Deepening recession heats up talk of Greece exiting Eurozone

When the euro hit wallets and bank accounts on New Year’s Day a decade ago, champagne and fireworks greeted the Europeans' embarking on what was touted as an irrevocable course for prosperity and economic integration.

Over the years, though, as the economies of Greece, Spain and other Eurozone nations became mired in debt, expectations of a happy commune of affluence have given way to thoughts of breaking off the laggards to save the herd. What the Economist and other journals have referred to as a kind of "Hotel California that you can never leave" now looks to some to be exactly the hellish trap evoked by the Eagles in their 1970s ballad.

Greek officials disclosed this week that their economy shrunk 6.2% from April through June and that unemployment is close to 24% and rising. The shaky coalition government, confronted by strikes and protests against earlier austerity measures, has yet to identify the last $5 billion or so in budget cuts it must make to qualify for the next tranche of bailout funds due in September.

The bad news came as little surprise to the Eurozone’s better-off members, Germany first among them, which have complained for months that Athens has repeatedly failed to demonstrate the will to pare its bloated government payroll and get serious about collecting taxes.

A delegation of the so-called troika of creditors -- the European Commission, the European Central Bank and the International Monetary Fund -- visited Athens last month and is expected to issue a critical report on the Greek balance sheet in September. That has shifted the conversation from whether Greece will exit the Eurozone to how many other common currency users might follow.

Even Greek analysts have become dubious of the country’s prospects for living up to the commitments made to get triple-digit billions in bailout funds. They have been issuing gloomy forecasts of an inevitable Greek exit -- or Grexit, as it has come to be called -- perhaps preparing the public for an eventual return to the drachma.

“The political system once more showed how counterproductive it is. Instead of designing a workable state, it tries to reproduce the one that already exists,” the Greek daily Kathimerini’s columnist Paschos Mandravelis groused Monday. In his analysis, titled “On another planet,” he accused the government of protecting well-connected allies and unproductive state jobs.

A week ago, Greek Finance Minister Yannis Stournaras said the government was still looking for about a third of the $15 billion in cuts to the 2013-14 budgets demanded by the troika in exchange for vital cash infusions. Debt inspectors are due back next month for a final review of whether Athens has gotten its finances in order, a judgment expected to be negative unless the government forces through deeply unpopular budget cuts and privatization plans in the final few weeks.

Elsewhere in the common currency club, the mood has changed from one of steadfast commitment to keeping the 17-nation Eurozone intact to mounting resignation that at least Greece will have to go.

Athens’ potential departure "has long since lost its horrors," German Economy Minister Philipp Roesler told ARD television recently. Luxembourg Prime Minister Jean-Claude Juncker, who chairs Eurozone finance ministers’ meetings, observed last week that a Greek exit would be “manageable.” On Monday, when German Chancellor Angela Merkel returned from a hiking vacation in the Italian Alps, she was confronted with even more dismissive comments by her coalition partners.

“An example must be made of Athens that the Eurozone can also show teeth,” Markus Soeder, Bavarian finance minister and member of a conservative sister party to Merkel’s Christian Democratic Union, told the Bild am Sonntag newspaper. He contended that Germany can ill afford to keep bailing out spendthrift euro members and that “further help to Greece is like pouring water into the desert.”

In the Economist cover story this week, a mock memo to Merkel on a possible Plan B advises her to consider two options to her current course of scrambling to hold the Eurozone together. One envisions Greece's departure, which alone could cost the euro area $398 billion in debt write-offs and transitional aid. The other scenario, in which Portugal, Ireland, Cyprus and Spain would also leave, could cost the rump Eurozone $1.4 trillion but halt the slow bleeding of bailouts to the struggling periphery, the respected London-based publication calculated.

Charles A. Kupchan, a professor of international affairs at Georgetown University and former European affairs director on the National Security Council under President Clinton, attributes the growing Grexit talk to an emerging consensus among economists that Athens' departure is a question of when, not if.

"Behind the scenes the European Union is making preparations for a Greek exit to contain the damage," he said of the latest assessments of the Eurozone's integrity.

Grexit would be manageable because of Greece's small economy and the fact that its finances are unlikely to ever meet Eurozone standards, Kupchan said. But he sees other departures as potentially destabilizing for the whole monetary union experiment.

"When you start talking about the Spanish or the Portuguese or the Irish leaving, that's a new ballgame," he said. "That's not a controlled exit of a member or two; it's a complete overhaul of the Eurozone."

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Photo: Mario Draghi, president of the European Central Bank, has pledged to do whatever it takes to protect the euro common currency. But mounting debts and persistent recession in some of the peripheral countries of the Eurozone have turned the conversation to managing the departure of Greece, instead of preventing it. Credit:  Hannelore Foerster / Bloomberg

Syria conflict expected to fester as world's attention strays

Shaken by defections and rebel encroachment on its strongholds, the regime of Syrian President Bashar Assad is thought by some in the international community to be headed for collapse after a nearly 17-month uprising.

But independent political analysts unencumbered by wishful thinking tend to see the latest developments in the conflict as evidence of its descent into a long, bloody fight to the death as the world's attention drifts from the savagery that diplomacy has failed to stop.

