surrendering to the army, suggesting morale is low.

The agreement with the parties calls for a boycott of the municipal elections that the king has called for next year, and the formation of a constituent assembly to draft a new constitution—with, presumably, no role for the monarchy, or only a ceremonial one. It also calls, “after bringing the autocratic monarchy to an end”, for supervision by the United Nations or another “reliable international body” of the Maoists' and Nepalese army's weapons.

Foreign governments—especially India's—are encouraged by the accord. But it does not herald an early end to Nepal's agony. Crucial disagreement remains. The parties want parliament reinstated and an all-party government formed to hold talks with the Maoists before a constituent assembly is formed. The Maoists, who are not in parliament, prefer a “national conference of all the democratic forces”.

More fundamentally, the king controls the army and the government, and holds the key to peace. If the Maoists return to violence, then the democratic parties will be in an uncomfortable position associating with them, as the government enforces “anti-terror” measures. If the Maoists remain at peace, then there is little need for the government to deal with them.

The parties and the Maoists may regard isolating the king and casting him as a warmonger, unwilling to negotiate, as an end in itself. It would certainly step up the international pressure on him. Cold-shouldered by India, however, he seems to be hoping China will come to his aid, and in public at least, is unperturbed. While his enemies plotted this political ambush, he was away on a two-week tour of African capitals. Perhaps he reasons that his position is safe. Another explanation is given credence in Katmandu: King Gyanendra, a pious Hindu known to believe in astrology, has a particularly felicitous horoscope at the moment.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Not whether, but how, to withdraw

The home front

Nov 24th 2005 WASHINGTON, DC
From The Economist print edition

As the war in Iraq grows ever less popular, new thinking at last is in the air

THERE was plenty on President George Bush's plate during his trip to Asia, from discussing religious freedom with China's leaders to drinking fermented mares' milk in Mongolia. But events back home kept distracting him. There's “an important debate underway back in Washington about the way forward in Iraq,” he told reporters in Beijing on November 20th. Indeed there is.

The latest storm broke after John Murtha, a Democratic congressman from Pennsylvania, said it was “time to bring [the troops] home”. In a passionate speech delivered on November 17th, he argued that American forces have “become a catalyst for violence” and are impeding progress towards stability. Sunnis, Saddamists and foreign jihadists are “united against US forces”, he said. Iraq's fledgling security forces will only be “incentivised to take control” if they are “put on notice that the United States will immediately redeploy”. He later clarified that he expected a pull-out to take about six months.

Mr Murtha's outburst started a discussion in which neither Republicans nor Democrats are sure of their ground. The administration's first instinct was to attack Mr Murtha. Scott McClellan, the White House spokesman, said it was “baffling that he is endorsing the policy positions of Michael Moore and the extreme liberal wing of the Democratic Party.”

Someone must have realised the foolhardiness of getting personal about a man who won a Bronze Star and two Purple Hearts in Vietnam. Especially since Mr Murtha, now in his 70s, took the trouble of visiting Iraq's Anbar province—where the insurgency is at its roughest—before making his speech. When Mr Bush and Vice-President Dick Cheney later stood up to rebut the congressman, they started by acknowledging that he was a patriot.

But not, they suggested, a wise man. Mr Cheney made the case most forcefully, in a speech on November 21st. “It is a dangerous illusion to suppose that another retreat by the civilised world would satisfy the appetite of the terrorists and get them to leave us alone.” In fact, he added, “such a retreat would convince the terrorists that free nations will change our policies, forsake our friends, abandon our interests whenever we are confronted with murder and blackmail.”

Mr Cheney's argument has undeniable logic. If America were to “cut and run”, to use the shorthand that hawks in Washington always apply to their opponents' plans, al-Qaeda would indeed regard it as a victory. Even just talking about withdrawal emboldens the enemy, argues Michael Rubin of the American Enterprise Institute, a conservative think-tank. “Murtha's comments have gotten Americans killed,” he says, “They've convinced the terrorists they are on the right track.” A sudden dash for the exit, adds Mr Rubin, would also warn all current and future allies that they could not trust America.

On the other hand, Mr Murtha's opposing argument is also logical. While some of the insurgents are fighting for a global caliphate, and some to maintain the supremacy of the Sunni minority, others are doing so because they resent the presence of 160,000 American troops in their country, or because those troops have killed or humiliated someone dear to them. The first group would doubtless be inspired to greater violence by an American withdrawal, but the last probably would not.

Mr Murtha's other point—that having the world's greatest army protecting it reduces the Iraqi government's incentive to protect itself—also makes sense. American protection may also reduce the urgency to create a political system in Iraq that can stand on its own. The question therefore is not whether America should eventually reduce its forces in Iraq, but how to ensure that the Iraqi security forces “stand up” as America “stands down”.

That has always been Mr Bush's line, but with no firm details. This week, however, some concrete numbers started to be tossed around. On November 20th, Donald Rumsfeld, Mr Bush's defence secretary, said that once Iraq's December 15th elections are safely past, he plans to withdraw some 20,000 troops. (This, be it noted, was not far off the number of extra troops deployed to police the elections.) On November 22nd, Condoleezza Rice, the secretary of state, told Fox News that since Iraqi forces were getting “more and more capable”, she did “not think that American forces need to be there in the numbers that they are now for very much longer.”

