Porsche, Piech Families Said to Sell Car Assets to VW (Update2)

Porsche, Piech Families Said to Sell Car Assets to VW (Update2)
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By Aaron Kirchfeld and Andreas Cremer

April 23 (Bloomberg) -- The Porsche and Piech families plan to sell their main car assets to Volkswagen AG under a plan that would tighten Porsche SE’s grip on Europe’s biggest automaker, according to two people familiar with the matter.

The families, which control at least 51 percent of Wolfsburg, Germany-based VW, intend to sell the Austrian Porsche Holding GmbH unit and the Porsche AG automotive division to VW in return for cash and VW shares, said the people, who declined to be identified because the plan is confidential. As part of the transaction, Porsche SE will issue new shares, a portion of which may be sold to external investors, they said. The plan is backed by VW, the people said.

The asset sale would allow Porsche SE to achieve its aim for greater control of VW, Europe’s largest carmaker, while preserving cash and giving it funds to repay debt, three people familiar with the situation said this month. Porsche, based in Stuttgart, Germany, is struggling to raise the financing needed to reach its goal of obtaining 75 percent of VW, they said.

“One driving motivation is that Volkswagen, being the largest volume producer in the European space, has tremendous cost efficiency that could be married to Porsche’s discipline and lean production capacity,” Stephen Pope, chief global strategist at Cantor Fitzgerald in London, said by telephone.

Frank Gaube, a spokesman for Porsche, and Michael Brendel, a VW spokesman, declined to comment.

Shares Jump

Porsche jumped 3.08 euros, or 6.3 percent, to 52.09 euros in Frankfurt, a three-month high, giving the company a market value of 9.06 billion euros. Volkswagen dropped 8.29 euros, or 3.5 percent, to 230.20 euros.

Credit Suisse Group AG analyst Arndt Ellinghorst, who was voted best autos analyst in Europe in the 2008 Thomson Extel survey, said a transaction between Porsche and Volkswagen would be “fundamentally and financially the most suitable solution.”

A takeover as suggested “would completely capitalize the Porsche holding company and keeping the de facto control of Volkswagen,” said Ellinghorst, who has had an “outperform” recommendation for Porsche since September and has rated VW “underperform” since January 2008, according to Bloomberg data.

A deal would result in the creation of a major automotive holding company spanning cars, trucks and luxury vehicles, the people said earlier this month.

The Porsche and Piech families together control half of Porsche SE. Porsche AG is the operating unit that’s the maker of the 911 sports car and competes with Bayerische Motoren Werke AG. Austrian Porsche Holding is Porsche’s eastern European distribution division.

Largest Supplier

Porsche has accumulated Volkswagen stock since 2005 to protect ties to its largest supplier. Volkswagen provides Porsche with parts and the companies cooperate in building sport-utility vehicles. Volkswagen Chief Executive Officer Martin Winterkorn said today that he is “confident” that deepening ties with Porsche will let the companies increase profitability and market share.

“We’re both capable of forming the center of strength in international carmaking,” Winterkorn said at VW’s annual shareholders’ meeting in Hamburg. “This alliance has enormous potential in technological and economic terms.”

Shrinking European and U.S. car markets have prompted Volkswagen to scale back production, reduce employee hours and eliminate its temporary workforce to stem declines in profit. The carmaker, which reported a 74 percent drop in first-quarter net income yesterday, will be profitable this year, Winterkorn said, reiterating an earlier forecast.

‘Gold Mine’

Porsche Chief Executive Officer Wendelin Wiedeking has said Volkswagen offers a “gold mine” of saving potential that the carmaker can tap to boost profits and that there will be no “sacred cows” at VW.

Volkswagen and Porsche already work together to build sport-utility vehicles and Porsche has tapped VW to assemble its Panamera four-person sedan. The companies also cooperate on SUVs such as Touareg, Cayenne and Audi’s Q7.

Volkswagen’s ties to Porsche go back to the company’s creation under the Nazi regime of Adolf Hitler in the 1930s. Ferdinand Porsche, the grandfather of Volkswagen’s current chairman Ferdinand Piech, was the company’s first leader. Ferdinand Piech’s father, Anton Piech, married Porsche’s daughter and became Volkswagen’s director. The extended Porsche- Piech family controls all of the sports-car maker’s voting shares.

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Billionaire Murdock Forsakes Hawaii Tourists With Wind Farm
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By Nadja Brandt

April 23 (Bloomberg) -- First, he ripped out the pineapples. Then he put up Four Seasons hotels and luxury homes. Next, he envisions 200 windmills towering next to a Hawaiian beach.

It’s all the work of billionaire David Murdock. He turned Lanai Island into a tourist destination, said Waynette Kwon, director of the Lanai Visitors Bureau.

Lanai was mostly pineapple plantations and one 11-room hotel before Murdock’s 1985 purchase of Castle & Cooke Inc., which owns 98 percent of the island. So successful was the transformation that Microsoft Corp. Chairman Bill Gates and his wife, Melinda, chose Lanai as the site of their wedding in 1994.

The aesthetics of the $750 million power project trouble some visitors and residents. It would put 400-foot-tall (122- meter-tall) wind turbines next to Polihua Beach, the longest white-sand stretch on the island.

“I am not going to live on an island that’s the biggest wind farm in the Pacific,” said John Mumford, 65, founding partner of Crosspoint Venture Partners, a Woodside, California, venture-capital firm, who owns a vacation home on Lanai.

Having fields of windmills nearby would erode the island’s natural beauty, said Marc Masterson, 53, artistic director at the Actors Theatre of Louisville in Louisville, Kentucky, who went fishing at Polihua a year ago.

Castle & Cooke plans to send windmill-generated electricity via undersea cable to Oahu, home to Honolulu, Hawaii’s biggest city. The company is waiting for government approvals, including environmental clearance.

Diversifying Economy

Wind power could help make Lanai less dependent on real estate development and tourism, said Harry Saunders, president of Castle & Cooke Hawaii. Murdock lost more than $60 million on Lanai in the past three years, he said.

“The island had no infrastructure,” Saunders said. “Rebuilding it cost a lot of money.”

Half of the adult population of about 2,200 works for Murdock properties, including the Experience at Koele and Challenge at Manele golf resorts, Saunders said. Attempts to reach Murdock for comment, with five emails and two voice mails to his spokesman, Marty Ordman, in the past three weeks, were unsuccessful.

The island was used mostly for grazing cattle until 1922, when it was bought for $1.1 million by pineapple grower James Dole. He eventually turned his Lanai land into the world’s largest pineapple plantation, which eventually was absorbed into Los Angeles-based Castle & Cooke.

Wind Funnel

Geography may be destiny for Lanai. The Hawaiian Islands are in the path of strong trade winds and the channel between Molokai and Lanai serves as a funnel, said Stan Calvert, team leader of wind technology applications at the U.S. Energy Department.