Two weeks of intense fighting around Aleppo, Syria's largest city and the center of its battered economy, have inflicted untold new casualties, sent thousands more into foreign refuge and laid bare the goal of each side to annihilate the other.

The United Nations, the Arab League, the European Union and the United States failed to force out Assad and steer the combatants toward agreement on  transitional leadership. That has sent the war spiraling out of the control of outside forces. And it looks likely to rage on with mounting civilian casualties and sectarian atrocities, according to the latest accounts by international security experts.

"Increasingly entrenched and fearing neither threats nor sanctions, the regime has burned all its domestic bridges, and hard-liners with little capacity for compromise are firmly in control," the International Crisis Group says of the Assad government in "Syria's Mutating Conflict," a dire report forecasting unbridled bloodshed.

The fractured opposition fighting to oust Assad has also become radicalized and unmanageable, "threatened from within, despite its efforts, by sectarianism, retaliatory violence and fundamentalism," the just-released ICG report says.

U.S. Secretary of State Hillary Rodham Clinton said Tuesday while traveling in Africa that the defection of Syrian Prime Minister Riyad Farid Hijab demonstrated the urgency of devising a coordinated plan for a post-Assad Syria. On Monday, State Department spokesman Patrick Ventrell said the defection, coupled with others by high-level military and government officials, "indicated that the Syria regime is crumbling and losing its grip on power."

On the periphery of Syria's civil war, there is less confidence that an end is nigh.

Andrew Tabler, Syria expert at the Washington Institute for Near East Policy, has been traveling in the Lebanese border regions where refugees huddle and fighters regroup. He sees the defections as having had little influence on the determination of Assad to press on with the effort to eradicate opponents he labels "terrorists."

"These defections are not from the inner circle. The government in Syria doesn't run the country, the regime does," Tabler said in a telephone interview from northern Lebanon. "The prime minister was not the person who called the shots."

The resignation last week of the special envoy on Syria for the United Nations and the Arab League, former U.N. Secretary-General Kofi Annan, was seen as Annan's recognition that political divisions within the U.N. Security Council were undermining any chance of getting either Assad or the rebels to comply with the world body's peace plan.

With nothing left to negotiate, a mood of quiet desperation has set in among those monitoring the conflict, now estimated to have taken 20,000 lives and displaced 1.5 million. 

"What we have witnessed in the past 16 months of revolt might just be the harbinger of a far greater human disaster to come," Martin S. Indyk, a former diplomat now directing the foreign policy program  at the Brookings Institution, testified last week at the U.S. Senate Committee on Foreign Relations.

Indyk sees the Assad regime, made up of fellow members of the minority Shiite Alawite sect, as motivated to destroy the rebels out of fear that they would be slaughtered by the Sunni majority if Assad is driven out.

Alawites and other minority sects that make up more than a quarter of Syria's population see their choice in the conflict as "kill or be killed," said Indyk, noting that the regime, despite a few high-profile defections, has a well-armed fighting force of 300,000, thousands more shabiha paramilitary fighters  and the backing of Iran and the Lebanon-based Hezbollah militia.

With virtually no hope of foreign military intervention in a U.S. election year, the analysts say, it falls to the underdog rebels to offer assurances to Syrian minority communities that their rights would be respected and their interests represented in a post-Assad leadership.

“For those Syrians who have endured 17 months of repression, for whom the instinct of revenge must be hard to suppress, this might seem an inappropriate, unrealistic mission,” said Robert Malley, the crisis group's Middle East program director. "But it is a necessary and inescapable one if the transition is to be worth the enormous price that is being paid."

Tabler, of the Near East Policy institute, doubts that the scattered rebel units could provide such assurances.

"After 17 months of slaughter, I wouldn't rely on the better angels of anyone's nature," he said, predicting the war will be "a grinder."

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Photo: A Syrian boy peers out Tuesday from a schoolhouse in the town of Kafr Hamra, north of Aleppo, where his family has taken refuge from intensifying fighting between rebels and government forces. Credit: Khalil Hamra / Associated Press

 

No imminent threat of a nuclear-armed Iran, experts say

Israeli and U.S. politicians lately have been bandying about the prospect of an airstrike on Iranian nuclear facilities, stirring fear that another destabilizing clash could be provoked in a region already rife with civil war in Syria and other religious and political tensions.

But nonproliferation experts and Middle East analysts are skeptical of Israeli claims that the Tehran regime is so close to building a nuclear weapon that time is running out for a peaceful resolution of the decades-long standoff.

"This is a window that has been closing for 15 years now, and it's always imminently about to close," said Jamal Abdi, policy director for the National Iranian American Council. He sees the sudden flurry of diplomacy between Jerusalem and Washington as an outgrowth of the U.S. presidential campaign and Israeli interest in ensuring that the United States continues to hold a hard line against Iran.

U.S. Defense Secretary Leon E. Panetta was in Jerusalem on Wednesday to urge Israeli leaders to let negotiations and sanctions do their work before unleashing any military strike at facilities where Iran is suspected of enriching uranium or storing the processed fuel for potential upgrading to weapons' quality.

His visit followed one Sunday by Mitt Romney, the presumptive Republican presidential candidate who put the political spotlight on tension between the nation and Iran by promising to "respect" any decision Israel's leadership takes to protect itself.