The next day, the Washington Post reported that the Pentagon had set benchmarks for the circumstances under which troops could be withdrawn, and that under a “moderately optimistic” scenario, the number could be reduced by about a third, to 100,000, by the end of 2006.

How all this will play with the American public is tricky to predict. Some 54% of Americans think the war was a mistake, and only 32% expect it to result in a stable and reasonably democratic Iraq. John Mueller, a professor of politics at Ohio State University, pointed out in a recent column that support for the Iraq war after 2,000 American deaths is as low as it was for the Vietnam war after ten times as many. Either Americans have grown less tolerant of casualties, or they doubt that the war on terror is as important as the struggle against communism was.

But opposition to the war does not translate directly into support for immediate withdrawal. Only about a fifth of Americans favour this. Most would like to see the troops pulled home over a longer period, presumably because they understand that simply letting Iraq collapse would have consequences.

Letting South Vietnam collapse, noted Melvin Laird, secretary of defence under Richard Nixon, in the current issue of Foreign Affairs, resulted in 2m refugees, 65,000 executions and 250,000 people sent to re-education camps. Gloomily, he said he expected no better in Iraq, implying that Iraq's government would merely fold if America retreated.

Politically, the effect of the Iraq row is milder than it might have been. Neither Mr Bush nor Mr Cheney is running for re-election, so both men are insulated, up to a point, against public opinion. And although there are mid-term elections next year and a guaranteed change of commander-in-chief in 2008, few candidates want to be seen as quitters. This was the background to the vote last week that followed Mr Murtha's bombshell. In the House, Republicans called a vote on whether to pull out the troops immediately, in order, they said, to force the Democrats to stand and be counted. Only the fringiest Democrats could back such a motion; it failed by 403 votes to three.

Earlier, in the Senate, cooler heads had passed by 79-19 a bipartisan motion calling on the president to provide quarterly reports on the transfer of responsibility for Iraq's security to Iraqis. Republicans backing the motion said it merely reaffirmed Mr Bush's current policy; Democrats said it was meant to improve it. Nay-voters were split between Republicans who thought it undermined the president, and Democrats who thought it let him off the hook.

As things stand, Iraq is likely to hurt the Republicans quite badly in 2006, though it may not hand control of Congress to the Democrats. As for the presidential poll of 2008, all speculation is just that.

Among potential Republican candidates, Senators John McCain and Chuck Hagel both argue that America should send more troops to defeat the insurgency. Democratic presidential wannabes, meanwhile, mostly wax eloquent on how Mr Bush misled the country into the war and bungled its execution, but have less to say about what America should do now. Senators John Kerry and Russ Feingold, plus former vice-presidential nominee John Edwards, all propose gradual reductions in troop levels. Senator Hillary Clinton is hedging artfully.

Senator Joe Biden offers a more original Democratic proposal. This week, he urged greater involvement by America's allies and Iraq's neighbours in cajoling Iraqi Shias, Kurds and Sunni Arabs to forge a political consensus. He also argued, rather airily, for greater involvement by Iraqi firms in reconstruction projects, and a different mix of American forces in Iraq, with fewer troops but more embedded trainers, civil-affairs units and special forces.

All of which is food for thought. But for now, the responsibility for fixing Iraq lies with those who broke it.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Sunday, November 27, 2005

Unfamiliar questions in the Arab air

Arab world, Iraq and al-Qaeda

Nov 24th 2005 CAIRO
From The Economist print edition

As al-Qaeda scores own-goals in its backyard, many Arabs, including some Iraqis, are beginning to rethink their position on violence in the name of resistance

OF ALL the films to extol the fight for freedom from imperialism, one of the most cheering to Arab hearts is the rousing 1981 epic, “Lion of the Desert”. A richly bearded Anthony Quinn plays the role of Omar Mukhtar, the simple Koran teacher who became a guerrilla hero, and for 20 years, from 1911-31, harassed the Italian forces bent on subduing Libya. In one memorable scene his Bedouin warriors, armed only with old rifles, hobble their own feet to ensure martyrdom as Mussolini's tanks roll inexorably towards them.

Such imagery, mixed with big doses of schoolbook nationalism and more recent real-life pictures of stone-throwing children facing Israeli guns, has bolstered a common Arab perception of “resistance” as an act that is just and noble. The romanticism is understandable, and not much different from how, say, the French view their own underground in the second world war. Yet the morphing in recent years of resistance into terrorism, and the confusion in Iraq, where a humiliating foreign occupation also brought liberation from Baathist tyranny, has increasingly called this iconography into question.

The undermining of entrenched myths is a slow and halting process. But it is subject to sudden, shattering jolts, such as the November 9th suicide bombing of three hotels in the Jordanian capital, Amman. In the minds of the killers, American-allied Jordan had become a rear base for the “crusader” invaders of Iraq, and so its hotels, the sort of places where crusaders and their minions congregate, were legitimate targets for the resistance.

Yet it is perhaps more than incidentally ironic that among the 60 people they killed was Mustapha Akkad, the Syrian-born director who created “Lion of the Desert”. His film, glorifying the bravery of Muslim resistance fighters, happened to be one of the few productions explicitly endorsed on jihadist websites, albeit in a version that replaced the musical soundtrack with religious chants, and cut out all scenes showing women.