“It is the most impressive site I’ve ever been to for wind,” he said.

Castle & Cooke probably will obtain all the necessary approvals by late 2011, said Ted Peck, energy administrator at the state Business, Economic Development & Tourism Department. The wind farm would move Hawaii toward its goal of being 70 percent green by 2030, he said.

That may be small comfort to the people of Lanai, who pay the highest electricity rate in the state and won’t draw power from the windmills adjacent to their beach.

“It’s a place a lot of people use for hunting deer, fishing and diving,” said Robin Kaye, 62, a retired photographer who lives on Lanai. “Why should this island be the power generator for Oahu? Let them build a wind farm there.”

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Gilt ‘Indigestion’ Looms as U.K. Plans Record Sales (Update2)
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By Anchalee Worrachate

April 23 (Bloomberg) -- The U.K.’s plan to sell a record 220 billion pounds ($318 billion) of gilts this year to revive the economy may cause investor “indigestion,” according to some of Britain’s biggest bond traders.

The amount, 50 percent more than the 146.4 billion pounds sold in the fiscal year that ended March 31, may be too much for the market to absorb, according to Royal Bank of Scotland Group Plc. The issuance plan, announced by the London-based Debt Management Office yesterday following the government’s budget report, is a “surprise,” according to Barclays Capital.

“The scope for bouts of indigestion going forward is high,” Richard McGuire, said senior fixed-income strategist in London at RBC Capital Markets. “In terms of the market’s ability to absorb this supply, the key is whether the budget presents a credible road map toward fiscal sustainability and here we would argue it is lacking.”

Prime Minister Gordon Brown is betting the bond sales will help to haul the nation out of the worst recession since World War II and revive the government’s prospects of winning a general election next year. Gilts fell following yesterday’s announcement, with the yield on the 10-year note rising 14 basis points to 3.44 percent in London.

The unprecedented sale plan raises the risk that bond auctions will fail, former U.K. Chancellor of the Exchequer Norman Lamont said in a Bloomberg Television interview this week. The debt office couldn’t find enough buyers at a sale of 40-year bonds on March 26, the first time since 2002 that demand fell short.

Sale Plan

The Treasury will issue 74 billion pounds of securities maturing in as much as seven years, 70 billion pounds of bonds coming due between seven and 15 years, and 27 billion pounds of gilts maturing in more than 15 years, the debt office said yesterday. It will offer a further 19 billion pounds of long- dated debt through syndicated deals and so-called mini tenders, and 30 billion pounds of inflation-protected gilts, it said.

U.K. debt underperformed German bonds this year, as investors demanded higher yields to compensate for the prospect of increased supply. Gilts lost 2.5 percent, while bunds lost 0.03 percent, according to Merrill Lynch & Co. indexes. The yield difference, or spread, between 10-year gilts and bunds widened to 30 basis points today, the most since March 5, compared with six basis points at the start of the week.

‘Challenging Remit’

“It’s a challenging remit but I am confident that there is strong ongoing demand for gilts and we will work closely with the market to successfully deliver it,” Robert Stheeman, chief executive officer of the debt office in London, said in an e- mailed response to questions yesterday. “From the perspective of the gilt market, which is highly efficient, we don’t think that a funding strike is in any way a realistic scenario.”

While Chancellor of the Exchequer Alistair Darling said in his budget yesterday that the economy will expand 1.25 percent next year after a contraction of about 3.5 percent in 2009, the International Monetary Fund expects the country to stay mired in recession. The Washington-based lender predicted a contraction of 0.4 percent next year after a 4.1 percent slump in 2009.

“The main anxiety in the market is that this might not be the worst of it,” said Robin Marshall, director of fixed income in London at Smith & Williamson Investment Management. The U.K. may sell “more next year given the economic outlook. The key is growth and how soon the financial sector functions properly again.”

Surpassing Forecasts

The debt office said March 18 that it would issue 147.9 billion pounds of bonds this year. The revised plan is almost five times the average in the five years before 2007 and surpassed every forecast in the Bloomberg survey.

It’s “20 billion pounds more than the highest estimates, and there are going to be more syndicated deals than the market expected,” said Adam McCormack, head of gilt sales at Barclays Capital in London. The median forecast of 14 of 16 banks that deal directly with the Treasury was 180 billion pounds.

Darling said the government’s budget deficit this year will reach 175 billion pounds, or 12.4 percent of gross domestic product. That’s the biggest shortfall in the Group of 20 nations and surpasses the 12 percent forecast in the U.S.

The U.K. will raise gilt issuance to over 240 billion pounds in the next fiscal year and to almost 250 billion pounds in the fiscal 2011-12, according to Citigroup Inc. Deutsche Bank AG, the world’s biggest bond trader, said the government may sell 815 billion pounds of debt through the end of the 2013-2014 fiscal year.

“The U.K. is mortgaged up to the hilt,” Paul Day, chief market analyst at MIG Investments SA, said in an interview from Singapore yesterday.

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Pound Weakens on Speculation U.K. May Lose AAA Credit Rating
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By Yasuhiko Seki and Ron Harui

April 24 (Bloomberg) -- The pound fell against the dollar and the yen after the Daily Telegraph said the U.K. may lose its AAA credit rating as Moody’s Investors Service is concerned about the nation’s rising debt burden.

The dollar dropped against the yen, heading for a third weekly loss, before a U.S. government report economists say will show orders for durable goods fell for the fifth time in six months, damping demand for the nation’s assets. The euro extended this week’s gain against the greenback on speculation German business confidence rebounded in April, adding to signs the worst of Europe’s economic slump may be over.

“It’s a veiled threat from Moody’s,” said Sean Callow, senior currency strategist at Westpac Banking Corp. in Sydney. “Given that we are still above where we were 24 hours ago you would hardly be shocked if the pound headed back to the low 1.45s against the dollar.”

The pound fell to $1.4681 as of 1:19 p.m. in Tokyo from $1.4722 in New York yesterday. The British currency dropped to 142.40 yen from 144.21. Sterling traded at 0.8980 per euro from 0.8929. The euro weakened to 127.94 yen from 128.77 yesterday, and traded at $1.3187 from $1.3144. The yen was at 97.07 per dollar after reaching 96.99 per dollar, the strongest since March 30, from 97.96 yesterday.

Moody’s and Standard & Poor’s are reviewing the U.K.’s top sovereign credit ratings after the government said the nation’s debt will reach 1.4 trillion pounds ($2.1 trillion) over the next five years, the London-based Daily Telegraph reported. The pound slumped 1.2 percent on April 22 when Chancellor of the Exchequer Alistair Darling announced the biggest budget deficit on record.

