One significant factor which may be in the minds of Italian citizens today is that Italian Prime Minister Silvio Berlusconi has been - along with Jose Maria Aznar - one of the firmest eurozone supporters of the Iraq war. (Interestingly Klinga over at Living in Europe draws attention to the way a similar atmosphere may also exist in Poland). But this concern over the risk of a possible attack comes on top of an already weak confidence situation following an apparent economic growth standstill and the high profile Parmalat scandal.

The Italian confidence report is in fact the second from Europe to show the effect of the bombings. An index measuring German investor and analyst sentiment published last week posted the biggest decline in 16 months.

With exports affected by the 20 percent plus euro appreciation, economic growth in Italy ground to a halt in the final quarter of last year. Indeed Italian industrial production continued to decline in January for the second consecutive month.

The euro's gain against the dollar, which has made European goods sold to the U.S. more expensive, has weighed heavily on any recovery which may have been in the offing in Italy. Exports to the U.S - which are responsible for 10 percent of Italy's total exports (the US is its third-biggest trading partner) - fell 27 percent year on year in January2004.

Meanwhile in France, which is the second-largest economy in the euro zone, consumer spending was unchanged in February from the previous month, according to the Paris-based statistics office Insee.

All of this means there is increased pressure over at the ECB. Leading EU politicians like Gerhard Schroeder and Jean-Pierre Raffarin have been urging the European Central Bank to lower interest rates in an attempt to revive growth. ECB officials including President Jean-Claude Trichet have previously rejected the calls, saying that borrowing costs are already low enough.

The Madrid bombings, however, have increased speculation about a rate reduction. The implied rate on the three-month Euribor interest-rate futures contract for June delivery has it seem fallen today to 1.93 percent today from 2 percent on March 11. That rate is now lower than the ECB's benchmark refinancing rate of 2 percent. The markets themselves have today responded to an interview Trichet gave to the German paper Handelsblatt yesterday (see below) by selling the euro in anticipation of a rate cute.

To give us an idea of where all this may be leading Handelsblatt has an English version of the Trichet interview. In the interview he suggests that the bank might be ready to cut interest rates if domestic consumption does not strengthen as expected. The ECB's next rate-setting meeting is on April 1. Many commentators had thought that it was unlikely we would see any rate move in the near future. Now, given the shift in rhetoric, it seems that the Bank's governing council members are at the very least likely to debate the issue.

You keep complaining about weak consumer confidence. Could lowering the interest rate help to prop it up?

In the normal course of economic activity, recovery most often starts with net exports, then passes over to investment and then, as the third stage of the rocket, so to speak, arrives at consumption. The first two rocket stages have ignited and we continue to follow the relevant hard data. We now have to examine very carefully the ignition process of the third stage. It is clear that household consumption is not only driven by the impact of stronger exports and investment, but also by consumer confidence. We have ascertained that consumer confidence today is not necessarily at the level that would be justified by the basic economic data.

Why is that?

I see three reasons. First, the development of the labour market is not satisfactory. This in turn comes from the structural impediments which characterise Europe and from the previous phase of the cycle. We have good reasons to think that this situation will progressively improve. Second, there is the unfortunate phenomenon that public opinion very often discovers the problems at the moment they are tackled, when governments, parliaments and social partners carry out the structural reforms that are urgently needed. This late and brutal discovery could have a negative impact on confidence. Had the public been more aware of the underlying problems, the reforms, when decided upon and implemented, would have increased confidence. That is the reason why we believe that transparency, pedagogy and tireless explanations are an essential part of preparing structural reforms: we all have a role to play in this domain, including the ECB, to make clear to people the advantages of the reforms as regards growth, job creation and higher standards of living. And third, there is a further point which touches upon the primary objective of the ECB. In a number of countries part of the population has the feeling that the inflation rate could be higher in the future and that their purchasing power will not be appropriately preserved. This has a negative influence on consumer confidence. We, on our side, have all reasons to trust that we have inflation under control and that prices will be in line with our definition of price stability. And we tell the public that we, as the guardians of the currency, are defending their purchasing power, that they can trust us and that they can invest and consume with full confidence.

Unpatriotic or economically imperative? The uncompetitively high cost of labour in Germany is fast becoming a source of friction between business leaders and the government in the eurozone's biggest economy.

Companies argue their only choice is to move jobs abroad, a solution which is set to become easier with the imminent eastwards expansion of Europe.