The global al-Qaeda franchise, whose Iraqi branch claimed responsibility for the Amman atrocity, has scored many own-goals over the years. The carnage in such Muslim cities as Istanbul, Casablanca, Sharm el-Sheikh and Riyadh has alienated the very Muslim masses the jihadists claim to be serving. By bringing home the human cost of such violence, they have even stripped away the shameful complacency with which the Sunni Muslim majority in other Arab countries has tended to regard attacks by Iraq's Sunni insurgent “heroes” against “collaborationist” Shia mosque congregations, funeral processions and police stations.

In Amman, al-Qaeda's victims included not only Mr Akkad and his daughter Rima, a mother of two, but also dozens of guests at a Palestinian wedding. The slaughter of so many innocents, nearly all of them Sunni Muslims, in the heart of a peaceful Arab capital, inspired a region-wide wave of revulsion. Far from being perceived now as a sort of Muslim Braveheart, the man who planned the attack, Abu Musab al-Zarqawi, may be the most reviled person in Jordan, the country of his birth. His own tribe, which had previously taken some pride in its association with the Iraqi resistance, has publicly disowned him. Tens of thousands of Jordanians have taken to the streets of Amman to denounce terrorism. Opinion polls, which had previously shown Jordanians to be at best ambivalent about jihadist violence, now show overwhelming distaste for it.

Similar changes in attitude have overtaken other Arab societies. Some 150,000 Moroccans marched in Casablanca earlier this month to protest against al-Qaeda's threat to kill two junior Moroccan diplomats kidnapped on the road to Baghdad. The execution by Mr Zarqawi's men of two Algerian diplomats and the Egyptian chargé d'affaires in Iraq earlier this year aroused similar indignation in their home countries. Two years of bloody jihadist attacks in Saudi Arabia have rudely shaken the once-considerable sympathy for radical Islamism in the conservative kingdom. A top Saudi security source reckons that 80% of the country's success in staunching violence is due to such shifts in public feeling, and only 20% to police work.

The enemies of life and joy

The direct impact of tragedy has not been the only impetus for change. Arab governments used to treat local terrorism as something that dented their prestige and should be covered up. Now they eagerly exploit the images of suffering to justify their policies. The way such events are reported in the press no longer hints at a reflexive blaming of external forces. The Arab commentariat, much of which had promoted sympathy with the Iraqi insurgency, and focused on perceived western hostility to Islam as the cause of global jihadism, has grown vocal in condemning violence. Jihad al-Khazen, the editor of al-Hayat, a highbrow Saudi daily, is a frequent and mordant critic of western policy. Yet his response to the Amman tragedy was an unequivocal call for global co-operation to combat what he blasted as the enemies of life, of joy, and of the light of day.

Popular culture, too, has begun to reflect such shifts in attitude. Recently, during the peak television season of Ramadan, satellite channels watched by millions across the region broadcast several serials dramatising the human toll of jihadist violence. One of these contrasted the lives of ordinary Arab families, living in a housing compound in Riyadh, with a cartoonish view of the terrorists who eventually attack them. Another serial focused, with eerie foresight, on a group of jihadist assassins in Amman. Their plot to murder a television producer who is critical of their methods goes awry, killing three children instead. Unusually for an Arabic-language serial, even the villains are presented as conflicted souls, alienated from society and misled by dreams of glory and heavenly reward.

Religious leaders have chipped in. Moderate Muslim clerics have grown increasingly concerned at the abuse of religion to justify killing. In Saudi Arabia, numerous preachers once famed for their fighting words now advise tolerance and restraint. Even so rigid a defender of suicide attacks against Israel (on the grounds that all of Israeli society is militarised) as Yusuf Qaradawi, the star preacher of the popular al-Jazeera satellite channel, denounces bombings elsewhere and calls on the perpetrators to repent.

In Jordan, Mr Zarqawi's former cell-mate and mentor, Sheikh Abu Muhammad al-Maqdisi, long a firebrand proponent of widening holy war, has publicly given warning that excesses in Iraq have “defiled the image” of jihad. Another mentor, al-Qaeda's overall second-in-command, Ayman al-Zawahiri, is believed to have written a letter of advice to Mr Zarqawi that suggests he should desist from such provocatively grisly acts as sawing off captives' heads when a simple bullet would do.

Noteworthy in all these subtle shifts is the fact that they are, by and large, internally generated. Few of them have come about as a result of prodding or policy initiatives from the West. On the contrary, the intrusion of foreign armies into Iraq, the consequent ugly spectacle of civilian casualties and torture, and the continuing agony of Palestine, have clearly slowed down the Arab public's response to the dangers posed by jihadism.

Now, or so it seems, it is the cooling of the Palestinian intifada, a slight lowering of the volume of imagery featuring ugly Americans in Iraq, and a general weariness with jihadist hysteria that have allowed attention to refocus on the costs, rather than the hoped-for rewards, of “resistance”. At the same time, the rising tide of American domestic opposition to the war has begun to reassure deeply sceptical Arabs that the superpower may not, after all, be keen to linger on Arab soil for ever.

Is a shift in attitudes on the fabled Arab street important? The answer is, very much so. It surely affects, for example, the scale of private funding directed to the Iraqi insurgents. The volume of those very secret sums is impossible to determine, though the enthusiasm among, say, rich and conservative Sunni Saudis for thwarting both an infidel superpower and the perceived influence of Shia Iran in Iraq must be pretty strong. Even a trickle of cash translates quite directly into damage. And if it can be assumed that for each of the 700-2,000 foreign fighters in Iraq (the current estimate of the Brookings Institution), there are many others who prefer to play jihad with their cheque books, there has been much more than a trickle.