‘Cause for Concern’

Moody’s analyst Arnaud Mares said Treasury projections for public-sector net borrowing are “a cause for concern,” while a Standard & Poor spokesman said it was looking at details of the budget and had no comment at this time, the newspaper said.

Standard & Poor’s cut Ireland’s credit rating to AA+ from AAA last month as the global financial turmoil fueled borrowing costs and swelled the budget deficit. The agency lowered the ratings of Spain, Portugal and Greece in January. Moody’s placed Ireland’s Aaa-rated government bonds on review for a possible downgrade on April 17, citing the “severe economic adjustment taking place” in the nation.

“The article is weighing on the pound, particularly against the euro,” analysts led by David Woo, London-based head of currency strategy at Barclays Capital, wrote in a research note today. “The credit ratings fear is an idiosyncratic risk for sterling.”

German Confidence

The euro reversed earlier losses against the dollar before a German report that may show business confidence climbed to 82.3 in April from a 26-year low of 82.1 in March, according to a Bloomberg New survey of economists. The Ifo institute will release the survey in Munich today.

“Hopes are emerging that the euro-zone recession is waning, given the recent data,” said Yuji Saito, head of the foreign- exchange group in Tokyo at Societe Generale SA, France’s third- largest bank. “This is positive for the euro.” Europe’s currency may strengthen to $1.3230 and 129.00 yen today, he said.

The 16-nation currency gained yesterday after Credit Suisse Group AG said it returned to profit and an index showed European services and factory industries shrank in April at the slowest pace in six months.

The Dollar Index headed for its first weekly decline since April 3 before the Commerce Department’s report on U.S. durable goods and on concern that Chrysler LLC and General Motors will file for bankruptcy.

Durable Goods

Orders for U.S. durable goods likely fell 1.5 percent in March, after a 3.4 percent increase in February, according to a Bloomberg News survey of economists. The report will be released at 8:30 a.m. in Washington today.

“Weak U.S. economic data combined with uncertainties about the fate of automakers may bode ill for the dollar,” said Kengo Suzuki, a currency strategist in Tokyo at Shinko Securities Co.

The U.S. Treasury is preparing a bankruptcy filing for Chrysler only as a matter of “due diligence,” Michigan Senator Debbie Stabenow said in an interview yesterday.

The Dollar Index, used by the ICE to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, fell to 85.147 today from 85.981 on April 17.

Japan’s currency headed for a second weekly advance versus Australia’s dollar on concern U.S. banks will unveil additional loan losses, spurring investors to pare holdings of higher- yielding assets.

‘Investors Shun Risk’

The yen rose against 15 of the 16 most-active currencies this week on speculation the U.S. government will direct banks judged short of capital to say how they will raise extra funds. U.S. lenders may need another $1 trillion in capital to cushion losses, KBW Inc. analysts said yesterday. The estimate is based on KBW’s own “stress test” of the strength of top U.S. lenders, wrote analysts led by Frederick Cannon, based in San Francisco.

“Any unexpected banking losses that come out of these tests would be worrying,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “This would likely cause buying of the yen as investors shun risk.”

Australia’s dollar fell to 69.30 yen from 71.64 on April 17, and New Zealand’s dollar declined to 54.66 yen from 56.31 a week earlier. The U.S. government is scheduled to release the results of its so-called stress tests on May 4.

Treasury Secretary Timothy Geithner, European Central Bank President Jean-Claude Trichet and their G-7 colleagues gather in Washington two days after the International Monetary Fund cut its forecasts for each of their economies. As global stocks head for their first weekly decline in seven, the IMF predicts the global recession to be deeper and the recovery slower than it anticipated in January.

The G-7 will release a statement about 4:30 p.m. Washington time today and officials will speak to reporters afterwards. They will later meet counterparts from the Group of 20 nations.

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Algeria’s ‘Disappeared’ Stranded by Bouteflika’s Peace Program
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By Daniel Williams and Ahmed Rouaba

April 23 (Bloomberg) -- Each Wednesday in Algiers, a group of women gather at the hilltop headquarters of Algeria’s government human-rights commission and hold aloft photos of missing husbands, sons, daughters, brothers, sisters and uncles.

The relatives disappeared without a trace at the hands of police and soldiers during the country’s 1992-2006 war between the government and Islamic-rooted militants and guerrillas, the women say. Finding the truth about what happened may become even harder under a planned government anti-terrorism initiative.

President Abdelaziz Bouteflika, re-elected to a third five- year term April 9, is promising to expand a 2006 amnesty that has encouraged militants to lay down their arms in return for avoiding prosecution. The women say they fear it will also apply to security personnel, closing the door on information and further sacrificing justice for reconciliation.

“It’s impossible to have hope,” said Safia Fahassi, who heads the National Association of the Families of the Disappeared, which represents 1,000 relatives of missing Algerians. “We are not even told where bodies were dumped. It is not just the past that is important: It is part of our task that this not happen in the future.”

Amnesty International, the London-based human-rights monitor, placed the stakes in the context of Algeria’s continuing violence in an April 9 report.

“There can be no genuine national reconciliation unless the authorities take steps to establish the truth and face up to crimes of the past,” the report said.

Gas Supplier

A stable Algeria is a preoccupation on both sides of the Mediterranean Sea. The country, with a population of 36 million, is the biggest supplier of natural gas to the European Union after Russia. On April 13, Energy MinisterChakib Khelil said Algeria plans to expand annual gas exports to 100 billion cubic meters from the current 62 billion cubic meters by 2015. The violence has targeted foreigners involved in both fossil-fuel production and construction.

Algeria is also the source of terrorist exiles who have taken root in Spain, France and Italy, according to a report by the Real Instituto Elcano, a Madrid-based research group.

Bouteflika issued a partial amnesty for guerrillas in 2006 that induced more than 20,000 of them to turn themselves and their weapons over to the police and answer questions, avoiding prosecution. At the same time, it declared that security forces were immune from prosecution, and that talking about their responsibility for deaths and disappearances was banned.

No Proof

Algeria Watch, a human-rights monitor based in France and Germany, estimates the number of disappeared at 10,000. The government provides about $13,000 to families able to document that their relatives disappeared -- although it declined to provide any supporting information to them.

Government abuses endure, according to the 2008 U.S. State Department human-rights report on Algeria. It cited “abuse and torture, official impunity, abuse of pre-trial detention, poor prison conditions, limited judicial independence and restrictions on freedom of speech, press and assembly” and “failure to account for persons who disappeared in detention during the 1990s.”

Three years after the amnesty, violence has not ended. It is mostly instigated by an estimated 500 members of al-Qaeda in the Islamic Maghreb (AQIM), associated with Osama bin Laden’s global network. On election eve, three Algerian security guards were killed while escorting foreign workers in the eastern part of the country. Twenty people died in ambushes and bombings in March, according to the Interior Ministry, which pinned the attacks on the AQIM.

