Monday, October 13th - Columbus Day 2008 - In Financial Markets The Chefs Of Europe Came To Washington to Save the Old World - The Week Will End With The Europeans Fighting Among Themselves For Positions at the UN.

The good news are that this Monday is much better then the Monday of last week. This because after serious tutoring by the Chefs of Europe, the US was softened to accept what George Soros and a few others said for quite a while - you do not just bailout those that undermined the economy because of their greed, that was allowed to grow thanks to a wrong headed concept of “Less Government Is Best Government.” You re-capitalize the banks and take equity position in them, so you can re-establish rule of ethics in those institutions. The Europeans started by Nationalizing their weak institutions rather then let them fail (like the Lehman case in the US) or bail them out (like the Goldman-Sachs case in the US). As George Soros said, by letting the system in the hands of Goldman-Sachs graduates, you really do not signal that you want to see change indeed. (We add to this that it would be like seating McCain in the Oval Office when the need is to create deep change in Washington.)

Further - just look at The Financial Times of today - for example at page 11 - “Goldman Connection Raises Questions Over Conflict of Interest’ and Page 24 - “Key Lehman Figures Stay On In Europe” - this after Japan’s Nomura bought the European and Middle East operations of Lehman Brothers. Then see page 24 - “Is Nationalization the answer to banks behaving badly?” and look for what went on in Iceland where the whole banking system was Nationalized. Look at the argument - “shareholders win - taxpayers lose” and the question “why not resolve it by making the two groups identical?” That is neither socialism nor demagoguery. It is not Corporate Socialism but plain “Country First” argumentation that has nothing to do with “me interrupt the campaign and go to Washington to pass the Paulson three page non-plan.”

OK, President Bush listened to the G7 on Friday - and magic - after he declared that the US will now buy into banks - not just the “toxic assets” of those banks, the New York Stock market this morning, followed the example of global markets over the week-end, and started returning value to the share-holders. While I write this, Monday at noon, the New York Stock Market DOW is up 520 points. Clearly, not because they trust now Messrs. Paulson & Bernanke more then they did a week ago - it did happen because they trust more the Gordon Brown, Nicholas Sarkozy, Angela Markel consortium of individuals.

But, do not jump yet at conclusions - this article is not exactly an ode to old Europe. You can conclude that I trust more The Financial Times then the Wall Street Journal, but I will also point out the show of hands that will happen at the end of this week at the UN, and that will bring to the limelight also shadier aspects of Europe 2008.

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The event will happen on Friday, October 17, 2008, when the UN General Assembly elects five non-permanent members of the UN Security Council.

Outgoing council members are Belgium, Indonesia, Italy, Panama, South Africa.

Uganda is the sole candidate for Africa and will replace South Africa. Mexico is the sole candidate for Latin America and will replace Panama. But for Asia there are two candidates and Japan has the definite advantage over Iran as replacement of Indonesia.

The only real fight will be for the European two seats where Austria, Iceland and Turkey will be fighting for the two seats vacated by Belgium and Italy.

Conventional wisdom at the UN says that Turkey will be a shoo-in with the 192 States voting, but Austria and Iceland will be in a tough fight for the second seat. And this is the reason for my bringing up now these elections.

The last months was very hard on Austria and Iceland. Think of the complete melt-down of the Iceland financial system, and the melt-down of the Austrian governing scheme.

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Let us start with Iceland, as this is the easier case - it is on the surface only about money, but then also about eventual political freedom.

Richard Portes writes in The Financial Times of today “The shocking errors behind Iceland’s meltdown.” Iceland’s Glitnir Bank was the first casualty of Washington letting down Lehman, and precipitating the hermetic closure of the global credit market. Like fellow Icelandic banks, Landsbanki and Kaupthing, they were all solvent and posted good first-half results and had healthy capital adequacy ratios. And that is important - NONE HAD ANY TOXIC SECURITIES. All of them were very well managed for the last two years, but when the credit crisis hit Glitnir, the Icelandic Central Bank (CBI) did not help and moved to Nationalize the bank, creating in its wake a run on all banks. All this triggered a fall of the Krona and a margin call from the European Central Bank. Eventually the banks became collateral damage and some foreign branches taken over.

The problem was that the Icelandic banks  were highly leveraged, and like in the UK and Switzerland, too large relative to the domestic economy. The joke was that the large Icelandic banks had a small country attached to them.

The CBI did some terrible mistakes. They announced on Monday a peg of the Krona to the Euro at a rate well above the market that was unsustainable, and abandoned by Tuesday. They contacted the International Monetary Institutions in Washington and when help was not forthcoming they asked for $4 Billion from Russia that was answered positively, but the deal was not yet consumeted. Now, following the Friday agreements in Washington, it is probable that Iceland will be the first country in this crisis to be helped by the IMF. Perhaps also the Russian deal will be finalized this week, and the question is at what political price will this be for a small country, not an EU member, and positioned from Russia at the opposite end of Europe.

For our story here - What will this do to Iceland obtaining the votes it wants at the UN General Assembly, in its quest for a first-time membership at the UNSC - this as part of the group of Nordic States (that at the EU are indeed part of Europe). Will they get now sympathy votes, or will they be considered as economically non-viable?

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The other contestant is Austria, and its problems seem even worse. The problem is purely political and this week-end it got thrown into total chaos by the auto-racing death of its fast talking right wing politician Joerg Haider.

The Story started with the brake-up of the traditional governing Red-Black coalition. That is the the left of center Socialists broke up their “Grand Coalition” with the right-of center Peoples Party. The voters at the polls punished both of them and elevated by a  close to 30% the two infighting extreme right parties, leaving 9% to the Austrian Greens. OK, one could go back to a diminished “Grand Coalition”with both parties - the Reds and the Blacks - headed by new leaders. This would be a punishment for their lack of acceptance of the previous debacles when these parties flirted with the extreme right.