Governments follow the street

A more tangible measure of change is the behaviour of Arab states. Undemocratic though they may be, shaky Arab governments in many cases owe their baseline legitimacy to their own historical record of perceived resistance to foreign hegemony. The deeply unpopular invasion of Iraq placed them in a quandary. Any gesture towards aiding the success of this “American project” risked a fierce popular backlash. That equation has now altered, and the results are already evident.

The two Arab heavyweights, Egypt and Saudi Arabia, have lately begun to lend their diplomatic clout to resolving Iraq's troubles. The sudden urgency to do something, after years of fence-sitting, is prompted by several fears. One of these, seemingly justified by the Amman bombing, is that Iraq has turned from being a sponge for jihadist violence into a fountainhead that threatens the region.

Another is that Iraq's Sunni minority, by backing the insurgents, has isolated itself and paved the way for Iran, whose government is now in the hands of revolutionary Shia radicals, to expand its influence. Since the Iraqi elections scheduled for December 15th will create, for the first time, not an interim government but one with a four-year term, it has dawned on many fellow Sunni Arabs that Iraq's Sunnis must stake a role in their country's future or face further marginalisation.

Egyptian and Saudi efforts bore first fruits at a conference held in Cairo this week in a bid to reconcile Iraqi factions. The decisions reached were neither binding nor dramatic, and the whole event was pitched as preliminary to a broader meeting to be held in three months' time. Even so, the gathering of some 100 politicians of different stripes marked a big step in the crucial process of coaxing Sunnis back into the political game. The hosting of the event by the Arab League, an organisation that had previously kept aloof from Iraq's troubles, encouraged groups such as the Muslim Scholars' Association, which contests the legitimacy of Iraq's Shia-dominated government and has so far boycotted the political process, to join in. Although neither senior Baathists nor active leaders of the insurgency were present, several of the Sunni delegates are known to be close to these factions.

Military v political resistance

Iraq's president, Jalal Talabani, who is a pro-American Kurd, set the tone by saying that he would personally be happy to meet with active fighters in the resistance. Further gestures to appease the Sunnis came in the final communiqué, which asserted the right of “all peoples” to resist occupation, and called for a timetable for the withdrawal of foreign troops. Significantly, these clauses had been watered down, after heated debate with Sunni leaders who initially insisted on a direct endorsement of resistance action “against occupation forces”. The resolution also expressly declared that terrorism cannot be considered a form of resistance, and appeased Shia feelings further by rejecting the Sunni jihadists' contention that Shi'ism is a heretical sect.

Obviously, the vague wording over the key issue of “resistance” is open to interpretation. Shia parties, such as the Islamist-oriented United Iraqi Alliance, led by Iraq's prime minister, Ibrahim al-Jaafari, have long insisted that they are engaged in “political resistance”; the fastest way to end the occupation, they argue, is to achieve the security that will enable the troops to leave.

For their part, pro-resistance Sunni parties contend that they, too, have been subject to terrorism. They point to incidents such as the recent exposure, by American forces, of a secret jail, run by the Shia-controlled police, where hundreds of Sunni captives were mistreated. Attacks on foreign soldiers remain legitimate in their eyes. As for political resistance, a senior member of the Muslim Scholars' Association, Abd al-Salam al-Kubaisi, acidly remarked that its strongest proponents seem to be the American public, “since they are calling daily for the troops to leave.”

Hardline insurgent leaders remain even more adamant. Baathist websites denounce Iraq's government as “spies and agents”. A statement from Mr Zarqawi denounced the Cairo conference as an American ploy “to make Sunni Muslims accept the dirty political game”. The only dialogue permissible, he said, was “by the sword and seas of blood”.

Yet despite such verbal sparring and the vicious bloodletting on the ground, a degree of convergence can be detected. A huge majority of Iraqis want the occupation to end—some 82% according to a poll conducted by the British Ministry of Defence in August. The argument is over how to go about it. Most Iraqis also shun jihadist zeal, including many members of the broader Sunni resistance who feel that the radicals tarnish their cause. Despite deep mistrust of political institutions that have failed to provide security and a decent infrastructure, and despite the heightening of sectarian loyalty generated by two years of fear and chaos, the weary Iraqi public does not appear to have lost faith in the possibility of a political solution.

The two largest forces in the fragmented Sunni spectrum, the Iraqi Islamist Party and the Iraqi National Front, a more secular grouping that includes former Baathist officers, are actively rallying Sunnis to turn out to vote. Other Sunni politicians report a growing willingness among the non-jihadist groups, which make up the bulk of the insurgency, to consider a deal to wind down the fighting.

Their main stated demands so far have been an immediate pullback of foreign troops from Iraqi cities and a timetable for full withdrawal. With even the Pentagon now hinting at plans to draw down troop levels significantly next year, and with Congress pushing for a phased withdrawal, such demands no longer look beyond possibility. Iraq's own, much-maligned security forces, meanwhile, are slowly getting fitter. Troop strength in the reconstituted army recently passed 100,000, nearing the targeted level of 135,000. The quiet re-enlistment of Baathist officers, who had been sacked wholesale early in the occupation, has also worked to restore a measure of Sunni confidence—though there are few Iraqi units where the insurgency is fiercest.

