Investment experts at Deutsche Bank now feel that a collapse of the common currency is “a very likely scenario.” German companies are preparing themselves for the possibility that their business contacts in Madrid and Barcelona could soon be paying with pesetas again. And in Italy, former Prime Minister Silvio Berlusconi is thinking of running a new election campaign, possibly this year, on a return-to-the-lira platform.

Nothing seems impossible anymore, not even a scenario in which all members of the currency zone dust off their old coins and bills — bidding farewell to the euro, and instead welcoming back the guilder, deutsche mark and drachma.

It would be a dream for nationalist politicians, and a nightmare for the economy. Everything that has grown together in two decades of euro history would have to be painstakingly torn apart. Millions of contracts, business relationships and partnerships would have to be reassessed, while thousands of companies would need protection from bankruptcy. All of Europe would plunge into a deep recession

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As he left the meeting, [Richard] Holbrooke pulled out his trump card ”” a call to Secretary of State Hillary Rodham Clinton, who was traveling in Saudi Arabia. The following week, Clinton went to see Obama armed with a list of Holbrooke’s accomplishments. “Mr. President,” she said, “you can fire Richard Holbrooke ”” over the objection of your secretary of state.” But Jim Jones, Clinton said, could not.

Obama backed down, but Jones didn’t, nor did others at the White House. Instead of capitalizing on Holbrooke’s experience and supporting his push for reconciliation with the Taliban, White House officials dwelled on his shortcomings ”” his disorganization, his manic intensity, his thirst for the spotlight, his dislike of Afghan President Hamid Karzai, his tendency to badger fellow senior officials. At every turn, they sought to marginalize him and diminish his influence.

The infighting exacted a staggering cost: The Obama White House failed to aggressively explore negotiations to end the war when it had the most boots on the battlefield.

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For most Europeans, almost nothing is more prized than their four to six weeks of guaranteed annual vacation leave. But it was not clear just how sacrosanct that time off was until Thursday, when Europe’s highest court ruled that workers who happened to get sick on vacation were legally entitled to take another vacation.

“The purpose of entitlement to paid annual leave is to enable the worker to rest and enjoy a period of relaxation and leisure,” the Court of Justice of the European Union, based in Luxembourg, ruled in a case involving department store workers in Spain. “The purpose of entitlement to sick leave is different, since it enables a worker to recover from an illness that has caused him to be unfit for work.”

With much of Europe mired in recession, governments struggling to reduce budget deficits and officials trying to combat high unemployment, the ruling is a reminder of just how hard it is to shake up long-established and legally protected labor practices that make it hard to put more people to work and revive sinking economies.

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As financial markets slide toward disaster, scarcely pausing to celebrate the “success” of the Greek election or the deal to recapitalize Spanish banks, the euro project is finally revealing its fatal flaw. One country poses an existential threat to Europe ”“ and it is not Greece, Italy or Spain. Every serious proposal to resolve the euro crisis since 2009 ”“ haircuts for bank bondholders, more realistic fiscal consolidation targets, jointly guaranteed eurobonds, a pan-European bailout fund, quantitative easing by the European Central Bank ”“ has been vetoed by Germany, and this pattern looks likely to be repeated next week.

Nobody should be surprised that Germany has become the greatest threat to Europe. After all, this has happened twice before since 1914. To state this unmentionable fact is not to impugn Germans with original sin, but merely to note Germany’s unusual geopolitical situation….

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David Cameron’s historic European Union veto made Britain look “unreliable” and “without credibility” among fellow nations, the Church of England has said.

In an unusual intervention, the Church urged Britain’s leaders to take a more “constructive and positive” attitude towards Brussels because splitting from the EU would be a “travesty”.

It warns that the UK is heading for an exit from the EU unless the Government “finds friends in Europe” and makes more effort to win round eurosceptics.

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As Egyptians celebrated the apparent victory of the Muslim Brotherhood’s Mohammed Morsi in Tahrir Square, the nation’s military power issued an addition to its constitutional declaration that limits the president’s powers in overseeing the military and puts legislative affairs in the generals’ hands.

“The military is clearly trying to turn the clock back to what existed under the Mubarak regime,” said Marina Ottaway, a Middle East analyst at the Carnegie Endowment for International Peace. “What is clear more and more is that the military sacrificed (Hosni) Mubarak to maintain the power of the old establishment.”

