Global stock markets braced for further turmoil after S&P downgrades Italy

Global financial markets are bracing themselves for another day of turmoil on Tuesday after credit ratings agency Standard & Poor's downgraded Italy late on Monday night.

By Philip Aldrick, and agencies

The news came after panic gripped global markets as a fresh showdown over Greece renewed fears that the eurozone will be plunged into crisis.

The rating for Italy, which has Europe’s second-largest debt load, was lowered from A+ to A, S&P said in a statement. The agency said the country's net general government debt is the highest among A-rated sovereigns, and now expects it to peak later and at a higher level than it previously anticipated.

“In our view, Italy’s economic growth prospects are weakening and we expect that Italy’s fragile governing coalition and policy differences within parliament will continue to limit the government’s ability to respond decisively to domestic and external macroeconomic challenges,” S&P said in a statement. "The measures included in and the implementation timeline of Italy's National Reform Plan will likely do little to boost Italy's economic performance, particularly against the backdrop of tightening financial conditions and the government's fiscal austerity program."

S&P also said it lowered its outlook for Italy’s annual average growth to 0.7pc for 2011 to 2014, from a prior projection of 1.3pc.

The Italy downgrade wiped around 70 points off the 24-hour Dow. The euro/dollar slumped more than half a cent to 1.36. The FTSE 100 is now expected to open flat on Tuesday.

"It's just more of the same negative news," said Stephen Roberts, a senior economist at Nomura in Sydney.

"It only adds to the contagion risk over Greece and has encouraged the flight to safety in markets here," he added, pointing to a sharp fall in the Australian dollar on the news.

Earlier, as Greece and the bail-out "troika" of the International Monetary Fund (IMF), the European Union (EU) and the European Central Bank (ECB) thrashed out their differences, investors hit the sell button – hammering confidence and threatening the recovery.

Greece warned that it is just weeks away from default unless the troika releases an €8bn (£7bn) instalment of its original €110bn rescue. Creditors, though, stressed that they need evidence the country is delivering on its promised spending cuts.

In a robust exchange, Bob Traa, the IMF's representative in Greece, urged the government to outline plans to shrink a bloated public sector to avoid further emergency taxes – arguing that Athens should give up the "taboo" of firing civil servants. "I have compared Greece to a Mercedes that can go 120 kilometers per hour but is only going 40 because it has so much sludge in the engine," Mr Traa said.

In response, the Greek finance minister Evangelos Venizelos claimed European and international institutions were using Greece as a "scapegoat" to "hide their own lack of competence to manage the crisis". The country, he said, had been "blackmailed and humiliated".

He later admitted to holding “productive and substantive” talks with the bail-out “troika”. These are set to continue, with sources indicating that a deal could be sealed as early as Tuesday.

The stand-off spooked markets across the world. European and US indices slumped, and £28bn was wiped off the FTSE 100 as its four-day rally came to a juddering halt.

Signs of stress were once again evident in the bond markets on fears the crisis would rapidly spread, with yields on Italian and Spanish government debt climbing closer to the dreaded 6pc level widely seen as the point of no return. The euro weakened to a near seven-month low against the dollar, falling 1.2pc to $1.3631. Sterling fell to a nine-month low against the dollar.

Greece must demonstrate that it can hit its deficit reduction targets but the deeper-than-expected recession, sluggish privatisation programme and the authorities' failure to collect taxes is jeopardising its efforts.

Proposing roughly 100,000 job cuts by 2015, Mr Traa said: "This will inevitably require the closure of inefficient state entities as well as reductions in the excessively large public sector workforce and generous public sector wages, which in some cases are above those of the equivalent private sector workers."

Rejecting a new property tax, he added: "This will neither be economically or politically sustainable." Better would be a "much stronger resolve to tackle the problem of tax evasion".

Mr Venizelos accepted that Greece had "delayed" major structural reforms and that the tax collection system was ineffective. Preparing the country for more austerity, he said: "We cannot go forward without the true implementation of major structural reforms."

World Bank chief Robert Zoellick warned that the euro crisis now threatened a wider downturn. "The drop in markets and confidence could prompt slippage in developing countries' investment and a pull-back by their consumers, too," he said.

Investors are now looking to the US Federal Reserve to help by restarting quantitative easing. The Fed meets on Tuesday and Wednesday to discuss the state of the economy and may decide to undertake more stimulus.

Italy follows Spain, Ireland, Portugal, Cyprus and Greece as euro-region countries having their credit rating cut this year.

Prime Minister Silvio Berlusconi passed a €54bn austerity package this month that convinced the European Central Bank to buy its bonds after borrowing costs surged to euro-era records in August.