At the same time, subtle realignments are changing the shape of Shia politics. The party of Muqtada al-Sadr, the young cleric whose fiery attacks on the occupation proved hugely popular with the urban poor, has joined the governing United Iraqi Alliance, a broad group dominated by two pro-Iranian Islamist parties. Meanwhile, prominent secularists have abandoned the alliance, leaving it a straightforward representative of activist Shia Islamism. Since many Iraqi Shias feel uncomfortable mixing religion and politics, and associate the alliance with the perceived weakness of the government, this might strengthen the nationalist centre.

Growing weary of war

The fact remains that Iraq is a nasty and dangerous place, where even a widening commitment to political solutions may not prevent disintegration into civil war. Recent revelations about police death-squads targeting Sunnis, and the bombing of Shia mosques, have intensified sectarian animosities. The vexed questions of federalism and how to share oil revenues remain to be settled. The secret objectives of Iran—whether it just wants to burn American fingers or to install a look-alike theocratic state—are unknown. The jihadists who have made Iraq their playground may have lost their wider appeal, but they are not going to disappear.

Yet there appears to be a growing consensus, within Iraq and outside, that the time has come to settle down and get on with life. A columnist in a Saudi daily, al-Sharq al-Awsat, Mashari Zaydi, suggests that Arabs have been torn by a struggle between two world-views, one hard, absolutist and aspirational, the other realist, compromising and practical. While the realist approach, he says, may not win all you want, the absolutist one risks losing everything you have.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Steelmakers on a roll, until the next glut

Nov 28th 2005
From The Economist Global Agenda

China’s appetite for steel has provided the rest of the world’s big producers with a rare period of boom and helped to finance a buying spree, of which the past week's bids for Dofasco are just the latest example. But burgeoning Chinese steel production threatens to flood the market and test whether sheer size will offer any protection to the world’s steel giants

AS RECENTLY as six years ago, while investors were still in thrall to a dotcom bubble that had yet to burst, steel was derided as one of the last bastions of the “old” economy. Many firms in the industry were state-owned or heavily protected by governments keen to preserve assets deemed vital to national interests. Globalisation had left the steel business behind. It is a measure of the changes that have swept the business since the internet bubble popped that last week Arcelor, a company created through a 2001 merger of the top French, Spanish and Luxembourg steelmakers, made a hostile bid of C$4.4 billion ($3.8 billion), in cash, for Dofasco, Canada’s leading steel firm. This week, Arcelor's offer was trumped by a friendly bid of €3.5 billion ($4.1 billion) by Germany's ThyssenKrupp. Arcelor says it is reviewing its options; it may yet weigh in with another offer.

There are further signs that the industry has changed. Arcelor’s reasons for going hostile are partly ascribed to pique that its lost out earlier this year to Mittal, the world’s leading steel company, in a bid for control of Kryvorizhstal, Ukraine’s former state-owned steel firm. Mittal prevailed with an offer of $4.8 billion. And both Arcelor and Mittal recently lost out to a domestic bidder for a slice of Erdemir, a Turkish state-owned steel firm. The past year has also seen a host of smaller deals, such as that announced by Mittal last week to acquire some assets from Stelco, a bankrupt Canadian steel producer.

This wave of mergers, acquisitions and asset sales has helped to revive the fortunes of the world’s steelmakers by reducing the chronic overcapacity that had troubled the industry for decades. This has brought new and more effective leadership into a business that was a byword for bad management. The privatisation of assets in former Communist countries in Eastern Europe and other developing economies has boosted the opportunity for consolidation.

By far the most important factor behind steel’s revival, however, is China’s booming economy. China’s soaring demand for steel sent prices spiralling upwards until recently: benchmark hot-rolled coil, which sold for as little as $200 a tonne in 2001, broke the $600 barrier in 2004, though prices have since fallen back (see chart). The boom in prices ushered in a time of profits and high valuations in a business where bail-out and bankruptcy had previously been the norm. But two problems still confront steelmakers.

The first is that their improving lot has not gone unnoticed by those who sell the raw materials that feed the world’s steel mills. Suppliers of iron ore grouped together to demand hefty price rises of 72% for their products in March this year, even after obtaining a 19% rise last year. Suppliers of coking coal, also vital to the steelmaking process, insisted on even greater hikes. Early forecasts suggest that iron-ore suppliers could want another big price rise—perhaps as much as 20%—next year. This year’s rise is likely to add $40-60 to the price of producing a tonne of steel, just as prices for end users are falling.

The second, and potentially much bigger, concern is that China’s vast appetite for the metal—it accounts for 30% of global consumption—could begin to wane. This would prove particularly painful for the industry if Chinese production were to continue rising. In 2004, Chinese mills rolled out 273m tonnes of steel, according to the International Iron and Steel Institute. In the first ten months of this year, they produced 287m tonnes.

China’s government, fearful that its rip-roaring growth could lead to overheating, has introduced measures to cool the economy. The effects could soon be felt in China and beyond. Baosteel, the country’s biggest producer, has said it will cut prices for its main products by 10% in the first quarter of 2006, because of a nationwide glut. Though the economy continues to grow at rates not far short of 10% a year, even a modest slowdown could result in the steel surplus having an impact on world markets.