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Group of 20 leaders focused their response to Europe’s financial crisis on stabilizing the region’s banks, raising pressure on German Chancellor Angela Merkel to expand rescue measures as contagion engulfed Spain.

As U.S. President Barack Obama called after-dinner talks with euro-area leaders at the G-20 summit in Mexico, the Treasury department’s top international negotiator, Lael Brainard, said Europe is making an effort to “break the feedback loop” between banks and government debt, the link that is worsening Spain’s woes.

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The use of drones is not, in my opinion, inherently immoral in otherwise justifiable military operations; but the risks of death and other grave harms to noncombatants are substantial and certainly complicate the picture for any policy maker who is serious about the moral requirements for the justified use of military force. Having a valid military target is in itself not a sufficient justification for the use of weapons such as predator drones. Sometimes considerations of justice to noncombatants forbid their use, even if that means that grave risks must be endured by our own forces in the prosecution of a war.

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The Eurogroup takes note of the provisional results of the Greek elections on 17th June, which should allow for the formation of a government that will carry the support of the electorate to bring Greece back on a path of sustainable growth.

The Eurogroup acknowledges the considerable efforts already made by the Greek citizens and is convinced that continued fiscal and structural reforms are Greece’s best guarantee to overcome the current economic and social challenges and for a more prosperous future of Greece in the euro area.

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Greece’s conservative New Democracy party eked out a slim victory in Sunday’s elections and will seek to form a pro-austerity coalition government with other parties to take the immediate steps needed to comply with strict financial targets set by its international lenders.

The outcome is likely to ease fears””at least temporarily””of a Greek exit from the 17-nation euro zone, but political uncertainty is likely to continue as parties embark on contentious coalition talks, which, even if successful, may not result in a lasting government.

Read it all and there is a lot more .

After spending yesterday in Berlin, I can tell you the German government is mightily fed up with all this speculation – and fed up with getting blamed for everything bad happening in the global economy (last week’s cover of the Economist, for example).

I interviewed the Deputy Finance Minister – Secretary of State Steffen Kampeter – after the German chancellor’s strident speech to the Reichstag.

He made clear that on one major point – eurobonds – the speculation about what Germany might be willing to accept in time for the summit was simply wrong.

Read it all (emphasis hers).

The mainstream parties “looted Greece, and afterward they took the Greek flag and they offered it to Angela Merkel,” the German chancellor, Mr. [Alexis] Tsipras said in a campaign rally in Athens Thursday.

Though Syriza’s message has caught on, not all of the disaffected are ready to embrace the party. Anna Konstantoulaki, a third-year Spanish-literature student at the University of Athens, voted in May for a tiny party. She doesn’t know what to do now. She is upset with mainstream parties but not sure Mr. Tsipras is capable of running the country.

“I am very confused,” she says. “The last few days, I can’t stop thinking about what is going to happen.” She adds: “I’m scared, actually.”

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For one thing, such a bailout is illegal under the Maastricht Treaty, which governs the euro zone. Because the treaty is law in each member state, a bailout would be rejected by Germany’s Constitutional Court.

Moreover, a bailout doesn’t make economic sense, and would likely make the situation worse. Such schemes violate the liability principle, one of the constituting principles of a market economy, which holds that it is the creditors’ responsibility to choose their debtors. If debtors cannot repay, creditors should bear the losses.

If we give up the liability principle, the European market economy will lose its most important allocative virtue: the careful selection of investment opportunities by creditors. We would then waste part of the capital generated by the arduous savings of earlier generations. I am surprised that the president of the world’s most successful capitalist nation would overlook this.

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France said Wednesday that Syria has descended into civil war and that all means, including force, should be used under international supervision to help restore peace.

French Foreign Minister Laurent Fabius said he would propose that the United Nations Security Council vote on a resolution giving U.N. members a mandate to intervene in Syria, possibly as part of a military operation.

“The situation is now even more serious and abominable,” Mr. Fabius told reporters. He accused the regime of Syrian President Bashar al-Assad of having used children as human shields, echoing allegations in a report issued Tuesday by the U.N. He also said massacres have multiplied over the past few days in the Middle East country.

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A group of more than 30 religious organizations from 20 countries is calling on Sri Lanka to ensure religious freedom for Christian groups.

