The judge concluded that, contrary to testimony, the agents had been aware of the Thai police’s refusal after Mr. Bout’s arrest to grant him access to legal counsel and to a representative of the Russian embassy. She also found that the agents’ contention that they would have no further access to him after their initial meeting was “false” and that they were untruthful when they denied insinuating they could take Mr. Bout to the United States immediately if he “cooperated” and waived extradition.

Instead, Judge Scheindlin credited the defense team’s assertion that the agents had threatened Mr. Bout, insinuating that he would face “disease, hunger, heat and rape” in Thai jails, where he would face abandonment if he failed to cooperate with the American agents.

Of course, not everything has been so rosy for Mr. Bout in his trial. Last week the same district court judge ruled that the prosecution could introduce evidence of sanctions that were imposed on Mr. Bout by the US and UN for his arms dealing activities although the government could not introduce evidence relating to why the sanctions were imposed. Bout’s lawyer claimed that such evidence was prejudicial and continues to maintain that Mr. Bout has never engaged in arms dealing or arms brokering. As they say, that’s his story and he’s sticking to it.

For those interested in why sanctions were imposed on Mr. Bout, details can be found in this previous post on Export Law Blog

President Abdullah Gul denied on Saturday that Turkey faced a crisis after the resignation of the country’s four most senior military commanders, but acknowledged this had created an “extraordinary” situation.

The departure of the generals has caused turmoil in the military, giving Prime Minister Tayyip Erdogan an opportunity to extend his authority over the once-dominant armed forces, the second biggest in NATO.

Chief of General Staff General Isik Kosaner stepped down on Friday evening along with the army, navy and air force commanders in protest over the detention of 250 officers on charges of conspiring against Erdogan’s government.

In a farewell message to “brothers in arms,” Kosaner said it was impossible to continue as he could not defend the rights of men detained due to a flawed judicial process.

Relations between the secularist military and Erdogan’s socially conservative Justice and Development Party (AK) have been fraught since it first won power in 2002, due to mistrust of the AK’s Islamist roots.

While the departures are embarrassing, they could give Erdogan a decisive victory over a military that sees itself as guardian of the secularist state envisioned by the soldier statesman and founder of modern Turkey, Mustafa Kemal Ataturk.

Analysts perceive little political threat to Erdogan’s supremacy. AK won a third consecutive term, taking 50 percent of the vote, in a parliamentary election in June.

“Nobody should view this as any sort of crisis or continuing problem in Turkey,” Gul, a former top AK member, told reporters on Saturday. “Undoubtedly events yesterday were an extraordinary situation in themselves, but everything is on course.”

Erdogan designated Kosaner’s successor on Friday, as his office put out a statement naming paramilitary Gendarmerie commander General Necdet Ozel as new head of land forces and acting deputy chief of general staff, effectively making him next in line when Kosaner handed over the baton.

In the past, Turkey’s generals were more likely to seize power than quit. They have staged three coups since 1960 and ousted an Islamist-led government in 1997.

Some founders of AK, including Erdogan, were members of the Welfare Party, an Islamist party whose coalition was forced out 14 years ago. But as prime minister, Erdogan has ended the military’s dominance through a series of reforms aimed at advancing Turkey’s chances of joining the European Union.

FOUR-STAR EARTHQUAKE
“Four-star earthquake,” a headline in Sabah newspaper said of the generals’ decision, while papers also highlighted Kosaner’s criticism of media reporting on the military.

“They tried to create the impression that the Turkish Armed Forces were a criminal organization and … the biased media encouraged this with all kinds of false stories, smears and allegations,” Kosaner’s statement said.

Some said the killing of the Saudi-born al Qaeda founder in Pakistan was scarcely relevant any more, now that secular uprisings have begun toppling corrupt Arab autocrats who had resisted violent Islamist efforts to weaken their grip on power.

“Oh God, please make this news not true … God curse you, Obama,” said a message on a Jihadist forum in some of the first Islamist reaction to the al Qaeda leader’s death. Oh Americans … it is still legal for us to cut your necks.”

For some in the Middle East, bin Laden has been seen as the only Muslim leader to take the fight against Western dominance to the heart of the enemy — in the form of the September 11 attacks on New York and Washington in 2001.

On the streets of Saudi Arabia, bin Laden’s native land which stripped him of his citizenship after September 11, there was a mood of disbelief and sorrow among many.

“I feel that it is a lie,” said one Saudi in Riyadh. He did not want to be named. “I don’t trust the U.S. government or the media. They just want to be done with his story. It would be a sad thing if he really did die. I love him and in my eyes he is a hero and a jihadist.”