‘National Reconciliation’

In an April 2 speech in Medea province, Bouteflika said that “national reconciliation,” the official euphemism for amnesty, would provide everyone rights, including those who “fought terrorism,” according to press reports in Algeria. In his April 19 inauguration speech, he pledged to “continue and strengthen the national reconciliation that the Algerian people have massively supported, that permitted a return to civil peace.”

Mustapha Ksentini, president of the government’s National Consultative Commission for the Promotion and Protection of Human Rights, said Bouteflika’s priority is to ensure no return to the 1990s level of violence, when between 150,000 and 200,000 people died, adding that details of the program hadn’t been worked out.

“An accounting of the missing will have to wait,” Ksentini, 65, said in an interview at his law office in the town of Blida. No matter what occurred during the war, the state, army and police acted in defense of law, he said. “The government is responsible, but it is not culpable.”

No Elections

The war broke out when the army forcibly stopped parliamentary 1992 elections that an Islamic-based party was set to win. An Islamic victory would have ended the dominance of the National Liberation Front, which had ruled the country since independence from France in 1962.

Ksentini compared the action to the present U.S. focus on Afghanistan, once home to al-Qaeda. “We would have been Afghanistan if the army had not intervened,” he said. Demonstrations by relatives searching for missing persons began as early as 1997, said Fahassi, 42. She formed her group in 2004 and began the Wednesday protests three years ago.

On May 6, 1995, her husband, Djamel Eddine, was picked up by four men with walkie-talkies as he left an Algiers restaurant, she said. He worked for a government radio station and had been jailed once for five months for writing articles perceived as harming national unity. He hasn’t been seen since.

The Algerian women stood outside Ksentini’s fenced-in offices mostly in silence on a recent Wednesday as traffic flowed along the hilltop road. Police looked from afar.

“We’re not officially permitted to do this, but we do it anyway,” Fahassi said. “We understand that foreign governments don’t care either, that we are alone, but we will go on.”

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Gas summit in Sofia despite Putin boycott

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Leaders from the EU, the Balkans and gas supplier countries meet in Sofia for a two-day gas security summit overshadowed by a last-minute boycott by Russian Premier Vladimir Putin. Skip related content
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The summit "Natural Gas for Europe. Security and partnership" brings together gas suppliers from the Caspian region, Central Asia and the Middle East, and transit countries and gas consumers from the Balkans and the EU.

But Putin's last-minute decision not to attend the talks dampened the organisers' hopes of strengthening cooperation and security of deliveries to Europe, four months after a Russia-Ukraine gas row shut European gas taps in January.

Instead, Russia's Energy Minister Sergei Shmatko was to join the forum, also to be attended by European Commission President Jose Manuel Barroso, United States special envoy for Eurasian energy Richard Morningstar and Qatar's Emir Sheikh Hamad bin Khalifa.

Several Balkan government leaders and heads of state, as well as experts and special envoys from France, Austria, Germany, Kazakhstan and Turkmenistan have also confirmed their presence at the two-day summit hosted by Bulgarian President Georgy Parvanov.

A business forum on the sidelines of the political talks will meanwhile group representatives of companies such as France's GDF Suez, Germany's RWE and the National Iranian Oil Company (NIOC).

Bulgaria, which is almost totally dependent on Russia for its gas deliveries, was among the hardest hit by the Russia-Ukraine gas row and subsequent cut in deliveries in January.

In a move to diversify its energy sources and routes, Bulgaria declared its support for both the EU's flagship Nabucco project to bring Caspian gas to Europe while bypassing Russia, and for the Moscow-backed South Stream pipeline pumping Russian gas to Europe under the Black Sea.

But while Brussels and Moscow have been competing to sign up enough gas suppliers to back their respective projects, the two pipelines have been severely sidetracked by financial difficulties.

Sofia has also stood up against a Russian plan to cut South Stream costs by using Bulgaria's existing pipeline network, which already channels Russian gas to neighbouring Greece, Macedonia and Turkey.

It was this decision by Sofia that prompted Putin to boycott the summit, according to the Bulgarian government.

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Warning of 50p tax rate City exodus

By George Parker and Brooke Masters

Published: April 24 2009 03:00 | Last updated: April 24 2009 03:00

Alistair Darling was warned yesterday his new 50p income tax rate would drive talent from the City and discourage entrepreneurs, but early polls suggest that the chancellor's Budget tax rises have tapped into rising popular hostility towards the rich.

Mr Darling's tax raid on higher earners was widely criticised in the press yesterday as a populist gesture to divert attention from spiralling government borrowing and a political tactic to wrongfoot the Conservatives.

It brought protest from the City, which claimed that it was further evidence that the government saw bankers and wealthy people as sources of revenue.

Boris Johnson, London's Conservative mayor, broke ranks with David Cameron, his party leader, in demanding that an incoming Tory government must abolish the 50p top rate, which would apply to earnings over £150,000 from next April. He said that it would penalise the City.

The 50p rate has a strong symbolic impact because it comes on top of last year's levy of a £30,000 tax on "non-doms" (foreign nationals working in the UK), new, tighter regulations on banking bonuses and a cut on pension tax relief for top incomes.

"There's a definite sensation of 'what's next?' The message is that high earners are not welcome here," said Anna Chapman, a director of Ernst & Young's private client services team.

The head of one City institution with a strong private client business fumed: "What are they trying to do, drive all the high earners out of London?"

The marginal tax increase is unlikely to send people packing immediately. It kicks in next April and will not be much higher than competing centres. But as the world economy recovers, companies and people may decide to move where opportunities and rewards are greater.

A combination of government measures targeted at people earning above £100,000 aims to raise more than £7bn, but tax experts dispute that figure.

Labour strategists think that the 50p rate will sharpen dividing lines with the Tories, who were careful to say that they would not immediately scrap the plan, and will play well with voters.

That view was supported in a Populus poll in today's Times, which says that the 50p rate is backed by a majority of voters.

Nevertheless, ministers know that they are taking a big political gamble in throwing out New Labour orthodoxy, which stated that higher top-rate taxes would send out a negative message about Britain's approach to wealth creation.

Mr Darling acknowledged that dilemma, saying yesterday that the new top rate would only be in place "while we resolve this situation". Since he does not expect to balance the state's books until 2018, that could be some time.

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Leaders loath to talk of green shoots

By Ralph Atkins in Frankfurt

Published: April 24 2009 03:00 | Last updated: April 24 2009 03:00

If only Peer Steinbrück had had a little more patience.

Late on Wednesday, Germany's finance minister warned about the country's gloomy economic prospects, saying the "downwards dynamic is not letting up". Yesterday came the clearest evidence yet that the pace of economic contraction was indeed letting up. Purchasing managers' indices showed the 16-country eurozone contracting at the slowest rate for six months, and in Germany for five months.