The Austrian Freedom Party (FPO - the Blue Party), a small party of 5% of the electorate, entered into a controversial coalition as junior partner to the Reds in May 1983 and remained in power with that party until January 1987.

Appears Joerg Haider and in September 1986  he defeated the Austrian Vice-Chancellor Norbert Steger in a vote for the FPO leadership at the party conference in Innsbruck: many delegates feared that Steger’s liberal views and his coalition with the Social Democrats threatened the party’s existence. Haider attempted to increase his party’s standing by appealing to those opposed to the EU, those against immigration, and those who thought “the Third Reich was not all bad”, including its work creation programmes, and who believed that its crimes were exaggerated. Plain and simple - a Neo-Nazi ideology.

Under Haider’s leadership the FPO went from 4.98 per cent of the vote in 1986 to 26.9 per cent in 1999, putting it on a par with the Blacks. The outgoing Reds could not find a coalition partner and months of negotiations followed until in 2000 the Blacks formed a coalition with Haider’s FPO. This caused a sensation - both in Austria and across Europe - the heads of the governments of the other 14 EU members decided to cease co-operation with the Austrian government.

The coalition remained in office until 2007, although Haider stepped down as the FPO’s chairman in 2000. Without him his party’s voting bloc seemed to evaporate: at the 2002 election it lost nearly two-thirds of its support. Haider remained the FPO’s major figure until 2005, when he founded the Bündnis Zukunft Österreich (BZO, or Alliance for the Future of Austria), the Orange Party.

He was expelled from the Blues but the Orange’s increasing popularity won it 11 per cent of the vote in the September 2008 general election. Last week, Haider and Heinz-Christian Strache, the leader of the Blues, negotiated to put aside their differences following their combined success at the polls. The results for their two parties came to 28.2 per cent of the ballot, as against 15 per cent in 2006. This placed them on a nearly equal footing with the “winning” Social Democrats.

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Mr Haider, 58, whose fatal car accident early this Saturday morning, October 11, 2008, left Austria in a state of shock. He was travelling near Klagenfurt in the southern province of Carinthia, his home Province - the Province where he was Governor. He was going  at 88mph (142kph) along a stretch of road which has a 42mph speed limit.

State prosecutors investigating the crash said his car, a three-month-old Volkswagen Phaeton V6, careered off the road after overtaking another vehicle and flipped several times, causing the populist leader massive injuries to his head and chest even though he was wearing a seat-belt.

An ambulance took Mr Haider to Klagenfurt hospital where he was pronounced dead on arrival. Ruling out foul play as a cause of death, Gottfried Kranz, the chief prosecutor, said: “Further speculation about other causes for the accident are invalid.”

Mr Haider, who had been on his way to his mother’s 90th birthday party, had been at a party at a night club less than a hour before the crash. State prosecutors declined to say whether they had found alcohol or traces of drugs in his blood.

Police said the Volkswagen Phaeton that he was driving at speed went off the road.

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Haider was born in 1950 in the Upper Austrian town of Bad Goisern. His father was a shoemaker, his mother a teacher. Both had been more than nominal members of the Nazi party – his father served as a lieutenant in the Wehrmacht in the Second World War. After attending secondary school in Bad Ischl, where he had first contacts with nationalist youth organisations, in 1968 he moved to the University of Vienna to study law. In 1973 he graduated and shortly after was called up for military service, volunteering for extra service on top of the mandatory nine months. In 1974 he started work at the University of Vienna in the department of constitutional law.

Haider had joined the youth wing of the Freiheitliche Partei Österreichs (FPO, or Austrian Freedom Party), founded in 1955 as a mixture of political currents opposed to the two main parties, the Catholic-orientated Österreichische Volkspartei (OVP, Austrian People’s Party) and the Sozialistische Partei Österreichs (SPO, Socialist, later Social Democratic Party). These two had ruled Austria in coalition from 1945-66. With its roots in the Pan-German movement, the FPO included both nationalists and liberals.

In 1970 Haider became leader of the FPO youth movement, until 1974. He was party secretary of the Carinthian FPO from 1976 until 1983. In 1979, aged 29, he became the youngest MP of the 183 members of the federal parliament, serving until 1983. He served again in parliament from 1986 to 1989 and from 1992 to 1999. In September 2008 he was elected again to Parliament.

Today’s Independent writes: “Jörg Haider: Charismatic right-wing politician whose controversial beliefs and policies led to isolation for Austria.” The article of The Financial Times is titled: “Demagogue who stirred up Austrian politics.”

“A talented demagogue, he railed against asylum seekers, Muslims and the small Slovene minority in his home province of Carinthia. In 1995 he whipped up anti-EU sentiments.

He praised a member of Hitler’s notorious Waffen SS convicted of eradicating the population of an Italian village as someone “who did his duty.” He said Nazis had created “a good policy of employment.” he condemned the “laziness of the southerners” - meaning immigrants from lands south of Austria, describing their countries as “the place of criminality and corruption.” And in a mocking reference to the first name of Vienna’s Jewish leader, Ariel Muzikant, Haider said: “I don’t understand how someone called Ariel can have so much dirt on his hands.”

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OK, Haider is dead now, and Haider was never Austria, but Austria has no government at this time, and there is a new bloc of 30% of people-haters that he has managed to gather - indeed only 11% of these seemingly bigots marching under his world-hating Orange flag, while the others might be just plain conservative people. Nevertheless, if this bloc returns to the Austrian Government, what face will Austria have on the international stage?