The high-profile visits gave a platform to Prime Minister Benjamin Netanyahu to proclaim Israeli impatience with diplomacy and sanctions, which he claimed had "not set back the Iranian program by one iota."

Netanyahu complained that "however forceful our statements, they have not convinced Iran that we are serious about stopping them." He put Panetta on notice that Israel is prepared to act alone in attacking Iran if it perceives itself to be at risk.

Alon Ben-Meir, a professor of international relations at New York University's Center for Global Affairs, said Netanyahu and Israeli Defense Minister Ehud Barak used the American visits to send a message to Tehran that Israel won't hesitate to take unilateral action.

Ben-Meir cautions U.S. and other officials against seeing the Israeli threats as mere posturing, pointing out the profound national security concerns that shape Israeli defense policy and the country's unshakable faith that Washington will come to its rescue if a strike against Iran triggers retaliation by Tehran or its well-armed allies in the Lebanon-based Hezbollah militia.

"I don’t think Israel is bluffing entirely. There is an element of exaggerating its readiness to act and likelihood of winning. But many advisors to Prime Minister Netanyahu are saying that if he waits six or eight months, they may end up unable to do anything significant in terms of damage" to nuclear facilities that Iran has been moving underground to protect them from airstrikes,  Ben-Meir said.

The veteran analyst of Israeli politics said talks between U.S. and Israeli security officials are focused on a possible "insurance policy" for Israel: The United States would provide bombs capable of penetrating and destroying underground facilities. In close consultation with Washington, the bombs could be used against buried Iranian nuclear sites at a later date, allowing Israel to refrain from any military action now that could embroil the U.S. in another war on the eve of the presidential election.

Threats of military action against Iran are spurred by Israel's frustration with the paltry progress being made at recently resumed negotiations between Iran and six major powers. The talks are aimed at ensuring that Iranian programs are limited to peaceful purposes like energy production and medical research, said Gaukhar Mukhatzhanova, a nonproliferation scholar at the Monterey Institute of International Studies.

"I don’t see any particular breakthroughs in the Iranian program. It's been on a pretty steady course," she said, adding that, as far as preemptive air strikes were concerned, "there is technically no urgency to do this."

Three rounds of high-level talks between Tehran and diplomats from the United States, Russia, China, France, Britain and Germany have failed to produce concessions from either side, and trade sanctions that were tightened last month have succeeded mostly in depriving average Iranians of food and fuel, rather than pushing the regime to open more of its nuclear activities to international inspection.

Still, those pressures are mounting on Iran and raising the cost -- both financially and politically -- of the regime's nuclear pursuits, said Alireza Nader, senior policy analyst on Iran for Rand Corp. He pointed to reports of Iranian demonstrations against rising food prices and shortages, along with demands, even from Iranian elites, that the government give priority to social needs over nuclear investments.

"According to the U.S. intelligence community, the Iranian leadership hasn't even made the decision to weaponize their program,"  Nader said. "They've been creating the technical know-how and the infrastructure, but they haven't made that decision, and there is much more time than the Israelis portray there to be. I don't think an Iranian nuclear weapons capability is inevitable or imminent."

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Photo: Mitt Romney's visit to Jerusalem on Sunday set off a cascade of Israeli threats to bomb Iranian nuclear facilities in the near future to prevent Tehran from acquiring an atomic-weapons capability. Middle East experts say there is little evidence of an imminent threat from Iran and that the Israeli and U.S. statements are mostly politically driven saber-rattling. Credit: Uriel Sinai / Getty Images

Confidence teetering in Eurozone, economists warn

It's been more than two decades since the Iron Curtain fell and Europeans embarked on an ambitious mission to build a powerful economic, political and social union in place of the Cold War divide. And for more than two decades, Germans have been footing most of the integration bill.

Compassion fatigue set in long ago among the continent's most prosperous people, and the mounting costs of keeping the Eurozone intact a decade after the common currency was introduced have all but exhausted Germans' generosity toward their needy neighbors.

In this summer of economic discontent that is rattling financial markets worldwide, commitment to the 17-nation Eurozone has been a hard sell for German politicians whose constituents see only more expense and uncertainty with the wobbly fiscal union. Investors, too, seem to have increasing doubts about the euro's future and European Union leaders' ability to forge a viable plan for managing collective finances.

All eyes are on the European Central Bank this week following the vow of its president, Mario Draghi, to do whatever is necessary to keep Spain and Italy in the Eurozone despite skyrocketing interest costs for servicing their massive debts. The bank is constrained by European Union treaty provisions from loaning money directly to governments, and Germany has staunchly opposed proposals for funneling bank funds to needy member states through mechanisms meant to provide strictly supervised bailouts, not to bankroll loans.

The ECB “is ready to do what it takes to preserve the euro. Believe me, it will be enough,” Draghi assured investors last week, bringing about a short-lived reprieve in the interest rates demanded by lenders for 10-year bonds to finance Spanish and Italian debt.

"After Draghi's comments, expectations are quite high that the central bank will take action Thursday. But at the end of the day, the ECB cannot solve this problem," said Keith Savard, senior managing economist at the Milken Institute in Santa Monica.