Tony Bennett on 9/11 Attacks: ‘They Flew the Plane in, But We Caused It’

American icon Tony Bennett took to the airwaves at Sirius Radio to promote his new album, “Duets II,” but it’s what he said about war, peace, terrorism, and who was to blame for the Sept. 11 terror attacks that could get people talking.

Sitting down with Howard Stern on Monday, the 85-year-old singer dodged questions about his sex life and prior drug use. He did so with a laugh, but matters about the U.S. military and 9/11 were fair game, and on these topics the Grammy winner held little back.

Beginning with his service in World War II, Bennett said that his experiences as a teenager in combat forever changed his position on war.

“I’m anti-war,” he said. “It’s the lowest form of human behavior.”

Drafted by the U.S. Army in November 1944, Bennett served as an infantryman in Europe, moving across France, and later into Germany.

“The Germans were frightened. We were frightened. Nobody wanted to kill anybody when we were on the line, but the weapons were so strong that it overcame us and everybody else.”

Bennett credited the Army with allowing him to study singing under the GI Bill. He also admitted that his two years of service gave him enough time to witness the horrors of war.

“The first time I saw a dead German, that’s when I became a pacifist,” he said.

He told Stern that he was left forever shaken by the sight of death.

“It was a nightmare that’s permanent,” he said. “I just said, ‘This is not life. This is not life.’”

Bennett, 65 years after leaving his military life behind, has sold over 50 million albums and developed definite opinions about other wars involving the United States.

“To start a war in Iraq was a tremendous, tremendous mistake internationally,” he said.

Stern then asked Bennett about how America should deal with terrorists, specifically those responsible for the 2001 attack on the World Trade Center.

“But who are the terrorists? Are we the terrorists or are they the terrorists? Two wrongs don’t make a right,” Bennett said.

In a soft-spoken voice, the singer disagreed with Stern’s premise that 9/11 terrorists’ actions led to U.S. military involvement in Iraq and Afghanistan.

“They flew the plane in, but we caused it,” Bennett responded. “Because we were bombing them and they told us to stop.”

Following seconds of silence, Stern said that his guest was “making some good points.”

Before leaving, Bennett recalled an evening in 2005 when he was honored at the Kennedy Center. Meeting President George W. Bush at the event, the singer said that the commander-in-chief shared his opinion about the Iraq War.

“He told me personally that night that, he said, ‘I think I made a mistake,’” Bennett said.

Bennett believed that the president made this revelation because “he had a special liking to me.”

'Gaddafi evading capture in a Mercedes 4x4 bristling with anti-tracking systems... and it was given to him by Nicolas Sarkozy'

Loyalist fighters hold out for second day in Bani Walid

By Nabila Ramdani

Muammar Gaddafi has escaped in a state-of-the-art armoured vehicle provided by Nicolas Sarkozy, it emerged today.

In the latest extraordinary twist to the Libyan rebellion, it emerged that the French President gave the ‘green light’ to the Arab dictator receiving the £3.5 million converted Mercedes 4x4 in 2008.

Not only is it filled with communications systems capable of keeping Gaddafi in touch with his forces, but it can foil the kind of tracking systems used by the military as they try to hunt him down.

It was Mr Sarkozy who ordered French jets to start bombing Gaddafi’s forces back in March, and last week he and Prime Minister David Cameron enjoyed a triumphant trip to the newly liberated Tripoli.

But investigative news site Mediapart has found documents proving that French technology firm Amesys was allowed to provide Gaddafi with the command vehicle.

The revelation comes on the day that pro-Gaddafi fighters fired anti-aircraft guns at revolutionary forces holding the northern gate of Bani Walid for a second day, as frustration with weeks of halting advances grows among the former rebel ranks.

Click here for full story

“Everyone, everywhere, is buying gold”

by Pierre-Francois Besson, swissinfo.ch

Gold, a safe haven just like the Swiss franc, is breaking records and should continue on its upwards spiral, expert Frédéric Panizzutti tells swissinfo.ch.

Panizzutti, vice president at Geneva-based gold trading group MKS Finance, says gold’s advantage is that it can be exchanged all over the world and against all currencies.

But some are convinced that the gold bubble will burst. What is true is that gold has been hovering above the $1,800 (SFr1,421) per ounce (around 31 grams) threshold in recent days, reaching a record $1,900 per ounce for a time on Tuesday – and price of the metal has risen by almost a third since the beginning of the year.

swissinfo.ch: Why has gold become a safe investment?