The world’s big steelmakers are hoping that, by getting bigger, they can reap the rewards in the good times and insulate themselves if things turn nasty. Lakshmi Mittal, head of the eponymous steelmaker, and Guy Dollé, the boss of Arcelor, both agree that the industry will be dominated by a few big firms, each producing over 100m tonnes annually, in the coming years. Mittal, a private London-based company that gained control of America’s International Steel Group earlier this year, is set to boost annual output to over 65m tonnes with the Ukrainian acquisition. Even if it were to win Dofasco’s hand, Arcelor would lag some way behind. But both are expanding where they can, snapping up small and medium-sized producers as they become available.

More consolidation would certainly give steel firms extra clout when negotiating ore and coke prices. The world’s top five steelmakers still command only around one-fifth of the global market, whereas the three leading ore firms control 70% of supplies. The level of consolidation that would confer significant market power on the largest mills still seems a long way off.

If you can’t beat them…

One way to shift the balance of power is to encroach on the suppliers’ turf, and a few big steel firms have been doing just that, buying into ore and coke operations. Dofasco is a tempting target partly because it has its own ore business. South Korea’s POSCO, the world’s fifth-largest steel firm, has sought stakes in ore mines in Brazil and Australia. Mittal’s thirst for raw materials has even led it to make approaches to an ore producer in Liberia, despite the political uncertainty there.

The big steelmakers hope that further consolidation will help to shift the balance of power in their favour, and they appear convinced that sheer bulk will help them to ride out any future slackening of demand. But size in the steel business does not, in itself, bring great rewards in terms of economies of scale—especially if, as many suspect, predators are overpaying for assets. If world markets are about to experience another serious glut, all producers, big and small, will feel the heat.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Giving thanks, despite the monetary murk

Nov 24th 2005
From The Economist Global Agenda

The past week has brought signals of a shift in monetary policy in both Europe and America, leaving traders anticipating higher rates in the euro area and a levelling-off across the Atlantic. Monetary guardians are struggling to read the outlook for inflation, but things could be worse

THE day before Thanksgiving is generally a dull time in American offices, as workers lackadaisically shove papers around their desks until it is time to knock off early for the holiday. But on Wednesday November 23rd, currency traders were kept busy trying to predict which way interest rates were going to go. A flurry of news out this week about the plans of central bankers in America, Britain and the euro area brought about a swift change in expectations that had seemed set in stone for the past year.

The euro area’s monetary guardian, the European Central Bank, which has kept interest rates at 2% since June 2003, is finally preparing to raise them as Europe’s economies begin moving out of the doldrums. Last Friday, Jean-Claude Trichet, the ECB’s president, signalled that the bank would start tightening at its next meeting, on December 1st. And this week, the minutes of the most recent meeting of the Federal Reserve’s governors suggested that American monetary policy might be heading in an unexpectedly mellow direction. Foreign-exchange markets reacted immediately, sending the dollar lower against the euro.

But as more information surfaced, the market calmed down a bit. The Fed may be preparing to end its “measured” monetary tightening—12 quarter-point increases since June 2004—in the not-too-distant future. But most people still expect that its benchmark rate, currently 4%, will reach at least 4.5% before the increases stop. This is thanks in part to Jeffrey Lacker, the president of the Richmond Federal Reserve, who will be a voting member of the Fed’s rate-setting body next year. After the minutes were released on Tuesday, he said it was clear that the Fed was not done tightening. In Europe, Mr Trichet has also rushed to calm fears of change, assuring markets on Monday that the ECB’s proposed tightening does not necessarily constitute a trend. So the interest-rate spread between America and the euro area may remain roughly the same for a while yet.

Meanwhile, Britain’s central bank has signalled that it is in no hurry to move rates in either direction. On Wednesday, the Bank of England released the minutes from its November meeting, revealing that its decision to leave rates at 4.5% was unanimous. Though inflation slackened in October, to 2.3%, it is still above the Bank’s target of 2%. But after more than ten years of robust economic growth, even when America and the rest of Europe were decidedly anaemic, Britain’s economy has faltered over the past year. This prompted the Bank’s monetary policy committee to lower rates in August. Since then, however, it has sought to dampen market expectations of further cuts. It wants to be sure that the rise in consumer prices does not trigger a rise in wage inflation.

Core issues

All of the central bankers may soon find themselves confronting a growing problem: what to do when core consumer-price inflation (excluding volatile energy and food prices) diverges from the all-inclusive headline figure. In all three monetary areas, core inflation is relatively low. But high energy prices, driven by roaring Chinese demand, security concerns in the Middle East and hurricane damage in the Gulf of Mexico, are putting substantial upward pressure on the headline figure. In the year to September, it was 4.7% in America, the highest level since 1991—though it dipped to 4.3% for the year to October. This raises the spectre of Alan Greenspan’s leaving office with a higher rate of inflation than when he entered it.

Central banks usually focus on core inflation, because energy and food prices, which tend to swing more than the cost of other goods, can distort the picture. What central bankers want to know, above all, is whether the supply of money is big enough to meet the demand for money, without exceeding it (which is what leads to inflation). If the prices of a few commodities rise while other prices stay low, this indicates that short supply of those commodities, rather than excessively loose monetary policy, is the culprit. This has certainly been the case in America, where September’s soaring inflation was due largely to high petrol prices at the pump.