The best thing that could happen for Austria is if the Reds and the Blacks seize the moment and declare by this Thursday the return to the “Grand Coalition.” If that does not happen, we feel sorry for the good Austrian Ambassador to the UN, H.E. Mr. Gerhard Pfanzelter, who labored for two years with the goal to get for Austria this coveted UN Security Council seat.

Neil MacFarquhar, in the New York Times of this Sunday, October 12, 2008, describes the Icelandic and Austrian UN “charm offensives” in order to woo country votes in the Friday UNGA election. Pfanzelter even brought the Vienna Philharmonic to New York to serenade the 192 Ambassadors and their wives. Austria has had indeed a historic commitment to the UN. It knew to get the third UN Center, after those in New York and Geneva, to be established in Vienna. That was a very important achievement at a time that Austria was trying to safeguard its security and independence with the two superpowers breezing hard close-by in the days of the Cold War.

The International Atomic Agency and the UN agencies for Development (UNIDO) and narcotics are housed there.

IIASA or the International Institute for Applied Systems Analysis - the cold war days’ scientific link between East and West is still housed, and doing work at Schloss Laxenburg near Vienna. Today studies like “Atmospheric Pollution and Economic Development” are again the latest rage and very much in fashion. Then, don’t forget also that OPEC is headquartered in Vienna, and personally, I am beholden because of the studies on Energy Policy I was involved at Laxenburg during the end of the 70s - mid 80s. That is when the word Energy was extended from oil, coal, and nuclear, to include also natural gas, and eventually biogas and renewable energy. Those days I had a hand in much of this, and I could see Austria retaking its central position in energy policy for the 21st Century.

Considering above, I hope a miracle happens and Austria’s politicians come up this week with a plan that makes up somewhat for the mess they created this summer.

We will wait to see the UN show of hands this Friday, and when the voting becomes available, we will analyze the outcome.

This WEEK in the European Union
ELITSA VUCHEVA, EUobserver, 04.07.2008 @ 15:34 CET

EUOBSERVER / AGENDA (6 – 13 July) – Next week will be marked by the launch of the EU’s Union for the Mediterranean, as well as by French President Nicolas Sarkozy’s presentation in the European Parliament of his priorities for France’s six-month EU presidency.

The Mediterranean Union was proposed by France last year to boost ties with the EU’s southern neighbours, and its official launch is planned to take place during a summit in Paris on Sunday (13 July).

The launch of the Mediterranean Union in Paris is expected to be one of the cornerstones of the French EU presidency. (Photo: French presidency of the EU)

It is a major project of the French presidency and the brainchild of Mr Sarkozy – but its initial version was met with opposition by some member states and was eventually watered down.
The Mediterranean Union (officially: “Barcelona Process: Union for the Mediterranean”) is still seen with scepticism by many analysts.

Additionally, it is not yet clear who exactly will attend the Paris summit on Sunday.

Leaders of all 27 EU members, plus 17 Mediterranean states, have been invited to the event, but some countries, including Algeria and Turkey, have still to decide whether they will accept the invitation or not. Meanwhile Libya’s leader, Muammar Gaddafi, who has spoken out strongly against the idea, has said he would not go.

Before hosting the launch of the project and the celebrations in Paris, Mr Sarkozy will pass by Strasbourg on Thursday (10 July), where he will present the priorities of his country’s EU presidency to MEPs gathered for their monthly plenary session.

Parliament plenary in Strasbourg

The deputies will also host European Central Bank (ECB) president Jean-Claude Trichet on Wednesday (9 July) for a debate on the parliament’s annual report on the ECB, following the bank’s decision to raise interest rates and in a global context of rising prices.

On Wednesday, MEPs will also debate and vote on a report on the EU’s future enlargement strategy, stressing that the bloc’s own capacity to absorb new states should be taken into account when considering membership applications in the future.

The report - which also says the EU will respect the commitments it has already taken, was approved by MEPs in the parliament’s foreign affairs committee on 24 June.

Other issues on the parliamentarians’ agenda will include a first-reading vote on the EU’s energy package, in particular on the part focusing on gas unbundling – or the extent to which gas suppliers should be separated from gas distribution networks – on Wednesday, preceded by a debate on the issue on Tuesday.

They will also debate on Tuesday in a second reading and vote on a plan to include aviation in the EU’s emissions trading system; a package of reforms to EU rules on food additives; and rules on airline ticket pricing that aims to do away with the annoyance of hidden taxes and charges in online ticket pricing.

On Thursday, MEPs will also vote on resolution on Zimbabwe and China, preceded by debates with the commission and the EU presidency on Wednesday.

G8 summit in Tokyo

This week (7 - 9 July), leaders of the group of eight largest economies in the world - US, Canada, Russia, Japan, the UK, Germany, Italy and France, collectively referred to as the G8 – will meet in Tokyo to discuss, among other things, the challenge of climate change and increasing concerns about global inflation, which is being driven by soaring oil and food prices.

With only a few days left before the summit, World Bank president Robert Zoellick this week called on the G8 leaders to act immediately to address the issue of increasing food prices, calling the crisis “a man-made catastrophe … [that] must be fixed by people.”

Meanwhile, the European Commission will on Monday (7 July) present a proposal to change the current directive on value added tax (VAT) in the EU, so as to allow member states to apply reduced VAT on a permanent basis in some sectors.

On Tuesday, the EU executive is to adopt a package aiming to make transport greener; a proposal for a School Fruit Scheme with the goal of increasing the share of fruit and vegetables in the diets of children at school; and two communications on the situation in the fisheries sector following the surge in oil prices.