Frédéric Panizzutti: All the securities that you can buy today – bonds, shares, currencies – have a credit risk. Gold is one of the only monetary securities which doesn’t have a debtor-creditor relation. The only risk is a price and fluctuation one.

Furthermore, gold can be exchanged pretty much all over the world quite easily and it can be exchanged against all types of currencies. This is what fundamentally makes it a safe investment.

swissinfo.ch: Gold is breaking records over price. Would you say there is a bubble?

F.P.: The issue today is not whether gold is worth its value or not. It is worth its value because people are buying it at that price. The fundamental problem is the lack of low-risk investments on the world markets.

The currencies – the dollar, euro and the stock markets are the problems. Bonds can also become a problem with the current and future lowering of credit ratings. Governments and individuals are therefore interested in gold to reduce risk and to diversify. They are not buying gold for gold’s sake, but because there isn’t anything else.

swissinfo.ch: What makes up the demand for gold?

F.P.: One can divide purchases into the groups: jewellery, speculation and savings, which can be either a security or a safe investment. The largest part is clearly safe investment, which in turn is largely make up of physical gold [coins, bullion].

This is the only way of avoiding credit risk. If you buy institutional gold [as, for example, an exchange-traded fund, futures or shares in a gold company] you will always have a risk.

swissinfo.ch: Who is buying gold?

F.P.: Everyone – and that’s what’s really changed over the past years in the market. Ten years ago, the dealers in gold were specialists, jewellers, traders and certain investors. Today gold has become much more popular. Everyone, everywhere, is buying gold.

swissinfo.ch: Where and how do you buy it?

F.P.: For physical gold the situation varies from one country to another. Big consumers like India, the Middle East or Asia are well organised and gaining access to gold is very easy. There are gold sellers at every street corner, who buy and sell.

In Europe it used to be more difficult to access physical gold. But the big demand these past three years has led to more sales outlets and to gold becoming more accessible, with little specialist stalls but also more and more banks selling physical gold at their counters. The system has adapted to demand.

swissinfo.ch: Since when has gold been undergoing this boom?

F.P.: At the end of the 1980s and in the 1990s the trend was to sell gold and certain central banks were liquidating their gold. The criteria for selling were mostly storage costs, lack of performance, financial stability and the view that gold was no longer a necessary reserve.

But the market panicked after the September 11, 2001 attacks and this issued in a change. People went back to gold and central banks slowly stopped selling it. The successive crises, including this last one, have reinforced this feeling that gold is a risk insurance against bear markets.

Added to this is the fact that today, as their balance sheets show, central banks are also buying gold… Many central banks have a large part of their reserves in dollars [currency, bonds, shares]. One of the easiest ways of reducing a small part of this dependency it to buy gold and sell dollars. There are other currencies, but the choice of currencies in which most of the market can have confidence is rather limited.

swissinfo.ch: Has gold already had its golden age?

F.P.: No, apart from, perhaps, the spectacular price movement in 1980 [period of inflation and geopolitical uncertainty]. Gold has undoubtedly had other prosperous times in history, but the prices were not recorded. But you can say that gold has reached its apogee today. And because the factors behind this are still there, unless there is a radical change in the situation in the euro zone and the American economy, we can presume that this high will continue.

Holy Land clerics bless Palestinian UN bid

JERUSALEM - Agence France-Presse

Priests in the Holy Land used their sermons on Sunday to give their blessing to the Palestinians' bid for United Nations membership.

The retired Latin Patriarch of Jerusalem, Michel Sabbah, the first Palestinian to hold the post since the Crusades, was to preach in the Roman Catholic church in the northern West Bank city of Nablus.

A joint statement by Catholic, Orthodox, Anglican and Lutheran priests pledged their "support for the diplomatic efforts being deployed to win international recognition for the State of Palestine... on the June 1967 borders with Jerusalem as our capital." The priests went further than their bishops, who in a statement this week confined themselves to a call for intensified prayer and diplomatic efforts ahead of the Palestinian membership request, to be sent to the UN Security Council on Friday.

"Palestinians and Israelis should exercise restraint, whatever the outcome of the vote at the United Nations," the bishops said.

"We call upon decision-makers and people of good will to do their utmost to achieve the long-awaited justice, peace and reconciliation between Israelis and Palestinians." Palestinian president Mahmud Abbas and Israeli Prime Minister Benjamin Netanyahu look set for a UN showdown next week, with Abbas planning to push for membership for a Palestinian state and Netanyahu arguing against it.

"Despite the pressures that we face, Palestine goes to the UN on the 23rd of this month to seek admission as a full member," Abbas told Egyptian television on Wednesday.