The ECB can fiddle with collateral requirements and the refinance rate for some short-term relief, but what is needed to restore confidence in the euro is coordinated fiscal strategy and collective guarantees that new loans will be repaid, Savard said. It will take years, he noted, to execute the necessary legislation and treaty revisions once agreement is reached, which appears far from imminent as Germany and other Northern European euro users resist exposing their own good credit to the dodgy finances of some of their neighbors.

Uri Dadush, director of the international economics program at the Carnegie Endowment for International Peace in Washington, sees some progress -- "glacial," he said -- toward stabilizing the euro since May, when Greeks voted out the political coalition committed to the euro. Greeks managed to seat a pro-euro government in a second election in June, but they have yet to adopt the belt-tightening measures needed to get vital bailout funds due in August.

"There is urgency -- you see this in the volatility of the markets. But is catastrophe imminent? I don't think so. People know the ECB is there and, when push comes to shove, that the ECB will intervene," said Dadush.

Despite the barriers to direct lending to governments by the central bank, Dadush said it has managed to buy up at least $246 billion in government bonds at below-market interest for heavily indebted euro countries.

"Rules are there to be broken once the politicians decide this is what needs to be done," he said.

German resistance may also be broken, if the crisis escalates and threatens to further damage the market for Germany's cars, technology and other exports, said Fabian Zuleeg, chief economist at the European Policy Center in Brussels.

He is critical, though, of the German government's failure to make a strong case to its citizens about the benefits of preserving the currency union and moving forward with deeper financial integration.

"It's not a very positive way of engaging your citizens when you are scaring them into a situation where you say they don't have a choice," Zuleeg said.

All three economists interviewed Tuesday observed that Washington could help stabilize the euro if it were to buy the bonds of struggling states, demonstrating confidence in the currency that would inspire China, Japan, Brazil and other big economies to do likewise. They also agree there is virtually no chance that will happen, given the United States' own debt issues and a presidential election underway.

U.S. Treasury Secretary Timothy F. Geithner in effect confirmed Tuesday that the euro crisis would be left to the Europeans to resolve.

"This is completely within their financial ability to solve," Geithner said at a Los Angeles World Affairs Council event, although he  acknowledged that the politics of the problem may be a more difficult sell.

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Photo: German Finance Minister Wolfgang Schaeuble, left, meets Monday with U.S. Treasury Secretary Timothy Geithner at a vacation home on the North Sea island of Sylt, where they discussed the outlook for tackling the Eurozone debt crisis. During a Los Angeles visit Tuesday, Geithner made it clear that the euro woes were a matter for Europeans to resolve. Credit: Philipp Guelland / Associated Press

Libya's wild ride: First post-Kadafi elections chaotic, hopeful

It's been nearly half a century since the people of Libya were consulted about who should lead them. So long that less than 5% of Libyans have any memory of voting in an election before Moammar Kadafi seized power in 1969 and banned politics as bourgeois and un-Islamic.

Little wonder, with the marketplace of ideas shut down through two generations, that the eight months since Kadafi's overthrow and execution have been fraught with tribal clashes, separatist movements and power struggles leading up to Saturday's election for a transitional legislature.

But what looks on the surface to be chaos and contention won't necessarily thwart Libya's first step toward defining what kind of state will emerge from the rubble of Kadafi's erratic 42-year rule. Middle East experts tracking the shock waves of the  "Arab Spring" across the region see keen interest among Libyans in defining their own future.

Saturday's vote for a 200-seat General National Congress has drawn more than 3,700 candidates and 142 political parties, according to the High National Election Commission. More than 80% of eligible voters have registered, campaigning has been brisk, and moderation has been the dominant message of most candidates.

Election rules prohibit those who served Kadafi from running for the legislature, as well as those in the self-appointed Transitional National Council, which emerged during last year's uprising and has run the country since Kadafi's demise. In what analysts see as a promising display of responsibility to ensure a fair election, the commission postponed the vote from June 19 to thoroughly vet each of the contenders.

Preparations haven't been to everyone's liking. Former rebel fighters, angered by the lower number of seats accorded the eastern region, from which the revolution sprang, shut down three oil refineries late Thursday to demand, in vain, that the election be cancelled. Militant Islamists have attacked Western diplomatic convoys and consulates. Tribal clashes have broken out over land disputes, and fear has soared that terrorist groups like Al Qaeda will take advantage of the unrest to gain Libyan footholds.

Insecurity notwithstanding, hundreds of election observers from the European Union and the Atlanta-based Carter Center are expected to keep an eye out for trouble throughout the day.

"The Carter Center welcomes the opportunity to observe these historic elections, the first in Libya in almost 50 years," said the center's founder, former U.S. President Jimmy Carter, expressing hope for "a peaceful, transparent, and credible electoral process."

In light of the security challenges -- a few polling places have been ransacked or blocked by militias -- the Carter Center's mission will be limited and its postmortem "will not offer a comprehensive assessment of the electoral process," just advice to the commission for the next voting, the center said in a statement.

Bringing modern governance to Libya is going to be a phased process, say scholars of democratic transitions.