On the same day, the commission will present a proposal for a special financing tool to help farmers from poorest countries boost their food production in the context of soaring food prices.

According to press reports, Brussels is to offer €1 billion from the EU’s unspent agriculture funds to achieve this goal.

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As Summit Approaches, G-8 Weighs Expansion

By Joseph Coleman, Associated Press, Saturday, July 5, 2008.

TOKYO — The Group of Eight, holding its summit in Japan starting Monday, has always been a club for the world’s biggest economies. Now a growing chorus is saying it’s time that the clubhouse doors swing open to some newcomers.

China has eclipsed more than half the club’s members in economic size, and the gross domestic product of Brazil is larger than Russia’s.

“When do they move from the G-8 to the G-13?” asked Lael Brainard of the Brookings Institution, a Washington public policy organization. “None of these problems can be solved without the participation of countries like China, India, Mexico, Brazil and South Africa.”

Indeed, the G-8’s grip on the world economy isn’t what it used to be.

The United States, Japan, Germany, Britain, France, Italy, Canada and Russia accounted for 58 percent of the world economy at current prices in 2007, International Monetary Fund figures show — down from 65 percent in 1997.

China’s $3.4 trillion economy is the fourth-largest in the world, nipping at the heels of No. 3 Germany. Brazil has the 10th-largest economy, just behind Canada but ahead of Russia. After Russia awaits fast-growing India.

It’s not only raw economics. The five nations mentioned by Brainard include serious military powers and the world’s two most populous nations, China and India.

It wouldn’t be the first time the G-8 has changed its membership.

The group held its initial summit in France in 1975 with six members: the United States, Britain, France, West Germany, Italy and Japan. Canada came on board the following year. Russia formally joined in 1997.

In recent years, as G-8 countries have struggled to address the concerns of the rest of the world, such as poverty in Africa, the list of summit participants has ballooned, though the core nations still hold exclusive meetings.

A total of 22 heads of government — eight from the members, seven from Africa and seven from other leading economies — will be at the summit in Japan.

Members themselves are split over whether they need to formally open the group to new entrants.

French President Nicolas Sarkozy has been outspokenly in favor, and British Prime Minister Gordon Brown also supports expansion.

“It is in our interest to put them at the negotiating table, to treat them like partners and to put them face to face with their obligations,” Sarkozy told the French-Japan Club in November.

Others are not so sure. Japan, which has long basked in the honor of being the G-8’s only Asian member, has repeatedly shrugged off suggestions of expansion in the weeks leading up to the summit.

Then there’s the question of democracy.

John Kirton, director of the G-8 research group at the University of Toronto, has argued that the summit’s founding principles included promotion of open democracy. By that criteria, China does not meet requirements for membership, he has written.

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Sarkozy beaming at birth of Mediterranean Union.

ELITSA VUCHEVA, July 14, 2008, EUOBSERVER / PARIS – France officially announced the launch of the Union for the Mediterranean on Sunday (13 July) – the brainchild of its president Nicolas Sarkozy, who did not hide his pride in seeing the project’s official birth.

“We had dreamt of it. The Union for the Mediterranean is now a reality,” a visibly content Mr Sarkozy told journalists in Paris after a four-hour long working session with leaders of the countries members of the Union.

The project – under its official name Barcelona Process: Union for the Mediterranean – regroups 43 states, including all EU members, and will be co-presided over by one EU and one Mediterranean country – currently Egypt’s president, Hosni Mubarak, and Mr Sarkozy himself.

The goal is to boost ties between the EU and its southern neighbours, while the aim of the co-presidency will be to “improve the balance and the joint ownership” of the Union, reads the final declaration adopted by the 43 leaders.

Some critics of the project however had accused European states of wanting to dominate their southern partners.

But “north and south will be on an equal footing … We have exactly the same rights, exactly the same obligations,” said the French president during the opening of the summit.

Details of the Union for the Mediterranean’s institutional structure are still to be sorted out, but it will have a Joint Permanent Committee based in Brussels that will assist in the preparation of meetings of senior officials; and a joint Secretariat – whose “political mandate,” location, as well as the nationality of its director, are to be decided by the Union’s foreign ministers, who will meet in November.

A Union for the Mediterranean high-level summit will take place once every two years, while its foreign ministers will meet once a year.

Central parts of Paris were blocked off on Sunday and the city was under high surveillance, as some 18,000 policemen were mobilised to co-ordinate the 43 leaders’ security.

The only one who was invited but declined to attend was Libya’s Muammar Gaddafi – an outspoken opponent of the project, while the kings of Morocco and Jordan did not come, but instead sent representatives.

“Concrete projects:”

The leaders unanimously adopted a declaration deciding to work on six “concrete projects” as initial activities, Mr Sarkozy said.

1-3 The new grouping will address the cleaning up of Mediterranean pollution; development of maritime and land highways; or setting up a joint civil protection programme on prevention and response to disasters.

4. The yet to be established Secretariat will also aim to “explore the feasibility, development and creation of a Mediterranean Solar Plan,” looking into solar energy as an alternative source of energy.

5. A Euro-Mediterranean University, whose seat will be somewhere in Slovenia, hopes to “contribute to the establishment of a Euro-Mediterranean Higher Education, Science and Research area.”

6. Additionally, a so-called Mediterranean Business Development Initiative will support small and medium-sized enterprises.

However, criticism has already been raised about some controversial issues – such as immigration – being left out of the Union’s scope at this stage.

A diplomatic success?

But the project’s overarching goal is to progressively lead to peace in the Middle East, Mr Sarkozy said.

Conflicts in the region are seen as the main reason preventing the Barcelona Process – an initiative started in 1995 with similar ambitions to the new project – from achieving significant results.