In a so-called “Colombo statement,” named after the Sri Lankan capital city, the group called the Religious Liberty Partnership (RLP) asked the worldwide church to pray “against the continued violent attacks on clergy and places of Christian worship,” and for the enjoyment of “constitutional guarantees on religious freedom” by all religious groups.

Members of the RLP include Release International, Christian Solidarity Worldwide, Open Doors, and the World Evangelical Alliance (WEA).

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Regime forces pummeled Syrian cities from both the ground and sky Wednesday, opposition activists said, a day after the United States accused Russia of sending attack helicopters to Syria.

The Homs province city of Rastan came under fresh attack from planes and rocket-propelled grenades, the opposition Local Coordination Committees of Syria said. At least two people were killed in Homs province Wednesday, the group said.

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The Syria conflict fell deeper into crisis Tuesday as Secretary of State Hillary Rodham Clinton publicly accused Russia of supplying attack helicopters to the Syrian government.

Her accusation came as international cease-fire monitors in Syria aborted a fact-finding trip after they came under assault by an angry mob and gunfire, and the top United Nations peacekeeping official said Syria was already in a state of civil war.

Those developments ”” coupled with a newly released United Nations report that accused the Syrian military of using Syrians as young as 8 as human shields for troops ”” overshadowed fresh diplomatic efforts by Kofi Annan, the special envoy to Syria, to advance a peace plan that has basically been ignored since it was put into effect two months ago.

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…there are too many unanswered questions. How much capital will actually be provided? Which banks will need to be recapitalized? How will the process be managed? The answers won’t be known until two independent valuation experts have reported at the end of June. The International Monetary Fund assessment estimates €37 billion was needed to ensure all banks had a 7% core Tier 1 ratio on a phased-in Basel III basis. But the market will probably demand at least 9% on a fully loaded Basel III basis after substantial new write-downs, suggesting a number much closer to the full €100 billion.

One key unknown is where the bailout money will come from. Will it be from the old euro-zone bailout fund, the European Financial Stability Facility, or the new European Stabilization Mechanism, due to come into existence in July? If it comes from the ESM, existing government bondholders will be subordinated””no small concern given €100 billion is more than 10% of Spanish government debt outstanding. That could affect the willingness of bond markets to keep funding the government.

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Europe may have sidestepped its latest catastrophe, at least for the moment, by hammering out a €100 billion bailout plan for Spain’s failing banks over the weekend.

But the intervention will do little to address the problem that continues to plague the Continent’s increasingly vulnerable financial institutions. Namely: a longstanding addiction to the borrowed money that provides the day-to-day financing that they need to survive.

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Spain’s banking crisis did not come out of the blue.

In the 1990s, the Spanish suffered a bout of collective madness. Interest rates fell from 14 per cent (with the peseta) to 4 per cent (with the euro) in a matter of weeks.

In 1998, the centre-right government passed a law that increased the amount of land for development. Developers got rich, selling the idea that property would always go up in value. You could buy a flat on the Mediterranean for $156,000 and sell it the next day for $234,000; by the end of the month it would be worth $390,000…..

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Europe is to offer Spain a bailout package of up to €100 billion ($125 billion) to help rescue the country’s banks and keep the 17-country eurozone from breaking apart.

After months of fierce denials, Spain admitted it would tap the fund as it moved faster than expected to stem the economic crisis that has ravaged Europe for two years.

Spain becomes the fourth – and largest – European economy to ask for help and its admission of help comes after months of market concern about its ability to pay its way. In recent weeks investors have demanded higher and higher costs to lend to Spain, and it became clear it would be just too expensive for the country to borrow the money necessary for a bank rescue from the markets.

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The eurozone sovereign debt emergency showed no signs of abating yesterday as the Spanish government desperately haggled over the terms of its expected bailout and the European Central Bank refused to ease monetary policy for the currency bloc, despite signs of stricken European economies sinking still deeper into recession.

Madrid’s Economy Minister, Luis de Guindos, insisted once again he was not making any plans to follow Greece, Portugal and Ireland in requesting a bailout from the European Union and the International Monetary Fund. But, behind the scenes, Spanish ministers accept that an external rescue of the country’s beleaguered banking sector is now necessary. Spain is trying to persuade its European partners to allow the European bailout fund to inject capital directly into its banks, rather than diverting the money through the state. Madrid fears that a full-blown national bailout would be accompanied by an onerous EU/IMF inspection system.