Over time, however, things get more complicated. Because energy is such a crucial part of the economy, if prices stay high for a prolonged period, they will both raise the inflation rate and lower the rate of economic growth. In extreme situations, this can result in the “stagflation” that afflicted the rich world during the 1970s, in which growth stagnated while inflation soared into double digits in many countries.

Once inflation has started to race away, it is hard to stop. After inflationary expectations take hold, they get built into contracts for labour, goods and services, perpetuating a vicious cycle. As Fed chairman in the early 1980s, Paul Volcker had to raise rates to nearly 20% in order to convince markets that he was serious about fighting inflation. The gambit worked, but it plunged America into its worst recession since the second world war.

That is why the ECB is determined to raise rates, even though the recovery in several of its largest economies is still fragile. Once credibility as an inflation hawk has been lost, it is devastatingly expensive to regain, and the euro area’s central bank wants to make sure that in its first years of life it develops a reputation for being tough.

Thankfully, although high oil prices are undoubtedly having an effect on economic growth in rich countries, it has so far been limited—thanks, many think, to the energy-saving policies implemented in the 1970s, particularly in Europe. In America, where petrol usage is more profligate, the pain may be felt more keenly. But so far growth remains strong, giving the Fed leeway to resume tightening if the situation calls for it. Central bankers face some difficult choices in the months ahead. But for now, they still have much to give thanks for.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Saturday, November 26, 2005

The end of constructive ambiguity, Mr Trichet?

Buttonwood

Nov 22nd 2005
From The Economist Global Agenda

Bond markets barely reacted to the European Central Bank’s recent signal on sovereign debt ratings. Odd, that

MARKETS have short memories. Of catastrophic events in the euro area, they have none at all: the past six years, all things considered, have been pretty benign. The closest approximation is probably the fading recollection of the explosion of the euro’s forerunner, the Exchange Rate Mechanism, in September 1992. As British ministers huddled around a radio—their only source of news in a temporary office—George Soros and others copped something like $1 billion driving sterling (and the lira) out of the system.

Maybe this lack of memory of market-jolting turbulence explains why, when Jean-Claude Trichet, president of the European Central Bank, dropped some new, could-be devastating information earlier this month, the market for European government bonds moved only a little. In effect, Mr Trichet made it clear that if the rating agencies took too dim a view of European Union governments’ bonds, the ECB would not accept them as collateral in refinancing (repo) operations. One respected analyst called this a “potential nuclear bomb”. That may tend towards hyperbole; but even so, it seems that the market failed to grasp what Mr Trichet said, and still hasn’t got it.

It isn’t the first time that markets have been slow to spot danger. More than a decade ago, analysts started musing that General Motors had unfunded pension liabilities that could one day push it into bankruptcy. For the traders of the day, though, it wasn’t going to happen; and if it ever looked likely, there would be plenty of time to dump their GM bonds and shares. Well, we all know what’s happened to the prices of those bonds and shares since; and quite a few investors, some sophisticated ones among them, were caught out when trouble came.

Beware the grim repo

On the face of it, Mr Trichet simply clarified a detail about the ECB's criteria for accepting EU government bonds as collateral. Any bond rated below A- by all three of the big rating agencies would be turned down, he said. At the moment, none is rated lower than Greece, at A, which still leaves the cradle of democracy two notches from ignominy. So an exclusion from the ECB’s repo is for the moment merely hypothetical.

But he who does not hypothesise is a bad trader and a bad risk manager. Suppose Greece were downgraded two notches. What would happen? Banks holding Greek government bonds, either physically or as collateral, would no longer be able to use them to refinance themselves with the ECB, their lender of last resort, as they do with euro-denominated bonds to the tune of around €250 billion ($293 billion) at every weekly tender. That would make Greek government bonds much less useful as collateral and less liquid. So their price would fall. The Greek government would be clobbered by a double whammy—a sharp increase in its financing costs and rejection by potential lenders—just when it was hit by a downgrade.

It is improbable that Mr Trichet thinks this at all likely. Maybe he simply wanted to send a shot across the bows of spendthrift governments—not only Greece, but Portugal and Italy, too. All three once qualified for the euro by reducing their government debt to 60% of GDP and their budget deficits to 3%—or by promising to do so. None, though, has proved capable of meeting similar criteria in the euro zone’s stability and growth pact.

The ECB’s repo mechanism accepts all euro-zone government bonds (and British ones, if they are in euros) indiscriminately: Greek and Portuguese government bonds are treated with the same respect as German Bunds and French OATs. The market has hitherto seemed to take this as a signal that the ECB regards all in the euro zone as equally creditworthy, and has treated the zone as a single sovereign area in which all stand and fall together. The spread between the highest- and lowest-yielding ten-year bonds has rarely exceeded more than 30 basis points in the past couple of years.

Yet it is perfectly clear that Standard & Poor’s, Moody’s and Fitch, the top rating agencies, have a different view. Their ratings signal the probability of default and say, quite reasonably, that Greece, rated A, is a riskier credit than Germany, at AAA. The Maastricht treaty, in similar vein, declares that countries that mess up their finances will not be bailed out.