On Sunday, “over the course of four hours, everybody was there. Everybody spoke, discussed and agreed [on things] … If it is possible during four hours, if we could agree on all these projects, we will continue, we will go further,” Mr Sarkozy told the press, stressing there had been no incidents at the summit, despite the tense relations between some of the leaders, and said he already saw a chance for peace from this first meeting.

Prior to his statement, Israel’s premier, Ehud Olmert, said Israeli and Palestinians had never been so close to reaching a peace agreement as now.

Furthermore, the French president announced on Saturday that Syria and Lebanon had agreed to establish diplomatic relations – an act he called “historic”.

Relations between the two countries have been particularly tense since the assassination of Lebanon’s former premier, Rafiq Hariri, in April 2005 – followed by Syria’s troops’ forced withdrawal from Lebanon.

Damascus has denied any involvement in Mr Hariri’s killing, but a number of UN inquiries have suggested that Syrian and Lebanese intelligence forces had played some role in the assassination.

“Our position is that there is no problem with the opening of embassies between Syria and Lebanon … If Lebanon is willing to exchange embassies, we have no objections to doing it,” Syrian President Bashar al-Assad was quoted as saying by French news agency AFP.

But the two countries must “define the steps to take to arrive at this stage” before mutual recognition, he stressed.

Observers have adopted a cautious approach however, insisting that many things have been said about peace in the region over the years and one should wait for concrete results before claiming success.

At the summit, Carl Bildt, Sweden’s foreign minister, warned: “The world is not going to be changed by the meeting today,” reported AFP. “But the entire region will, hopefully, be changed over time by this particular approach,” he added.

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Sarkozy revels in Club Med ‘bringer of peace’ role.
By John Lichfield in Paris, For The Independent, Monday, 14 July 2008.

France gathers world leaders for Bastille Day parade - Les Français sont arrivés.

A gargantuan summit of European and Middle Eastern leaders in Paris has produced a series of breakthroughs and diplomatic coups for the French President, Nicolas Sarkozy.

Israel agreed to release prisoners to smooth the way for a new peace settlement with the Palestinian Authority. Syria promised to establish normal relations with Lebanon for the first time in 65 years. Perhaps most startling of all, a Syrian president and an Israeli prime minister sat in the same room, and at the same table, for the first time. However, the Syrian leader, Bashar al-Assad, managed to vanish from the room before the Israeli Prime Minister, Ehud Olmert, gave his setpiece speech.

It remains to be seen whether the Sarkozy-inspired, 43-nation “Union for the Mediterranean”, launched yesterday, will suffer the same fate as previous botched efforts to establish formal links between Europe, the Middle East and North Africa. The success of the inaugural summit suggests the new “Club Med” – dismissed by some as just another talking shop – might finally allow Europe to become a serious player in the game of Middle East peace.

Middle Eastern leaders joined their EU counterparts, including Gordon Brown, to discuss practical co-operation on issues such as energy, pollution, climate change and immigration. War and peace were not on the formal agenda but the unprecedented gathering provided an opportunity, and impetus, for deal-making between perennially hostile neighbours.

Mr Olmert, under increasing domestic pressure from allegations of corruption, held pre-summit talks in Paris yesterday morning with the Palestinian President, Mahmoud Abbas. M. Sarkozy also attended.

Afterwards, Mr Olmert said that the two sides had “never been as close to the possibility of reaching an accord as we are today”. Israeli officials said that Mr Olmert was ready to release an unspecified, but large, number of Palestinian prisoners to help to achieve a settlement with Mr Abbas, on the permanent boundaries of the West Bank (Jerusalem excepted).
The leaders of 40 nations were shielded behind a protective “ring of steel”, with large parts of one of the world’s most visited cities out of bounds to the public. More than 6,000 police officers were mobilised to defend the no-go zone in a swathe of central Paris on both banks of the Seine. Neither tourists nor non-resident Parisians were allowed into an area of more than one square kilometre.

On Saturday, M. Sarkozy brokered a meeting between the Syrian President, Mr Assad, and the Lebanese President, Michel Suleiman. Damascus, which has long been accused of treating Lebanon as a de facto colony, agreed to establish normal government-to-government and diplomatic relations with Beirut for the first time since Lebanese independence in 1943.

The Israeli Prime Minister and Syrian President took their seats in the vast summit chamber in the sprawling, glass-roofed Grand Palais exhibition hall, just off the Champs Elysées. They did not exchange a handshake or a word or establish eye-contact. All the same, this was, as President Sarkozy pointed out, “a historic event”: the first time that Syrian and Israeli leaders had consented to be in the same room.

The “Union for the Mediterranean”, linking the 27 European Union member states, and 16 nations on the southern and eastern rims of the Med, is not what President Sarkozy first intended. He wanted an organisation which united only those countries with a Mediterranean coast-line. Germany and Spain objected. President Sarkozy – currently president of the EU council – agreed to merge his idea with an existing, and largely moribund, EU-Mediterranean association launched in Barcelona in 1995.

The new Union for the Mediterranean will attempt to set up common approaches to, among other things, global warming, investment, solar energy, water shortages, illegal immigration, maritime pollution, road and sea transport and university exchange programmes.

President Sarkozy said, in his opening speech to the summit, that this was an attempt to emulate the nuts-and-bolts approach of the original European Common Market. Age-old national quarrels and hatreds would be doused in debate and co-operation on vital issues of everyday importance. “The European and the Mediterranean dreams are inseparable,” he said. “We will build peace in the Mediterranean together, like yesterday we built peace in Europe … We will succeed together; or we will fail together.”

The Egyptian President, Hosni Mubarak, the co-chairman of the summit with M. Sarkozy, stressed the importance of progress on practical, everyday issues as “building blocks” for peace.