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An essential element of Greece’s recovery plan has been to collect more taxes from a population that has long engaged in tax avoidance. The government is owed 45 billion euros in back taxes, tax officials in Athens said, only a fraction of which will ever be recovered.

To understand the difficulty, just talk to Nikos Maitos, a longtime official in Greece’s financial crimes investigation unit.

When he and a team of inspectors recently prowled the recession-hit island of Naxos for tax evaders, a local radio station broadcast his license plate number to warn residents.

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“Germany should reflect quickly but deeply, and act,” Italian Prime Minister Mario Monti said late last week.

Few Germans, however, share that sense of urgency. With German unemployment at a 20-year low and falling, and the country’s economy continuing to grow despite the debt crisis, not many Germans see the crisis as a threat to their way of life.

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Europe is at the abyss ”” again. Its turmoil is rattling global stock markets and stoking fear and bewilderment. The obvious question is, what’s the solution? The answer is, there is no solution. Europe faces choices, some bad and others worse. Unfortunately, it’s unclear which are which. The best that can be imagined is that Europe lurches from crisis to crisis and that its slumping economy weakens the already fragile global recovery. The worst is a massive flight from the euro and an economic free fall that resurrects the dark days of 2008 and 2009.

Can anyone doubt that the euro’s creation in 1999 was a huge blunder? It aimed to promote European prosperity and unity, but it’s doing just the opposite. The very belief in its early success reduced interest rates in Europe’s periphery (Greece, Portugal, Spain, Ireland, Italy). Low rates fed credit booms and housing bubbles that, once burst, caused recessions and swollen budget deficits.

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Unarmed U.N. monitors ”” a pathetically inadequate force of 300 in a nation of 23 million ”” have been unable to stop the violence, and a cease-fire that began in early April appears to be crumbling. Following the standard rogue-state script, Assad buys time and parries pressure by promising to restrain his forces, but never does.

Given Assad’s barbarity, and the growing regional instability caused by Syria’s violence, many in and out of Congress have demanded air strikes, militarily protected safe zones for Syrian refugees or, at the very least, arming the Syrian rebels.

But just as many, including President Obama, have been cautious, and for good reason. Just because a situation is awful doesn’t mean there’s a good way to fix it.

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….starting today we’ll notify users in mainland China when they enter a keyword that may cause connection issues. By prompting people to revise their queries, we hope to reduce these disruptions and improve our user experience from mainland China. Of course, if users want to press ahead with their original queries they can carry on.

In order to figure out which keywords are causing problems, a team of engineers in the U.S. reviewed the 350,000 most popular search queries in China. In their research, they looked at multiple signals to identify the disruptive queries, and from there they identified specific terms at the root of the issue.

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Euro-zone governments have around three months to ensure the survival of the single currency, billionaire investor George Soros said in a speech on Saturday.

“We are at an inflection point. After the expiration of the three months’ window, the markets will continue to demand more but the authorities will not be able to meet their demands,” he warned in a speech at the Festival of Economics in Trento, Italy. (Read the text of his speech.)

The European Union is “like a bubble” ”“ not a financial bubble but a political bubble — that could pop as a result of the euro -zone crisis, Soros said.

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On consecutive days last week, two of the most powerful figures in Europe ”” Mario Draghi, president of the European Central Bank, and Olli Rehn, the most senior economic official in Brussels ”” warned that the future of the euro zone was in doubt. In the words of Mr. Rehn, the union might well disintegrate unless policy makers took steps to bind the euro’s 17 nations closer together.

Coming as they did from two men at the very soul of the European project, the reprimands were a stark reminder of just how much the Spanish financial meltdown had shaken the confidence of the European brain trust, to say nothing of investors from New York to Beijing.

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Said [Defense Secretary Leon] Panetta: “Well, there’s no question that if a cyber attack, you know, crippled our power grid in this country, took down our financial systems, took down our government systems, that that would constitute an act of war.”

The comment takes on added resonance given the scoop in David Sanger’s new book, “Confront and Conceal: Obama’s Secret Wars and Surprising Use of American Power,” to be published by Crown on Tuesday and excerpted in today’s New York Times.

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