Mr Trichet's remarks have made it clear that not all euro-zone countries are necessarily equal. In theory, a country in the zone could go bust. Whether the ECB or other euro-zone governments would let that happen is another matter. But if they bailed out a failing government, they would be flouting the Maastricht treaty and risking a serious dent in the credibility of the euro.

This is not an easy path for the ECB to tread. Rather than spelling things out as he did, Mr Trichet may have done better to keep people guessing—a practice known in the trade as constructive ambiguity. (He abandoned constructive ambiguity again last week when he strongly signalled the ECB’s first increase in interest rates for five years and its first move in either direction for two and a half.) However, as the ECB hastens to point out, anyone trawling through the weekly list of securities eligible for repo, published on its website, would have discovered that not one of them is rated lower than A-, and that has always been so.

What might the ECB do now that it has spoken plainly? It could, perhaps, move its criteria gradually away from the ratings of the three agencies to its own assessments. Perhaps there is nothing more to be done. The market, after all, has heard what it said—and ignored it. The spreads of Greek, Portuguese and Italian bonds over Bunds have moved only marginally.
Traders say that some investors have shed a few of these lesser-rated euro-zone bonds. But few, if any, appear to have taken seriously the worst-case scenario. For those who do change their mind, it is only a matter of time before investment banks design credit derivatives that will pay out if any country slips off the ECB’s approved list. You read it here first.

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Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Ahmadinejad embarrassed again

Nov 23rd 2005
From The Economist Global Agenda

For a third time, Iran’s parliament has rejected the nominee for oil minister put forward by Mahmoud Ahmadinejad. This marks a serious setback for the new president’s plans to shake up the Islamic Republic. It may also end up hurting the economy of the world’s fourth-largest oil producer

HE PLEDGES to lay low those “aristocrats” who sit on a dozen managing boards, default with impunity on loans from public banks and drive armour-plated cars worth $300,000. But the fight picked by Iran’s fiery president, Mahmoud Ahmadinejad, will be hard to win—not least because, in Iran’s semi-socialist economy, the line between entrepreneur and civil servant is all but invisible and the rot so pervasive. He has already made an enemy of the architect of many of these ambiguities, Akbar Hashemi Rafsanjani, who selectively liberalised the economy when he was president in the 1990s.

Early this month, Mr Ahmadinejad sacked the bosses of four of the big public banks that have extended, so he says, 60% of their loan facilities to a privileged 4% of Iranians. He claims to have a “long list” of people who have “dipped into the public purse” but declines Mr Rafsanjani’s invitation to reveal it. Most worrying for the president, three months into his tenure, he does not have a grip on the oil ministry, the linchpin of the system he detests.

Here, Mr Rafsanjani, a grandee who retains much influence over the ministry, has been helped by parliament, which also gets on badly with the new president. This autumn, deputies withheld votes of confidence in two of Mr Ahmadinejad’s successive nominees to be oil minister; this week they rejected Mohsen Tasalloti, his third choice.

For some lawmakers, the problem lies with the government’s plans for the oil sector. This week, one top oil official criticised plans to spend $3 billion of oil revenues to buy petrol, of which Iran consumes far more than it produces, and its refusal to stop subsidising prices at the pump. Another questioned the existence of what the president calls the “oil mafia”.

For others in parliament, however, the real issue is Mr Ahmadinejad’s choice of candidates. Lawmakers have questioned Mr Tasalloti’s loyalty to the Islamic Republic. He has denied claims that he holds an American “green card” residency permit and that his daughter has secured British citizenship.

Three rejections in a row represent a huge embarrassment for Mr Ahmadinejad, and threaten to cast Iran into uncharted political waters. Parliament is dominated by conservatives, many of whom were happy to see Mr Ahmadinejad trounce Mr Rafsanjani in the second round of the presidential election, in June. But the spats since he took office have shown that only a minority can be relied on to support the president. Moreover, the timing of the oil saga is awkward: Mr Ahmadinejad is also at odds with America, Europe and the International Atomic Energy Agency over Iran’s uranium-enrichment activities (though threats to have the matter referred to the UN Security Council have so far proved empty).

A prolonged dispute over the oil ministry could have economic implications as well as political ones. Iran is the world’s fourth-largest producer of crude oil and the second-largest exporter in the Organisation of the Petroleum Exporting Countries (OPEC). Some 80% of the country’s export earnings come from oil and gas.

In a hydrocarbon-reliant country that Transparency International, a Berlin-based anti-corruption lobby, considers to have a “serious corruption problem”, it would be a surprise if Iran’s oil industry were squeaky clean; in 2003, some top people in Norway’s Statoil resigned after it emerged that the company had paid bribes to win the right to develop an Iranian oil field. Still, for all the rumours of rigged tenders, there have been, tellingly, no high-profile court cases in Iran. The industry is enfeebled by American sanctions and politicians’ antipathy to foreign investors. Scandal is the last thing it needs.

According to a recent report by the International Energy Agency, Iran’s oil industry must attract some $80 billion in investment over the next 25 years if it is to meet soaring domestic energy demand and remain a major exporter. Its fledgling gas export industry needs a similar injection; though Iran has the world’s second-biggest reserves, it is a net importer. But foreign deals need strong leadership. Some putative ones, such as India’s plan to buy liquefied gas and develop an oil field, are mired in politics and small print.

Mr Ahmadinejad says he wants to bring Iran’s oil lucre to the “dining table of the people”. Not if he can’t find a new oil minister.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.