The inaugural summit owed its success partly to President Sarkozy’s energy and vision – and partly to luck. Officials pointed out that several favourable factors came together: the diplomatic vacuum created by the change of administration in the US; the Israeli Prime Minister’s domestic political crisis, which made him hungry for progress with the Palestinians; and the Syrian President’s strategic decision to reduce his country’s diplomatic isolation.

All the same, the summit will go down as a diplomatic and political triumph for President Sarkozy: perhaps the most important single event in his 14 months in the Elysée Palace.

But Syrian and Israeli Leaders did not see eye-to-eye:

The Israeli Prime Minister Ehud Olmert looked his way, but Syria’s President Bashar al-Assad avoided any eye contact when the two leaders attended a summit that had stirred expectations of a first, friendly encounter.

The men were among more than 40 leaders gathered in Paris for the EU-Mediterranean summit and it was the first time they had ever been in the same room together.

Although Syria recently revived indirect negotiations with its long-time foe, President Assad clearly considered it was too soon to shake hands, chat or even nod to Mr Olmert.

As Mr Olmert entered the main hall of the Grand Palais, a Reuters photographer captured him casting glances toward the tall Syrian leader. But Mr Assad turned away, raising one hand to his face as if to block off any eye contact with the Israeli.

Mr Assad skirting the far wall, where interpreters sat in plexiglass booths, as Mr Olmert turned to talk to another delegate. The Syrian leader had left the room byt the time Mr Olmert gave his speech. A seating chart showed Mr Olmert had been assigned a place almost directly opposite Mr Assad for the round-table discussion.

Earlier yesterday, the Syrian Foreign Minister, Walid al-Mouallem, attended talks at which his Israeli counterpart, Tzipi Livni, was also present. He did not speak to her and left the room when she got up to speak. Reuters

Damascus has denied any involvement in Mr Hariri’s killing, but a number of UN inquiries have suggested that Syrian and Lebanese intelligence forces had played some role in the assassination.

“Our position is that there is no problem with the opening of embassies between Syria and Lebanon … If Lebanon is willing to exchange embassies, we have no objections to doing it,” Syrian President Bashar al-Assad was quoted as saying by French news agency AFP.

But the two countries must “define the steps to take to arrive at this stage” before mutual recognition, he stressed.

Observers have adopted a cautious approach however, insisting that many things have been said about peace in the region over the years and one should wait for concrete results before claiming success.

At the summit, Carl Bildt, Sweden’s foreign minister, warned: “The world is not going to be changed by the meeting today,” reported AFP. “But the entire region will, hopefully, be changed over time by this particular approach,” he added.

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France’s President Nicolas Sarkozy, centre, Palestinian President Mahmoud Abbas, left, and Israel’s Prime Minister Ehud Olmert,

right, attend a meeting at the Elysee Palace

French President, Nicolas Sarkozy, prime minister, François Fillon, and members of the French government will meet up with the European commission college in Paris for a working lunch to discuss the country’s agenda for the next six months.

Later, following a ceremony at the Arc de Triomphe, European Commission President José Manuel Barroso will have a private meeting with Sarkozy, before attending a dinner party in honour of the European commission at the Elysée Palace.

Parliament president Hans-Gert Pöttering will also attend the opening ceremony at the Arc de Triomphe alongside Sarkozy, Barroso and outgoing EU president, Slovenian prime minister Janez Janša.

From TheParliament.com Press Review: Sarkozy pledges to restore trust in EU.
President Nicolas Sarkozy of France seized the reins of the EU last night, pledging to turn the EU’s crisis of confidence into an opportunity to make the unloved union more popular with almost half a billion Europeans, reports the Guardian.

The paper says that French president Nicolas Sarkozy painted himself as the guardian of Europe in a television appearance on the eve of taking over the presidency, quoting him as saying, “We must not be afraid of the word protection. We have to reflect on how to turn Europe into a means of protecting Europeans in their everyday lives.”

According to the paper, France’s presidency priorities include combating climate change, cushioning consumers against soaring food and fuel prices and taking action against illegal immigration.

However, Le Monde says that Sarkozy’s efforts to set himself up as the protector of the EU almost fell flat in the TV appearance on French channel France 3, as he struggled to offer solutions to complex European problems.

Les Echos quotes Sarkozy defending Europe’s role to French citizens, saying that the EU can play a part as a barrier against the effects of globalisation. “This will not work,” he said. “Europe is worried. Citizens are asking themselves if they’re not better off solving their problems at national level.”

The Times takes the same slant, reporting on how Sarkozy wants to restore faith in the EU after the Irish rejection of the Lisbon treaty. He will travel to Dublin in a few days to meet with Irish prime minister Brian Cowen to discuss the fallout.

But Deutsche Welle reports on comments from a London-based expert on Sarkozy’s upcoming visit to the Irish capital. It says that because of the French president’s unpredictability, the trip could well set Europe back rather than take it forward.

Meanwhile, the FT says that France wants to add a military dimension to European space policy to counter threats from terrorism and conventional military power. French ambitions range from setting up an EU spy satellite system to joining a manned US mission to Mars, adds the paper.

This WEEK in the European Union by Leigh Phillips for the EUobserver. 27.06.2008

On 1 July France takes over chairmanship of the six-month rotating presidency of the council of the European Union from the out-going EU presidency, Slovenia.

France takes up the helm during one of the EU’s – and the world’s – most difficult periods in many years as the twin oil and food crises eclipse almost every other policy agenda item, and the fall-out of the negative result in the Irish referendum on the Lisbon Treaty leaves much of France’s plans for its moment in the European spotlight not quite on the shelf but certainly diminished in import.