Mr Steinbrück has inadvertantly revealed a growing European divide - between politicians talking up prospects and seizing on any signs that the situation has become less bad, and those preparing voters for more bad news.

Instinctively, continental European politicians are probably more reticent when it comes to being economic cheerleaders than their counterparts in the US. But in some cases there are also tactical considerations: austerity measures are harder to justify if you are arguing that a recovery is near.

At the same time, while the economic downturn has been largely synchronised around the world, some eurozone economies are clearly performing even worse than others, and too much upbeat talk would risk undermining credibility.

Although not everyone in Berlin is as glum, Mr Steinbrück's caution is understandable. The purchasing managers' indices suggested Germany's recession had passed through its most intense phase. Even if the pace of decline has decelerated, however, Germany is expected to be among the worst-performing of the largest economies this year. Mr Steinbrück was caught out initially by the severity of the recession, so may be avoiding risky pronouncements.

Nevertheless, German leaders' caution contrasts with the tone in other European capitals. Alistair Darling, the UK's chancellor of the exchequer, is gambling on a rapid economic recovery as he tries to bring government finances back under control.

In this week's Budget, he forecast a 3.5 per cent fall in gross domestic product this year but a quick rebound to 1.25 per cent growth in 2010 - when the International Monetary Fund expects the economy to be contracting.

Talk of green shoots has been absent in the Netherlands, where the central bank has warned about putting too much weight on forecasts of a recovery in 2010. Gloom seems pervasive in Greece and Ireland. But brighter times have been spotted in Paris. "We have seen some positive signs," said Christine Lagarde, finance minister, on Wednesday. French finance ministry officials have argued that signs of stabilisation are emerging earlier than expected. Laurence Boone, economist at Barclays Capital, suggested worries of social unrest were intensifying and one answer "is to give some reassuring news".

In Spain, José Luis Rodríguez Zapatero, prime minister, appears anxious to strike a positive tone even though there is scant sign of "green shoots" in the economy, hit by the downturn in housing and construction.

Mediterranean cheeriness can be found in Italy. Silvio Berlusconi, the billionaire prime minister, recently told the Paris-based Organisation for Economic Co-operation and Development to "shut up", rather than releasing gloomy economic forecasts.

Talking up recovery prospects can make sense, economists believe. Expectations of better times ahead, if enough people believe them, can become self-fulfilling. But Peter Vanden Houte, European economist at ING in Brussels, says: "The Germans are definitely not in that camp yet."

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Al-Qaeda in Yemen ‘a threat to Saudis’

By Andrew England in Riyadh

Published: April 23 2009 22:27 | Last updated: April 23 2009 22:27

Saudi Arabian security officials believe al-Qaeda-linked militants are seeking to organise and train in neighbouring Yemen to launch attacks in the kingdom.

General Mansour al-Turki, a spokesman for the Saudi interior ministry, told the Financial Times that attacks launched from Yemen posed the greatest threat to the nation, which has spent the past six years battling al-Qaeda-affiliated militants internally.

“Al-Qaeda realises that it cannot work inside the kingdom but it is still targeting the kingdom and will keep targeting the kingdom,” he said. “The plan is to launch attacks from outside and they will try to be as close as possible to the kingdom.”

saudi arabia and yemen mapAl-Qaeda in Yemen this year rebranded itself al-Qaeda in the Arabian Peninsula and posted an internet video threatening attacks inside Saudi Arabia, which shares a 1,800km border with Yemen. The Saudi interior ministry released a list of 83 Saudi al-Qaeda suspects living overseas in response to the threat.

Two Yemenis were also on the list, including Nasir al-Wahayshi, who is thought to be the group’s leader and has trained in Afghanistan.

Analysts trace the reorganisation of the militants in Yemen to 2006, when Mr Wahayshi and 22 others – who were described in the US as known affiliates of al-Qaeda – escaped from a high-security prison in the Yemeni capital, Sana’a. The rebranding of al-Qaeda in Yemen was seen as a move to bring Saudi extremists who have fled their country and the Yemeni militants under one umbrella, a Saudi adviser said.

Western officials credit Saudi Arabia for its efforts to crack down on militants following a wave of attacks in 2003 and 2004 that killed dozens of westerners – shocking a nation that had been in denial after the September 11 2001 attacks on the US.

But increased militant activity in Yemen – the Middle East’s poorest country and ancestral home of Osama bin Laden, al-Qaeda’s leader – has triggered mounting concern in Riyadh and western capitals.

The country, blighted by years of internal conflict and lawlessness, has been the victim of a string of recent al-Qaeda-related attacks, including one last month that killed four South Koreans travelling in a diplomatic vehicle and an assault on the US embassy in September that left 17 dead.

“They know they have more room to operate in Yemen than in Saudi Arabia,” Gen Turki said. “They could provide themselves with safe havens, could find places to train, they could buy weapons, ammunition, explosive materials and probably it’s easier for them to communicate and to meet than they would in Saudi Arabia.”

Riyadh is hoping a contract to build an electric shield across its borders – including its frontier with Yemen – will be awarded this summer. The high-tech barrier, expected to cost at least $2bn (€1.5bn, £1bn), has been delayed.

The government has also been setting up a 35,000-strong security force to protect oil and other key sites from attack.

Gen Turki said 35 per cent of the force had been recruited and trained and was guarding oil and industrial sites.

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Abu Dhabi fund's first figures reveal €2.5bn loss

By Andrew England in Abu Dhabi

Published: April 24 2009 03:00 | Last updated: April 24 2009 03:00

Mubadala, one of oil-rich Abu Dhabi's most active investment vehicles, yesterday released its first annual report which showed that it made losses of Dh11.8bn (€2.5bn) in 2008.

The report - the first of its kind by a Gulf state investment entity wholly owned by the government - provides a rare insight into the losses incurred by sovereign investment entities after the decline in asset prices and the collapse in global stock markets.

Mubadala is one of a growing pool of investment vehicles acting on behalf of Abu Dhabi, which is the capital of the United Arab Emirates and home to the world's largest sovereign wealth fund, the secretive Abu Dhabi Investment Authority.

Set up in 2002, Mubadala has become increasingly active in the past two years.

Its mandate is to seek returns and help diversify Abu Dhabi's economy by attracting business to the emirate through joint ventures, acquisitions and greenfield projects.

Deals announced by Mubadala in the past year included high-profile projects such as joint ventures with Rolls-Royce, EADS and General Electric, as well as a target to become a top 10 institutional investor in the US conglomerate.

In 2008, the company invested Dh22bn buying full stakes or strategic holdings in companies, as well as unlisted and listed securities, the report said. Its assets increased by 40 per cent to Dh54bn, while its revenue rose from Dh1.8bn in 2007 to Dh6.7bn.