"No one should be surprised by the tumult we’ve seen generally in the Arab world in the wake of regime changes. We should expect to see a lot of differences in post-conflict countries," said Laurel Miller, a senior policy analyst with Rand Corp. who is nearing completion of a study of democratic transitions around the world over the past four decades.

Libya is a particularly challenging case because of the complete dearth of institutions, she said. Once the parliament is seated, it must choose a prime minister and cabinet, then organize a vote to select the drafters of a constitution.

"They're not just reforming or rewriting a constitution. For Libyans, it's really a question of creating a fundamental concept of the state from scratch," Miller said.

Campaigns have been "intensely local," noted Kori Schake, a former National Security Council official now at Stanford's Hoover Institution. While she expects Saturday's vote to do little to organize the scattered political interests into a cohesive legislature, she sees surprising moderation and inclusiveness among the rival aspirants to political power.

"I see it as a positive sign that all the candidates, for the most part, sound alike. You've got Muslims talking about tolerance and women's rights and you've got secular candidates talking about the importance of religion in private life and the need for accountable government," she said.

Libyans who left their homeland during Kadafi's reign have returned to help with the transition, and foreign democracy-building advocates and think tanks have been consulting with activists seeking roles in guiding their countries through the disorder, Schake said, recalling a recent Brookings Institution forum in Qatar where Arab Spring rebels from across the region gathered to brainstorm.

"They’re the people who have to live with the consequences" of the revolutions, said Schake, who urges a limited role for foreign governments at these early junctures. "One of the lessons that we learn over and over again in nation-building is the more local control and ownership there is of the activity, the likelier it is to be of long standing."

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Photo: In Tripoli on Friday, a Libyan scout leader explains the concept of elections on the eve of the nation's first free vote in nearly half a century. Credit: James Lawler Duggan / McClatchy Tribune

 

Tighter sanctions on Iran trigger threats and defiance

Harsh new sanctions imposed on Iran were intended to so deprive its citizens of life's necessities that the government would be forced to end what the U.S. and its allies fear is a program to build nuclear weapons.

Instead, Iran's Revolutionary Guard on Tuesday test-fired missiles capable of reaching Israel and the U.S. Navy's 5th Fleet base in Bahrain. Iranian lawmakers have threatened to close the Strait of Hormuz to bottle up Persian Gulf neighbors' oil shipments. Senior officials warned that progress in nuclear negotiations won't occur until the United States and its allies show Iran more respect.

Iran says that its nuclear program is for peaceful purposes only, and since U.S. and European Union sanctions went into effect Sunday its officials have reacted with defiance and bluster. The Central Bank chief has reassured the public that $150 billion in foreign currency reserves should see the country through the trade cutoffs, and officials have said they stockpiled plenty of imported food and consumer goods.

But Middle East analysts see Tehran's posturing as unsustainable in the long run. As food prices soar, gasoline lines lengthen and the rial currency is eroded by inflation, Iranians who care more about their day-to-day existence than having a nuclear program will force leaders to make a choice, experts predict.

Iran gets 80% of its revenue from oil exports, according to the U.S. Energy Information Administration, which valued that trade at about $73 billion for 2010. Due to previous sanctions that have curbed Iranian exports and international bank transactions, production has already fallen from 4 million barrels a day two years ago to 3.3 million a day in May, the EIA said. The new sanctions are expected to cut exports by half, creating storage problems for what Iran can't sell and potentially forcing the government to shut down wells.

Those prospects have instigated the muscle-flexing coming out of Tehran in recent days, according to those monitoring the situation.

"I don’t think Iran will try, or that it would succeed in closing the Strait of Hormuz, but they will probably harass shippers in hopes of having an impact on the neighbors' ability to ship out oil," said Suzanne Maloney, senior fellow at the Brookings Institution's Saban Center for Middle East Policy.

Attempts to cast Iran as a victim won't rally nationalist spirits for long, Maloney said.

"These themes of conspiracy and economic warfare and of the world being against Iran are part of their history, but they are going to feel the impact of these sanctions in a way that nothing else in the revolution or the Iran-Iraq war had on their lives and wallets in the past 33 years," she said.

The rial has lost 40% of its value against the U.S. dollar since a round of sanctions were approved late last year. As jobs disappear in a shrinking oil industry and household incomes decline, Iranians may come to see their leaders as the cause of their hardships.

Alon Ben-Meir, an Iraqi-born Middle East scholar at New York University's Center for Global Affairs, expects the standoff over Iran's nuclear program to be resolved if and when its leaders realize they will lose power unless they abandon it.

Iran's Islamic leaders see themselves as the guiding influence of the Shiite-inhabited crescent that extends from the Persian Gulf to the Mediterranean Sea through Iraq, Syria and Lebanon, said Ben-Meir. That is why Tehran has insisted on inclusion in the Syrian peace process, he said, to ensure that the minority Shiite-offshoot Alawite sect of Syrian President Bashar Assad retains its grip on power and its political allegiance to Iran.

Israel has threatened to bomb Iranian nuclear facilities if they appear to be near to producing atomic weapons or entering what Ben-Meir calls the "zone of immunity," the relocation of development activities to fortified compounds like one at Fordow, near Qom, that would be invulnerable to air strikes.