On Tuesday, there will be a working meeting concerning the programme of the French Presidency between the members of the European Commission and the French president, prime minister and members of the French government.

But the French presidency really kicks off with its first major event, tackling one of the biggest issues on its plate, the food crisis.

On Thursday, the presidency has organised along with the commission “Who will feed the world?”, a major conference in the European Parliament on global food security.

Agriculture commissioner Mariann Fischer Boel and development commissioner Louis Michel will participate, together with Hans-Gert Pöttering, the president of the parliament. French agriculture minister Michel Barnier and foreign minister Bernard Kouchner will also attend, as will the director-general of the World Trade Organisation, Pascal Lamy, and the director-general of the Food and agriculture organisation of the United Nations, Jacques Diouf.

Skyrocketing food prices have produced waves of riots in the poorest countries of the world in recent months, but it is not only the third world that has been affected. Consumers throughout Europe go to the supermarket and week after week they see the price of everyday items eating further and further into their budget.

The conference aims to take on the triple-headed policy challenge – food, energy and the environment - and discuss the challenges facing agriculture in this unprecedented period, including the question of the future of agriculture in developing countries.
Social agenda: The other main event in the coming week will be the unveiling of the commission’s social package, the ‘Renewed Social Agenda’.

Almost as ambitious in scope as the commission’s climate and energy package launched in January, the social package had been held off until after the Irish referendum out of fear that controversial elements within it could give ammunition to No campaigners and scupper the treaty - in particular an expected proposal for a directive on pan-European access to health-care, and another on protecting Europeans against discrimination.

The former may on the face of things seem harmless enough, but the devil, as ever, is in the details, and some member states worry about potential additional stresses to public health-care systems.

Anti-discrimination is an equally hot-button issue, with some in a number of the new member states and social conservatives across the union alarmed at the possible consequences of legislation if it includes the measures to prevent discrimination on the grounds of sexual orientation. A number of businesses too are not particularly enthusiastic about what they say are the additional costs involved with protecting against age discrimination.

A working paper on the situation of the Roma in Europe, some of the most actively discriminated against on the continent – and the subject of violent attacks by racists in Italy in recent weeks, is to address the difficulties faced by this community and focus on mechanisms for inclusion.

The package will also look at the promotion of cross-border youth volunteering and include a green paper on the challenges of immigration in the educational context. A recent commission study found that the children of migrants tend to do poorly at school. The green paper will look at options for overcoming such problems.

Elsewhere next week, European environment ministers are to meet informally on Thursday and Friday in the Domain of Saint Cloud, France. An informal meeting of energy ministers will also meet there on the Friday and Saturday.

The next sitting of the European Parliament is not until 7 July, in Strasbourg.

Budapest to house EU Techonology Institute - the Europe’s answer to MIT.
RENATA GOLDIROVA, June 19, 2008 EUobserver/Brusells.

EUOBSERVER / BRUSSELS - Hungary’s capital, Budapest, has been selected to house the European Institute of Innovation and Technology (EIT), the union’s flagship project to boost innovation, research and higher education.

On Wednesday (18 June), ministers in charge of competitiveness met in Brussels to put an end to the wrangling over the institute’s seat. Last month, they failed to agree due to a Polish veto on the matter.

Slovene education minister Mojca Kucler - who was responsible for steering the dossier through the European Council, which represents EU states - praised “efforts invested by member states for the common good of the EU” and described the institute as “a special milestone in the European research policy”.

The European Commission President Jose Manuel Barroso has also welcomed the ministerial deal, saying that the EIT will add to Europe’s capacity to bridge the innovation gap with its major competitors, the US and Japan.

In 2006, the 27-nation EU invested 1.85 percent of GDP into research and development, far from its 2010 goal of three percent. By contrast, the US spends around 2.7 percent.

According to EU education commissioner Jan Figel, the work of the institute would be organised through so-called knowledge and innovation communities - partnerships of universities, research organisations and companies.

The commission believes that such networks could help transform education and research and attract bright young brains from within and beyond Europe.

“It is not going to be one dot on the map,” Mr Figel told EUobserver, referring to the Massachusetts Institute of Technology, which inspired the EIT concept. “We offer co-operation so the EU becomes more innovative,” he said.

Budapest was the only applicant able to meet the two criteria set by ministers - that the winner should be a “new” member state and not already be home to an EU agency.

But regarding the latter point, EU diplomats feared Poland’s behaviour at the negotiation table.

The country, also bidding for seat, had previously threatened not to withdraw its own application, unless it won some level of participation. It wanted, for example, the new institute’s governing board to meet in the Polish city of Wroclaw, one diplomat told EUobserver.

Besides Budapest and Wroclaw, three other applicants were keen to host the administrative headquarters of the institute - Germany’s Jena, Spain’s Sant Cugat del Valles, while Slovak capital Bratislava joined forces with Vienna in launching a cross-border bid.

The Budapest-based institute will operate with a total budget of €2.37 billion from 2008-2013, with €308.7 million of that coming from EU coffers. The rest of the monies are supposed to come from public and private partners as well as from the new institute’s own activities.

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We hope that, for the sake of coherence, the Budapest headquarters of EIT will find ways to cooperate with the Bratislava-Vienna group also. The Wroclaw push seemed out of place and was rather a clear effort at grand-standing.
We realize that  the City of Wroclaw is involved in such issues as the organisation of a European Citizens’ Forum (over two days) entitled: Towards a Europe of solidarity, but we insist that an EIT will have to deal with such technical issues as the development of technologies in view of changes that will have to happen because of global warming/climate change.  The institute will need laboratories and not just talk-estivals. Poland seems to have misread this intent.