This was offset by sharp declines in oil prices and stock markets, which resulted in impairment charges of Dh8.8bn, contributing to the overall loss of Dh11.8bn. In 2007 profits were Dh1.3bn.

Mubadala gained a credit rating in 2008 - virtually unknown for SWFs - partly to reduce the cost of financing but also to improve transparency, the motivation for the report's release.

But some observers have questioned whether Mubadala has moved beyond its mandate as it has invested in an increasingly broad range of sectors, from aerospace to health, real estate, finance and energy.

Analysts say that there has been debate within Abu Dhabi about whether investment vehicles should be aggressively seeking opportunities overseas after the sharp decline in asset prices, or whether the emirate's wealth should be invested domestically.

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ＦＸ、投機的取引に規制　金融庁、証拠金倍率20―30倍を上限に

　金融庁は個人投資家に普及している金融商品「外国為替証拠金取引（ＦＸ）」について、預けたお金で何倍の売買ができるか示す「証拠金倍率」を規制する方針を固めた。現在、ＦＸ市場では100―600倍前後の高倍率取引が増えている。わずかな為替相場の変動で、預けたお金がゼロになる恐れがあった。投機的取引を抑制するため、上限を20―30倍前後とする方向で調整する。

　証券取引等監視委員会が24日、金融庁に制度改正を要請し、金融庁が金融商品取引法の関係政省令の改正作業に入る。早ければ今夏にも導入する見通し。(08:30)

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新日鉄、新興国で足場固め　ブラジル大手株買い増し

　新日本製鉄は持ち分法適用会社のブラジル鉄鋼大手ウジミナスの株式を買い増し、出資比率を26％とした。同社と共同出資する現地の鋼板会社への出資比率も30％に高め、最新技術を供与して自動車用鋼板を増産。ブラジルに加え北米などへの輸出拠点として活用する。世界同時不況で海外ライバル企業の投資余力が落ちており、数年後とみられる世界需要の回復をにらみ新興市場での足場固めを急ぐ。

　ブラジルの資源大手ヴァーレがウジミナスの普通株式1487万株（議決権ベースで5.9％）を売却。新日鉄と同社子会社の日本ウジミナス（東京・千代田）はこのうち2.8％分を譲り受け、２社合計の出資比率を23.3％から26.1％に高めた。取得額は約130億円とみられる。(07:02)

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水産大手が健康食品強化　日水など、魚の不要部位活用

　水産大手が水産物の有効成分を使った健康食品事業を強化する。日本水産はタイの水産加工大手と合弁会社を設立、カツオの頭などから栄養成分を抽出・精製する事業を始める。マルハニチロホールディングス（ＨＤ）はサケから血圧を下げる効果が見込まれる成分を抽出、ドリンク剤として発売する。消費者の健康志向の高まりで、健康食品市場は成長が期待できる。従来利用してなかった魚の部位を活用し、収益拡大をはかる。

　日水が51％、タイユニオングループが49％出資し、ＴＮファインケミカルを設立。約２億円を投じて９月にタイ南西部のサムサコン市に工場を建設する。タイユニオンから不要なカツオの頭などを調達、動脈硬化の予防や脳の活性化が期待されるドコサヘキサエン酸（ＤＨＡ）を含む魚油を抽出・精製する。 (07:02)

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応援団暴行：両親、元団長を相手取り９９００万円損賠提訴

　０７年に明治大学応援団リーダー部（０８年１月解散）の男子学生（当時２１歳）が先輩から暴力を受けて自殺した問題で、水戸市に住む学生の両親が当時の応援団長の男性に約９９００万円の損害賠償を求めて水戸地裁（窪木稔裁判長）に提訴した。両親は元団長の暴力などが自殺の要因と主張。一方、元団長側は大学の調査報告書にはなかった別の団幹部によるいじめがあったとし、「他の上級生や大学に責任がある」と、請求棄却を求めている。

　訴状によると、学生は０５年に入学。リーダー部で上級生から下腹部の露出や部室の居残りなどを強要された。０６年１２月に元団長に暴力を振るわれて自殺未遂を起こし、翌月退部を申し出たが断られた。その後、心的外傷後ストレス障害（ＰＴＳＤ）と診断され、０７年７月に自殺した。

　両親は、元団長による退部の意思撤回の強要がＰＴＳＤに陥らせ、自殺に至ったと主張。

　大学や他の上級生は和解に向けた話し合いに応じたが、元団長のみ「一貫して責任を回避した」として今年２月に提訴した。

　これに対し、元団長側は答弁書で「部に残ったのは学生の意思」と反論。自殺の主要因は、２学年上の応援団幹部による「長期間にわたる執拗（しつよう）で常軌を逸したいじめ」として、これを放置した「大学こそ責任が認められるべきだ」と訴えた。

　元団長側が主張した幹部のいじめは、排便の様子や裸にして冷水と熱湯をかけ、苦しむ姿をビデオ撮影したなどの内容で、大学が昨年１月に公表した調査報告書には記載されていないものも多い。

　報告書は、学生に対する暴力行為があり、団活動が精神的苦痛を与え、自殺に結びついた可能性を指摘。大学は「閉鎖的な組織で、自力による改善の余地がない」として部を解散させた。

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漢検：文科省が過去の取引で賠償請求の検討求める

　公益事業による過大な利益などが問題となっている財団法人「日本漢字能力検定協会」（京都市）について、文部科学省は２４日、前理事長らが代表を務めるファミリー企業との取引解消や、過去の取引に対する損害賠償請求の検討などを求める追加の指導通知を出した。通知は「対応方針が明確でないまま検定事業を実施することは適当ではない」とし、塩谷立文部科学相は同日の閣議後会見で「今月３０日の理事会でおおかたの結論を出してもらいたい」と述べた。

　通知は、今月１５日付で協会から出された改善報告書の内容について「検証が十分とは言い難い」と指摘。ファミリー企業４社のうち、協会が継続の意向を示している出版社「オーク」と情報処理会社「日本統計事務センター」との取引は解消を検討するよう要請し、取引解消を決めている２社への損害賠償請求の検討も求めた。

　そのほか▽法人として説明責任を果たすこと▽理事や監事、評議員の人事を刷新し、常勤理事を設置するなど執行体制を確立▽検定料のさらなる引き下げも検討課題として明確にすること－－などが必要だとし、「事業の停止や延期を含めた総合的な検討」をした上で速やかに報告するよう求めている。

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年金：遅延加算法と延滞金軽減法が成立

　議員立法による年金遅延加算法案と延滞金軽減法案は２４日午前、参院本会議で全会一致で可決し、成立した。

　年金遅延加算法は、記録漏れが見つかって年金が増えた人への追加給付に、支給が遅れていた期間の物価上昇率分を上乗せする内容。５万８０００円（年額）の支給が１５年遅れる平均的ケースの場合、加算金は約２万円になるという。年金積立金を財源とし、初年度は最大約７００億円を見込む。来春の施行を予定している。