Iranian lawmakers have already summoned President Mahmoud Ahmadinejad to parliament to explain why the economy has deteriorated so rapidly, said Ben-Meir, and the public is "not buying all of this" when told the setbacks are the result of unjustified sanctions.

Defiance is playing well on the domestic front in these early days, say the analysts, but Tehran's leaders will ultimately have to decide between the nuclear program and popular demands for decent living standards.

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Photo: An upgraded medium-range Shahab-1 missile is launched during the second day of military exercises on Tuesday by Iran's elite Revolutionary Guard at the Lut desert in southeastern Iran. Tehran's response to tightened sanctions has been defiance. Credit: Mojtaba Heydari/European Pressphoto Agency

EU summit stirs little hope of curing what ails the euro

Economic gurus have called on the European Union for bold and swift action at its Brussels summit to restore confidence in the euro by creating a banking union and collectively guaranteeing struggling members' wobbly debts.

But all indications from the key players in Europe's troubled integration project suggested investors and analysts should curb their enthusiasm, as little is expected to come out of the Thursday-Friday gathering of leaders deeply divided over the path forward.

German Chancellor Angela Merkel reiterated Wednesday that pooling debts and merging banking operations without centralized regulation would be “economically wrong and counterproductive.” Subjecting countries like Germany to the consequences of other euro users' spendthrift ways also raises constitutional issues, she told the German Parliament on the eve of the summit.

“Because I know the expectations and hopes that are pinned on this summit, I will repeat right at the start what cannot be said often enough,” Merkel said. “There is no quick solution and no simple solution."

Her view that bloc-wide structural changes are needed first to stabilize the euro were reflected in a blueprint  issued Tuesday by European Council President Herman Van Rompuy in which the continent's leaders laid out a vision for a "stage-based process" for economic and monetary union. It speaks of "building blocks" and "a working method" to be identified by December for integration that would be accomplished over a decade.

Diplomacy divided and failing as Syria violence escalates

Syria's decision to kick out Western diplomats -- many of whom had already left the country -- spoke volumes about the evaporating authority of the international community to rein in violence that has been escalating for 15 months and has killed at least 10,000 people.

Damascus cast the move to expel 17 senior envoys representing 11 nations as "working on the principle of reciprocity." The United States and its allies last week banished Syrian diplomats to express their outrage over the May 25 massacre of more than 100 civilians in Houla township.

But the expulsions Tuesday had more than a symbolic, tit-for-tat quality, coming as they did amid recent signs by both embattled President Bashar Assad and the scattered rebel forces fighting to oust him that they see a United Nations-brokered cease-fire as dead.

The gesture of pique by Damascus also coincides with a change at the helm of the U.N. Security Council, where China's ambassador will this month serve as president of the only world body with the power to impose sanctions or take other definitive actions. The powers of the rotating presidency are mostly administrative, said U.N. spokesman Farhan Haq, but also include the authority to set the council's agenda, give priority to the issues before the body and decide who among the 15 member states gets the floor at key moments in discussions.

China is one of five permanent members of the Security Council and as such can veto decisions, a power it has already wielded, along with Russia, at several critical junctures in the Syrian conflict to shield Assad's regime from global sanctions and censure.

China's U.N. ambassador, Li Baodong, the newly anointed council president, told reporters at a Monday news conference that China doesn't intend "to protect anybody against anybody," alluding to concerns  that Beijing will continue to thwart any blame or punishment of Assad.

China and Russia, ever resistant to outside interference on human rights matters they consider domestic concerns, have used their Security Council vetoes to shield Damascus from more painful sanctions urged by Western and some Arab nations.

“What we really want to see is that the sovereignty of that country can be safeguarded, and the destiny of that country can be in the hands of the people in Syria,” Li said, calling on all sides to honor the six-point peace plan drafted by former U.N. chief Kofi Annan but widely ignored by government loyalists and the rebels.

The 15-nation Security Council voted last week to condemn the Houla massacre, in which armed men went house to house killing civilians, most of them women and children. The resolution of censure didn't specifically blame Assad's troops or militiamen for the killings because of Chinese and Russian objections. U.N. monitors who investigated the slayings concluded that most were committed by paramilitary loyalists of Assad.

Like his allies in Russia and China, Assad has paid lip service to Annan's peace plan in what Middle East analysts see as a time-buying maneuver that staves off calls in the United States, Turkey, Saudi Arabia and elsewhere for more forceful intervention to protect Syrian civilians from their government's armed supporters.

On Sunday, Assad lashed out at what he called "a foreign conspiracy" to foment violence in his country. He has blamed "terrorist" forces from the onset for the fighting wracking Syria, in an attempt to discredit the broad-based opposition that began peacefully demonstrating for his ouster in March 2011.

Annan's plan took effect with a cease-fire six weeks ago that has failed to get Assad to remove troops and heavy artillery from Syrian cities and seems to have done little or nothing to quell the fighting by either side.

A new rebel alliance announced in Istanbul on Monday signaled that it considers the cease-fire a failure and no longer in force. Khaled al-Okla, an organizer of the Syrian Rebels Front, told journalists at a conference in the Turkish city that the new opposition network was formed to answer the "scorched-earth policy" of Assad's regime and in response to "the failure of all Arab and international initiatives to rein in Assad from his crimes."