News: Israel and Hamas Agree to a Cease-Fire, Egypt Says.
Wednesday 18 June 2008, Middle East Time.

by: Isabel Kershner and Graham Bowley, The New York Times

A Photo shows - Israeli Defense Minister Ehud Barak and Egypt’s Intel chief Omar Suleiman.

Jerusalem - Israel and the Islamic group Hamas have agreed on a mutual cease-fire to take effect Thursday following negotiations brokered by Egypt, Egyptian state media announced on Tuesday.

The official Egyptian state-owned news agency MENA and state-run television quoted an unidentified senior Egyptian official as saying that the truce would start at 6 a.m. Thursday. Israeli officials would not immediately confirm or deny that any agreement had been reached.
Talks, brokered by Egypt, have been proceeding intensively between Israel and Hamas, which controls Gaza. Both sides have appeared keen on achieving a cease-fire, but until the truce comes into effect neither side is likely to stop exchanges, and on Tuesday three Israeli airstrikes hit targets in the Gaza Strip, the Israeli Army said.
Palestinian medical officials in Gaza said that at least six militants were killed in the strikes and two others wounded.
However, a Palestinian official quoted by Reuters said that despite the deaths the negotiations for a truce were still on track.
“The two sides agreed, and the implementation of the truce will begin” on Thursday, the official, who spoke on condition of anonymity because he was not authorized to announce a deal, said.
Meanwhile, according to the Bloomberg news agency, Hamas spokesman Sami Abu Zuhri said on al-Quds Radio: “We are so close to hammering out a final truce agreement. The cease-fire will include a cessation of fire, ending the blockade and reopening the closed border crossings of the Gaza Strip.”
On Monday, Ismail Haniya, a senior leader of Hamas, which controls Gaza, said that the talks brokered by Egypt for a period of calm with Israel were nearing completion and that he hoped for a “happy ending.”
Witnesses to the airstrikes on Tuesday said five of the six killed in the strikes were members of the armed wing of the radical group Islamic Jihad. The sixth was also a militant but was not immediately identified.
The Israeli military said the first two strikes hit vehicles carrying what they called “terror operatives.” The third strike was against “other activists,” the army said.
The medical officials in Gaza said four militants were killed in the first strike against a car driving on a road east of Khan Yunis, while the second strike was also on a car.
Towns and villages in southern Israel have been under continual rocket and mortar fire from Gaza in recent months, while Gaza has been subject to frequent Israeli military strikes aimed at militants and incursions.
Israel’s Security Cabinet decided last week to pursue an arrangement for mutual quiet, though it also instructed the military to prepare for more serious action should the talks fail or the truce break down.
The developments Tuesday come after Israel appeared to be making diplomatic progress on other fronts Monday: a possible prisoner exchange with Hezbollah, the Lebanese militant group, and a second round of indirect talks with Syrian representatives in Turkey.

Israeli officials refused to comment about possible developments with Hezbollah and said it would be premature to draw any conclusions about understandings with Syria.
Some Israelis, meanwhile, have suggested that the current flurry of diplomatic activity is intended to distract attention from the political and legal troubles of Prime Minister Ehud Olmert, who the police say is suspected of receiving illicit funds.
The possibility of an imminent exchange with Hezbollah, involving the two Israeli Army reservists whose capture by the militant group set off the 2006 war in Lebanon, seemed more likely on Monday when Zvi Regev, the father of one of the reservists, said he had been told about the men’s possible return. Mr. Regev, the father of Eldad Regev, told Israel Radio that Ofer Dekel, the Israeli official in charge of the soldiers’ case, informed the family two weeks ago “that a deal was about to be carried out.”
Mr. Dekel did not go into detail, he said, and did not know about the soldiers’ condition. Both were wounded in a Hezbollah ambush across the Israeli border that led to their capture in July 2006; the Lebanese group has offered no proof that they are alive.
Two Lebanese newspapers, Al Akhbar and As Safir, reported on Monday that a prisoner exchange could take place as early as the end of this week.
On June 1, Hezbollah representatives unexpectedly handed over to Israel the remains of Israeli soldiers killed in the 2006 war, and Israel sent back across the border a Lebanese civilian who had completed a six-year prison term in Israel for spying for Hezbollah.
Any broader swap is likely to include the release of Samir Kuntar, the most notorious of the few remaining Lebanese prisoners in Israel. He was sentenced to multiple life terms for killing four Israelis, including a 4-year-old girl, during a terrorist raid in Nahariya in 1979.
Later on Monday, Turkish and Israeli officials announced that Israeli and Syrian representatives had completed two days of indirect talks through Turkish mediators. The talks were “serious, positive and constructive” and were to be continued, an Israeli government official said.
Israel and Syria announced three weeks ago that they were engaged in negotiations through Turkish mediators for a comprehensive peace treaty, the first talks in eight years.
The Israeli news media have been rife with reports that the Israeli team will try to persuade the Syrians to have their leaders meet face to face in Paris in mid-July at the conference, organized by President Nicolas Sarkozy of France, to establish a Mediterranean Union. Mark Regev, a spokesman for the Israeli prime minister, confirmed that Mr. Olmert had been invited to the Paris conference and that he hoped to attend. But “anything beyond that is speculation,” Mr. Regev said.
Turkish Foreign Minster Ali Babacan said Tuesday that the latest talks had been “completed with success” and “more importantly, the calendar was set for the next two meetings which will be held in July,” news agencies reported from Luxembourg, where the Turkish official was attending a European Union meeting.
But, Mr. Babacan said, he did “not wish to elevate the expectations because this is a very complicated matter,” he said, according to Agence France-Presse. He adde