But Chancellor Gerhard Schroeder, fearing a mass exodus of jobs to low-wage countries at a time when German unemployment is already cripplingly high, has roundly slammed such deliberations as "unpatriotic".

The debate seems to have hotted up in recent weeks, with companies, particularly in the high-tech sector, apparently mulling plans to relocate thousands of jobs abroad.

The powerful metalworking union IG Metall said that the electronics giant Siemens was considering relocating up to 10,000 jobs in its mobile and fixed telephony divisions and its automatisation, energy and transport businesses in order to cut labour costs.

Corresponding plans had been submitted to employee representatives in the activities concerned in recent weeks, the union said.

But it is not only the IT sector -- which is estimated to have lost around 70,000 jobs last year -- that is following the call of lower costs abroad.

The airline Lufthansa is to move large parts of its accounting department and its purchasing activities to Poland and car maker Volkswagen already builds around 13 percent of its vehicles in central and eastern Europe.

And the VCI chemicals industry association found that while the domestic research and development (R and D) budgets of its members were set to stagnate this year, the companies were planning to increase their R and D spending outside Germany.

The DIHK federation of chambers of commerce poured oil on the fire of the controversy this week by appearing to throw its weight behind some sort of campaign for companies to turn their backs on Germany.

DIHK President Ludwig Georg Braun advised companies "not to wait for better policies, but to act and take advantage of the opportunities offered" by the eastward expansion of Europe.

The comments immediately drew fire from the government, currently battling to bring down the chronically high level of unemployment in Germany.

Schroeder slammed the remarks as "unpatriotic". And the new secretary general of Schroeder's Social Democratic SPD party, Klaus Uwe Benneter, was similarly enraged.

"When industry leaders talk down Germany as an economic site in such a way, they're acting irresponsibly," he fumed.

Even the opposition CDU party was up in arms, with the head of the CDU's social committee, Hermann-Josef Arentz, attacking Braun's comments as "bare-faced cheek".

But business leaders insist they have no choice.

The head of the BDI industry federation Michael Rogowski said moving production out of Germany was the only way companies could remain competitive and "secure those jobs that are left in Germany."

High-tech companies such as the software giant SAP agreed.

"If we don't move, then we can't be competitive. We lose market share and then we lose part of the jobs in Germany as a result," SAP chairman Henning Kagermann said in an interview with Financial Times Deutschland.

It was "an economic imperative" to move to low-wage countries.

The head of Siemens' fixed-networks division ICN, Thomas Ganswindt, said that by moving activities abroad, "we're following the markets. Globalisation means that we create value where there is demand for it, that is to say, where there is growth. At the moment, growth is taking place elsewhere."

The attractions of relocating are clear -- an IT employee in India, for example, earns around a third of the amount his German counterpart takes home.

But that was not the only problem. The head of IBM Germany, Walter Raizner, pointed the finger at Germany's inflexible labour market laws.

Countries that had changed their laws were now closer to full employment than Germany was, Raizner said.

And DIHK President Braun rejected the allegation he was unpatriotic.

"True corporate patriotism lies in pushing for consistent policies of reform," he argued.
Source Yahoo News

His disappointment with the book is primarily caused by its unwillingness to fundamentally challenge some of the myths of rationality of current US foreign policy. Quite to the contrary, Mr Pfaff has no inhibitions to call them all by their name, despite being aware that many of the myths of past and present American foreign policy and politics, particularly the notion of a "unique historical mission — whether or not divinely commissioned" — are not open to logical refutation.

That said, I think the last part of his essay is one of the most eloquent descriptions of the communicative disaster that happened particularly between Europe and the US in the last two years.

"Every country has a "story" it tells itself about its place in the contemporary world. We are familiar enough with the American story, beginning with the City on a Hill and progressing through Manifest Destiny toward Woodrow Wilson's conviction we are "to show the way to the nations of the world how they shall walk in the paths of liberty.... It was of this that we dreamed at our birth." The current version of the story says that this exalted destiny is fatefully challenged by rogue nations with nuclear weapons, failed states, and the menace of Islamic extremists. Something close to Huntington's war of civilizations has begun. National mobilization has already taken place. Years of struggle lie ahead.