It was unclear how the newly formed rebel front would coordinate with the Free Syrian Army, another rebel coalition whose leaders operate beyond Syria's borders and with minimal control over the operations of the local rebel units inside Syria. The front claimed to have more than 100 fighting units in Syria, and its founders showed video clips of masked gunmen declaring their allegiance to the cause of deposing Assad.

While the bloodshed looked likely to continue and even escalate, signs have emerged that the 15 months of internal uprising and outside sanctions are taking their toll on the regime. Syria's minister for trade and economic policy, Nidal Shaar, told the parliament Tuesday that "unjust sanctions" imposed by the United States and Europe have caused food and fuel shortages, inflation and a production slump, according to the Syrian Arab News Agency. The Syrian oil minister last month put the loss from fuel trade at $4 billion.

Syrian news media also reported that rebels have killed 80 soldiers, including a general, in the last few days. SANA reported on a sudden dramatic increase in burials, declaring they were for "martyrs" slain in a conflict directed by outside powers.

The banishing of diplomats from Damascus is likely to have little direct effect on diplomatic efforts to resolve the conflict that many now fear is sliding into all-out civil war, as U.S. Ambassador Robert Ford and others among the 17 named personae non gratae had already returned to their home countries or moved to other posts in the region. But the expulsions were nonetheless a signal that Assad's regime sees nothing to gain by staying in touch with the foreign governments that he has cast as orchestrators of the revolt against him.

Annan plans to brief the U.N. General Assembly on the Syria crisis at a meeting Thursday, then discuss the latest developments in a closed-door session of the Security Council. He will also meet with U.S. Secretary of State Hillary Rodham Clinton in Washington on Friday. 

With Russia and China unwavering in their position that Syria's conflict is for Syrians to sort out, and the United States and its allies increasingly convinced Assad's autocratic rule must come to an end, international diplomacy appears irreconcilably divided and powerless to halt Syria's descent into escalating violence and chaos.

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--Carol J. Williams in Los Angeles

Photo: Free Syrian Army militants ride through a town in the northwestern province of Idlib on June 5, 2012. Rebels fighting Syrian President Bashar Assad reportedly killed 47 government troops on Tuesday, according to the rebels' Shaam News Network and the London-based Syrian Observatory for Human Rights. Credit: Shaam News Network via AFP / GettyImages

 

Eurozone crisis: A love-hate relationship imperils the currency

The Irish voted "with a heavy heart" this week to tough out the hardships of remaining a member of the Eurozone. Greek and French voters protested the pain of austerity last month by throwing out leaders who had been slashing jobs and services to reduce debt. Spain and Italy may be more committed to the belt-tightening required to shore up the euro, but skeptical investors could undermine those sacrifices by waging a run on their banks.

Europeans have been lurching from one crisis to another for the last four years as recession wreaked havoc with many of the 17 Eurozone economies that have too little in common beyond the coins and banknotes they use. Some of the world's most influential economists now worry that crisis could escalate to catastrophe if Greeks heed the siren song of a fiery leftist telling them they can keep their euros but renege on austerity measures they promised in exchange for bailout funds.

A German-led effort to get the bloc's financial houses in order has exposed flaws in the common currency's management and ambivalence among euro users about the continent's ambitious goals for economic integration. What is accepted by frugal, savings-minded Northern Europeans as laudable restraint in public spending has sown resentment in Eurozone countries ravaged by high unemployment, teetering banks and withering cuts in social services.

Ireland's vote to approve the fiscal treaty signed this year by 25 of the European Union's 27 member states was a convincing 60.3% in favor. But politicians on both sides of the issue acknowledged that it was a hard pill to swallow for a country struggling to meet its obligations after being bailed out by Eurozone colleagues in 2010.

Ireland had one of the highest deficits in the Eurozone three years ago, but it has cut spending and debt enough to see prospects for emerging from a four-year recession. Small signs of economic improvement -- a marginal drop in unemployment last month and a hint of growth over the last year -- were enough to push the Irish to commit to the Eurozone's collective debt-reduction goals by endorsing the treaty.

"The astonishing thing about this campaign was that lots of people voted 'yes' with a heavy heart, and many voted 'no' with a heavy heart," said Joan Burton, Ireland's social protection minister, citing concerns in both camps about the treaty's potential constraints on spending to create jobs.

The long-term good may not be so prominent in the minds of Greek voters when they go to the polls June 17 to choose among candidates making brash and contradictory promises about Greece's future in the Eurozone. Alexis Tsipras has moved his radical left Syriza party to the political fore, according to the latest poll, with his vow to bail on the bailout terms and his dubious assertion that Greece would nevertheless retain use of the euro.

“The first act of a government of the left, as soon as the new Parliament is sworn in, will be a cancellation of the bailout and its implementation laws,” Tsipras told boisterous supporters Friday when he outlined the party's economic platform.

All recent polls in Greece have shown Syriza and the conservative New Democracy Party running a close battle for popular support, but neither likely to get enough votes to form a government on its own. That threatens a repeat of the fractured May 6 vote and futile attempts among the irreconcilable parties to form a coalition government. The latest survey -- and the last before a two-week moratorium on polling ahead of the election -- on Friday showed Syriza almost doubling its share of the vote captured last month, with 31.5% support compared with 25.5% for New Democracy, which finished first on May 6.