　一方、延滞金軽減法は、中小・零細業者に配慮し、保険料を滞納した際に払う延滞金の金利（年１４．６％）を、３カ月以内の遅れなら国税並み（０９年度・４．５％）に引き下げる。企業には約４０億円の負担軽減になるという。施行は来年１月。

　加算法は野党が、軽減法は与党がそれぞれ提出していたが、与野党協議で一部修正のうえ成立させる合意が成立していた。

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研究支援者２５００人補助へ…文科省が若手研究者の救済策

　文部科学省は、大学教員や博士課程の学生の研究活動をサポートする「研究支援者」を大学が雇用する際、人件費などを補助することを決めた。

　今年度は全国５０大学を対象に計２５００人分を支給する。大学の研究環境改善や、博士号取得後も定職に就けない「ポストドクター」（ポスドク）と呼ばれる若手研究者らを救済する狙いがある。

　研究支援者を対象にした国の補助は初めて。今年度分は政府の追加景気対策の一環として３００億円を計上した。人件費は１人当たり４００万円程度を想定しているが、大学の裁量による変更は認める。残りは事務費や渉外費などに充ててもらう方針だ。補正予算の成立後、国公私立大学を対象に申請を募り、研究実績や博士課程在籍者数などを審査して選定する。将来的には恒久的制度とすることも検討したい考えだ。

　研究支援者は、〈１〉観測機器や実験用設備の保守管理〈２〉研究資金申請や外部評価のためのデータ作成〈３〉海外の大学、企業との連携や国際会議開催支援――などに当たっているが、日本の研究者１人当たりの支援者数は０・２７人で欧州各国の０・７人前後に比べて少ない。

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米で、豚？インフル７人感染「人から人」経路の可能性も

　【ワシントン＝山田哲朗】米疾病対策センター（ＣＤＣ）は２３日、豚インフルエンザに感染した患者が全米で７人見つかったと発表した。

　患者は全員回復しており、ＣＤＣは「重大な懸念はない」としているが、その一方で、患者はいずれも豚と接触がないため、通常は起こりにくい人から人への感染が起きた可能性もあるとしている。

　ＣＤＣによると、これまでに見つかった患者は、カリフォルニア州とテキサス州に住む子供など。父親と娘、同じ学校に通う１６歳の男子２人などが含まれていた。ウイルスの遺伝子を分析したところ、豚、鳥、ヒトのインフルエンザが混合したような未知の型だった。

　新型インフルエンザは、強毒性の鳥インフルエンザウイルスが人から人へ感染する能力を獲得して、大流行することが懸念されている。

　豚は鳥インフルエンザとヒトインフルエンザの両方にかかるため、豚の体内でも、新型インフルエンザが生まれやすいが、一般に毒性は弱いと考えられている。

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白鵬優勝の陰で懸賞掛け間違い
運動部　大相撲担当　下山博之

　横綱白鵬（宮城野部屋）が節目となる１０度目の優勝を、自身３度目の１５戦全勝で飾り、「荒れる――」という常とう句がかすんでしまった大相撲春場所。土俵の盟主も朝青龍（高砂部屋）から白鵬へ――。そんな動きを感じる一方、相次ぐ不祥事からの再出発を目指す相撲協会は、相変わらず懲りていないなと思わされる出来事があった。

　「大阪、好きやで～。毎度おおきに」。朝青龍は有力なタニマチ（後援者）が大阪に多いことでも、知られる。師匠・高砂親方（元大関朝潮）の義父で、大阪府内でスーパーマーケットを展開している芋縄純市会長も、その一人だ。芋縄会長は春場所中、高砂部屋の朝青龍と朝赤龍の一番に必ず懸賞金をかけ、砂かぶりと呼ばれる溜席（たまりせき）で、取組を楽しむのが日課だった。

　そんな、ご機嫌な表情が険しくなったのは、４日目のこと。朝青龍戦にかけたはずの懸賞が、白鵬戦にかけられているのを見たときだった。芋縄会長は、土俵下で、「違う、違う」と身ぶりを交えて訴えてみたものの、どうすることもできず、土俵上を回る懸賞旗を見守るしかなかった。白鵬は難なく白星を挙げ、懸賞を手に悠々と花道を引き上げていった。

　朝青龍は「まぁ、ご祝儀だよ」と取り損なった３万円（手取り額）に未練は見せなかったが、怒りが収まらないのは、芋縄会長だった。春場所を担当する親方から直々に謝罪を受けたものの「手違いがあった」という話だけで、原因や善後策などについては説明がなかったそうだ。

　そんな話を聞いた記者は事実確認のため、大阪府立体育会館内にある事務所を訪ねた。

　親方衆には単刀直入に横綱の懸賞で、掛け間違いがあったそうですが、と問いかけた。だが、当初、「そんなことはない」との返事。具体例を示すと、「じゃあ、そうなんじゃないか」。掛け間違った理由については、「手違いがあった」のひと言だけだった。揚げ句の果て「出て行け。もう、この部屋に入ってくるな」と、どなられる始末だった。

　大きな体の親方の怒声は迫力満点だった。でも、都合が悪くなると、どなり散らすのでは、「気は優しくて力持ち」のイメージも崩れてしまう。不祥事からの出直しを図る公益法人の根本は、伝統・文化の継承でもある。力士を応援する気持ちを託した懸賞制度や後援者の習慣も、歴史を刻んできた文化の一つだ。

　角界トップを巡って起きた懸賞の掛け間違い。懸賞１本――。そんなにいきり立つ問題ではないのかも知れないが、長く角界に携わってきた芋縄会長の気持ちを思えば、「手違いがあった」で済まされては、立つ瀬がないだろう。

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America's abuse of the law handed victory to terrorists

By Philip Stephens

Published: April 24 2009 03:00 | Last updated: April 24 2009 03:00

Here is a chilling thought. Barack Obama has gifted a dangerous advantage to America's enemies. How? By assuring terrorists they will not be tortured in US custody. The president, this argument runs, should have kept al-Qaeda guessing as to what fate detainees might suffer at the hands of CIA interrogators.

Mr Obama has sparked considerable controversy by declassifying secret memorandums detailing the interrogation methods used by the CIA in the wake of the terrorist attacks of September 2001. The practices included near-drowning, confining detainees in small boxes, slamming them into walls, sleep deprivation and enforced nakedness. Some of the techniques were borrowed from the harrowing experiences of US soldiers held captive in Hanoi during the Vietnam war.

Yet those who authorised these "enhanced interrogation techniques" still deny they amounted to torture. The memorandums explain why. The lengthy justifications set out by Bush administration lawyers remind us how legal bureaucratese can empty the law of any real meaning.