The "isolation" of the United States today is caused by the fact that its claims about the threat of terrorism seem to others grossly exaggerated, and its reaction, as Brzezinski himself argues, dangerously disproportionate. Most advanced societies have already had, or have, their wars with "terrorism": the British with the IRA, the Spanish with the Basque separatist ETA, the Germans, Italians, and Japanese with their Red Brigades, the French with Palestinian and Algerian terrorists, Greeks, Latin Americans, and Asians with their own varieties of extremists.

America's principal allies no longer believe its national "story." They have tried to believe in it, and have been courteous about it even while skepticism grew. They are alarmed about what has happened to the United States under the Bush administration, and see no good coming from it. They are struck by how impervious Americans seem to be to the notion that our September 11 was not the defining event of the age, after which "nothing could be the same." They are inclined to think that the international condition, like the human condition, is in fact very much the same as it has always been. It is the United States that has changed. They are disturbed that American leaders seem unable to understand this.

When American officials and policy experts come to Europe saying that "everything has changed," warning that allied governments must "do something" about the anti-Americanism displayed last year in connection with the Iraq invasion, the Western European reaction is often to marvel at the Americans' inability to appreciate that the source of the problem lies in how the United States has conducted itself since September 2001. They find this changed United States rather menacing. An Irish international banker recently observed to me that when Europeans suggest to visiting Americans that things have changed in Europe too, as a direct result of America's policies, "it's as if the Americans can't hear." A French writer has put it this way: it has been like discovering that a respected, even beloved, uncle has slipped into schizophrenia. When you visit him, his words no longer connect with the reality around him. It seems futile to talk about it with him. The family, embarrassed, is even reluctant to talk about it among themselves."

For the first time, voter participation in regional elections has increased in France. Somewhere between 60 and 62% of registered voters participated, while the figure was some 57% in 1998. It is unclear to me whether this reflects the growing importance of regional government or the opportunity to protest the ruling UMP government.

It certainly has been a bad day for the conservative UMP. They appear to have taken on 23% of the vote, compared to 40% for the Socialist-Green coallition and roughly 17% for the Front National, making their overall share of the vote roughly stable over the last several elections. The Communists have made a significant recovery after their record low 3.4% of the vote in the last presidential election, receiving roughly 5% of the vote overall and over 8% in all the regions where it ran outside of any coallition. The far left coallition Lutte Ouvrière - Ligue Communiste Révolutionaire received a comparable number of votes to the mainstream Communists, but this is substantially lower than during the last presidential election and comparable to their 1998 returns in the regional elections. The UDF - a mainstream right-wing party allied with the UMP - picked up another 11% of the vote, making the overall vote for government-supported parties roughly 34%.

At present, the mainstream right is leading in only five regions in all of France. This election - like all French elections - takes place in two rounds, so it's not over yet. However, the right's position in this election is fragile in almost all parts of France.

Although the bulk of the power in France is still in the central government, this raises the prospect of something that hasn't happened in France in quite a long time: a central government faced with meaningful opposition rule in the regions. Will the left and the far right use regional government to attack the government in Paris? France's entire administrative structure, from 1789 to 1982, was designed to make that impossible. This may have a significant impact on the future of decentralisation in France.

The article claims that the document bears witness of a new strategic sobriety within Al Quaida, as it renounces to many of the religious references of previous terror-guides. Accordingly, the paper has allegedly been signed by a "Service Center for Mujahedin" and not, as was apparently customary, by a "Coalition against Jews and Crusaders".

With respect to the Madrid bombings, Mr Musharbash explains that the document suggests the terror consultants had singled out Spain as first brick in a domino chain after a detailed analysis of Spanish domestic policy, particularly the tension between the Aznar-led government and a large part of the population with respect to the country's Iraq policy. The article quotes from page 33 of the document (my retranslation from German) -

"We believe that the Spanish government will not be able to bear more than two, maximal three strikes until popular pressure will lead to a troop withdrawal from Iraq. If Spanish forces were to remain in Iraq despite these attacks, a victory for the Socialist party would be almost certain and a troop withdrawal would be on the electoral agenda."

And With Spain on retreat, other countries might follow. Poland and Italy are the next bricks to fall, according to the terror guide (see Scott's post below).

It's evidently impossible to tell if the document is really authentic or not. The timing of its public appearance certainly adds to the ambiguity. But even assuming that it were authentic - the indication that terrorists are more aware of their limitations and the need to use their "assets" strategically, more "rationally", does not in itself help to answer the question whether they are stronger or weaker now than before.

So let's hope it is a sign of weakness.