In a sign of the disarray afflicting Greece, the country didn't manage to update its unemployment statistics for the last three months for an EU report released Friday showing a euro era-high 11% joblessness across the currency union. In February, the last month for which Athens has released figures, 21.7% of Greeks were out of work.

More job cuts and tax hikes were due to be imposed this month ahead of the next payment of bailout money from Brussels. Those cuts have been essentially suspended in the absence of an elected government.

As Eurozone residents hold their breath awaiting the next Greek vote, more immediate worry has settled on Spain, where national leaders are urging fellow Europeans to help rescue Spanish banks saddled with defaulted loans issued during a building boom in the years before recession hit in 2008. Spain last week promised troubled lender Bankia nearly $24 billion to keep it afloat, but borrowing rates have soared to record highs -- nearing the 7% rate that pushed Ireland, Portugal and Greece over the edge and forced them to seek bailouts.

Spain, the fourth-largest economy in the Eurozone, may be too big to bail out, economists say, spreading fears for the future of the entire common-currency project.

The EU commissioner for monetary and economic matters, Olli Rehn, warned during a speech in Helsinki, Finland, on Friday that "the way things are going and under the current structures, the euro area has a significant risk of breaking up."

Eurozone states have "extremely tough decisions ahead, and it’s important to face the truth,” Rehn said, alluding to suggestions among other financial leaders that contingency plans should be drawn up to cope with the worst-case scenarios being threatened from several euro states.

Earlier this week, the European Commission called for creating a "banking union" that would allow the bloc's financial institutions to invest directly in troubled national banks, rather than force already indebted states to take on further obligations at unsustainable interest rates. But Germany has resisted the idea of pooling its sterling credit with other euro users, and Chancellor Angela Merkel also remains steadfast against loosening the spending shackles on struggling states to allow them to invest in growth.

The standoff amid possibly impending catastrophe has alarmed financial experts around the globe.

"The Eurozone is experiencing three crises at the same time -- a fiscal crisis, a banking crisis and a growth crisis," said former U.S. Treasury Secretary Robert E. Rubin, now at the Council on Foreign Relations, citing weak political leadership in Europe and deep concern for the situation in Spain. "If the Eurozone continues to unravel, not only will that have very serious consequences for the Eurozone, but I believe it will have serious and maybe even severe consequences for the entire global economy, including the United States."

In a commentary Friday in Britain's Financial Times, World Bank President Robert Zoellick drew disturbing parallels between what is happening now in Europe and the financial crises that were the bellwethers of the 2008 collapse on Wall Street.

"Events in Greece could trigger financial fright in Spain, Italy, and across the Eurozone," Zoellick wrote, saying that the summer ahead had "an eerie echo of 2008."

Eurozone leaders need to be ready to recapitalize banks if spooked investors rush to withdraw their euro-denominated assets, he said.

"There will not be time for meetings of finance ministers to discuss the outlook and debate the politics of incrementalism," Zoellick said. "In panicked markets, investors flee to safe assets, sparking other flames."

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--Carol J. Williams in Los Angeles

Photo:  Alexis Tsipras, leader of Greece's radical left Syriza, presents the party's economic program in Athens on Friday. Tsipras vowed to cancel harsh austerity measures demanded by the Eurozone leaders in return for bailouts of Greece's heavily indebted economy. Credit: Simela Pantzartzi / European Pressphoto Agency.

Peru police arrest mayor who led mine protests

LIMA, Peru --  Peruvian police on Wednesday arrested a mayor who supported protests against a mining project in southeastern Peru amid violence that  prompted President Ollanta Humala to declare a state of emergency this week.

Espinar Mayor Oscar Mollohuanca, one of the principal leaders of a weeklong protest against a $1.5-billion expansion of the Tintaya copper mine, was forcibly detained at City Hall and later transferred to a jail in Cusco. The apparent reason was his support of a general strike in defiance of Humala's emergency decree.

More than a dozen police officers entered City Hall to arrest Mollohuanca as he was meeting with other city officials,  television reports said.

Over the last several days, violent protests have left two civilians dead and at least 70 police officers injured in Espinar province. The proposed project would be an expansion of a mine operated by Xstrata of Switzerland.

 Humala's emergency decree on Tuesday suspended constitutional rights, including freedom of speech and assembly.

Local residents have complained about Xstrata's hiring practices and alleged environmental violations, as well as claiming the  royalties paid to local governments are too small.

 At least 1,500 police officers were sent to Espinar province by Humala in a bid to restore order. Another protest leader, Herbert Huaman, was arrested Tuesday.

Also on Wednesday, protesters announced  a general strike in northern Cajamarca province in protest of the Conga mining project proposed by Newmont Mining of Colorado. The $4.8-billion project has been in abeyance for several months since Humala declared a state of emergency there as well after  widespread protests.

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-- Adriana Leon

Photo: A protester in Peru prepares to sling a rock at police during clashes linked to a strike against Swiss miner Xstrata. Credit: Fredy Hurtdado / European Pressphoto Agency