For all that, some of Mr Obama's advisers opposed publication. He had now banned such practices. What purpose would be served in laying out the legal sophistry that said the repeated "water-boarding" of detainees was not cruel, inhuman or degrading? Such sins were best left undisturbed.

From another direction, there has been criticism of Mr Obama's subsequent attempts to draw a line under the affair. This week the president visited CIA headquarters. He suggested that, whatever the manifest flaws of the legal opinions, they should absolve interrogators of blame. He seemed disinclined also to see the authors of the memorandums called to account.

Predictably, though, the harshest criticisms of the president came from those who worked for George W. Bush. Few were as revealing as that of General Michael Hayden, who served as CIA director during the twilight months of his presidency.

General Hayden asserted that by publishing a list of the now-banned methods, the administration had given succour to al-Qaeda. Knowledge of the limits imposed on US interrogators would be "very useful" to the followers of Osama bin Laden.

To follow the logic here is to understand what went so horribly wrong during Mr Bush's time. By the general's account Mr Obama is abetting terrorists by affirming that the US will uphold its guiding laws and values. Yet the defence of those same laws and values is the core purpose of the fight against violent extremism in all its guises.

The moral repugnance of the techniques seems to play no part in the calculations of their apologists. Nor do the legal prohibitions on such treatment under domestic and international law. Lawyers had been found to say it was OK to simulate suffocation. So it was OK.

Almost as disturbing as the ethical agnosticism is the wanton stupidity. To read the memorandums is to understand just how much needless damage was done to America's security by the way the so-called "war on terrorism" was conducted.

Abu Ghraib, the secret CIA prisons, the rendition of prisoners to places of torture elsewhere, and, of course, Guantánamo did more than shatter America's moral authority. They served as a recruiting sergeant for al-Qaeda. What better way could there have been to persuade disaffected young men that the US was waging a brutal war against Islam?

Unsurprisingly, Dick Cheney, the former vice-president, is unmoved by such arguments. Mr Cheney contends that "these programmes", as he calls them, kept the US safe from a further terrorist outrage. Without them, "We would have been attacked again." This week he asserted there was documentary evidence to support his case, and he called for publication of secret CIA assessments.

It would be surprising if among those who subjected so-called "high-value" al-Qaeda operatives to such treatment, some CIA agents did not claim it yielded results. How else could they justify continuing? The problem for Mr Cheney is that others in the front line have consistently said otherwise.

When the US army published its latest manual for intelligence staff in 2006, General John Kimmons, the deputy chief of staff for intelligence, flatly denied torture worked: "No good intelligence is going to come from abusive practices. I think history tells us that . . . the empirical evidence of the last five years tells us that."

General Kimmons made two obvious but important points. The credibility of intelligence obtained under duress is always doubtful: tortured terrorists will say anything. And: "It would do more harm than good when it inevitably became known that abusive practices were used."

The very fact that CIA interrogators thought they needed to water-board two prisoners a total of 260 times says all that needs to be said about efficacy. Meanwhile, the evidence that the US was willing to abandon its own civilised standards wrote the recruitment poster for al-Qaeda.

Mr Cheney's strategy is clear enough. He wants to plant the idea that Mr Obama is somehow "soft" on terrorism. Were the US to suffer another attack, the president could be blamed for not allowing the CIA to torture those who might have provided advance information.

The former vice-president does not allow facts or evidence to get in the way of partisan politics. I have often wondered, though, just how far he would go with his ethically abhorrent and intellectually flawed "ticking bomb" scenario. Would interrogators be justified in, say, torturing or killing the children of a suspected terrorist to persuade him to give up information they considered vital to save American lives? Presumably, Yes.

Mr Obama has understood where the twisted logic of torture takes you. It concedes to the enemy the very thing you are fighting to preserve. By banning abuse, allowing detainees access to US justice and publishing the memorandums, the president has re-asserted the rule of law as the central pillar of America's authority.

He should now follow the logic of that course. It is not for the president to decide whether anyone - interrogator or lawyer - should be held to judicial account for what happened under the previous administration. If the laws framed under the constitution are his starting point, Mr Obama must leave to the proper authorities the question of whether there should now be prosecutions. The Bush administration overturned the scales of justice to the advantage of terrorists. Mr Obama must set them right.

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Turkey-Armenia breakthrough welcomed

By Delphine Strauss in Ankara, Dan Dombey in Washington,and Isabel Gorst in Moscow

Published: April 24 2009 03:00 | Last updated: April 24 2009 03:00

The US and the European Commission yesterday hailed a breakthrough between Turkey and Armenia that could end one of the most intractable disputes left from the collapse of the Soviet Union, but also called for sustained political effort to break the deadlock.

The agreement sets out a road map for the neighbours to normalise relations "in a mutually satisfactory manner", according to a statement by their foreign ministries and Swiss mediators.

The two sides have for months worked on a deal to restore diplomatic relations and open the shared border, which Turkey closed in 1993 to support its ally Azerbaijan, which was in conflict with Armenia over the disputed enclave of Nagorno-Karabakh.

The US hailed the deal, while the Commission said: "We welcome the progress in the normalisation of relations between Turkey and Armenia. The Commission supports both countries' diplomatic efforts towards full normalisation of bilateral relations."

A senior US official said: "This is a big deal, although it's still fragile and the governments have to carry it out . . . Both have held firm and deserve credit."

The agreement could help to avert a serious clash between Washington and Ankara, with Barack Obama due today to issue the US president's annual message commemorating the 1915 massacres of up to 1.5m Armenians on Ottoman soil. Mr Obama promised during his presidential campaign to recognise the killings as genocide but said on a visit to Turkey this month that he wanted to focus on the -normalisation of Turkish-Armenian ties.

That commitment to normalising relations gives him leeway to avoid terming the killings genocide, a step Turkey warned would jeopardise the bilateral talks as well as relations with Washington.

But Wednesday's statement gave no clues on the terms of the agreement, nor on how quickly it might be implemented.

Turkey and Armenia have yet to decide on the structure of a new committee to address the issue of the 1915 massacres. It is not clear how closely further progress would be linked to resolution of the conflict over Nagorno-Karabagh. Serzh Sargsyan, president of Armenia, told the Financial Times this month that he viewed the warming of relations with Turkey as the "greatest achievement of his presidency". But Azerbaijan, which insists the border remains closed, raised the pressure on Turkey over the past week, visiting Moscow and suggesting any betrayal by its ally could affect future sales of its gas.

Armenia says the Nagorno-Karabakh dispute is not on the agenda with Turkey - but Turkish ministers, despite arguments with Azerbaijan over energy pricing and transit terms, insist that normalisation can proceed only in tandem with a resolution over the region.