Officials in the country of his birth maintained near silence at the news of bin Laden’s death. The state news agency merely noted that Washington and Pakistan had announced it.

Other Gulf Arab states also eschewed comment.

“HARMED ISLAM”

Another strand of opinion believes that bin Laden and al Qaeda brought catastrophe on their Muslim world as the United States retaliated with two wars, in Afghanistan and Iraq, and the word “Islam” became associated with “terrorism.”

“The damage bin Laden had caused Islam is beyond appalling and a collective shame,” said another Saudi, Mahmoud Sabbagh, on Twitter.

Another, anonymous, Saudi said: “He might have had a noble idea to elevate Islam but his implementation was wrong and caused more harm than good. I believe his death will calm people down and may dry up the wells of terrorism.”

In Yemen, bin Laden’s ancestral home and the base for al Qaeda in the Arabian Peninsula, which has been behind recent foiled anti-American attacks, some believed his death would cause his group to lose heart.

“Al Qaeda is finished without bin Laden. Al Qaeda members will not be able to continue,” said Ali Mubarak, a Yemeni man in his 50s as he sipped tea in a cafe in Sanaa.

For many Arabs, inspired by the popular upheavals of the past few months, the news of Osama bin Laden’s death had less significance than it once might have.

“The death of Osama is coming at a very interesting time. The perfect time, when Al Qaeda is in eclipse and the sentiments of freedom are rising,” said Jamal Khashoggi, Saudi commentator and independent analyst.

Recalling the mass demonstrations on Cairo’s Tahrir Square, he added: “The people at Tahrir Square had shut down the ideas and concepts of bin Laden.”

Egyptian Thanaa Al-Atroushy said: “Though I am surprised, I don’t think such news will affect anything in any way. He is a man of al Qaeda, who are known to have weird beliefs to justify killing the innocent like those of September 11.”

RISK OF RETALIATION

But while some hoped his death may terminate al Qaeda, many others believe that al Qaeda franchises across the world would continue campaigns against the United States.

“I am not happy at the news. Osama was seeking justice. He was taking revenge on the Americans and what they did to Arabs, his death to me is martyrdom, I see him a martyr,” added Egyptian Sameh Bakry, a Suez Canal employee.

Omar Bakri, a Lebanese Sunni cleric, mourned bin Laden as a martyr: “His martyrdom will give momentum to a large generation of believers and jihadists.

“Al Qaeda is not a political party, it is a jihadist movement. Al Qaeda does not end with the death of a leader. Bin Laden was first the generation of the Qaeda and now there is a second, third, fourth and fifth generation.”

In Iraq, ravaged by nearly a decade of violence in the battle between bin Laden and the West, some were cautious about the circumstances in which Washington announced his death.

“This is the end of this play. The play about the character of bin Laden that was fabricated by Americans to deform the image of Islam and Muslims,” said Ali Hussain.

“How can you can convince me that all these years American could not kill or even reach him. Americans knew bin Laden suffered from health problems. Maybe he was approaching his death and they wanted to exploit it.”

In non-Arab Iran, a sworn enemy of the United States, some ordinary people were also skeptical of Washington’s account: “Are we sure that he has been killed?” said Tehran shopkeeper Ali Asghar Sedaghat. “Or is it another game of the Americans?”

Speaking to EUobserver on Friday (11 February) at an event in Brussels to mark the 32nd anniversary of the Islamic revolution in Iran, Mr Khaji said: “The Egyptian people should remember that the US and the EU were the principal supporters of President Mubarak. After his election, [US] President Obama gave his first speech to the Islamic world in Cairo [in 2009].”

The ambassador welcomed the fall of President Hosni Mubarak, who abdicated power earlier the same day.

“It is very important that the Egyptian people have taken a step toward realising their objectives. The coincidence that this took place on the anniversary [of the Iranian revolution] is a good omen,” he said.

“It is a very important and positive development for the region. We consider Egypt to be part of our region. It is a fellow Islamic country.”

Asked if Iranian authorities are concerned that the current of popular uprisings in north Africa could embolden anti-government movements in Iran, he added: “No. We are not concerned. You must remember that the Iranian state is also the product of a popular revolution.”

In terms of official ideology, Iran is depicting the events in Egypt as a mirror image of events in Iran in 1979, when Islamist opposition forces overthrew the regime of US ally, Shah Mohammad Reza Pahlavi.

Iran would like to see the Islamist Muslim Brotherhood party in Egypt share power in a future coalition government.

It is concerned that if the EU-and-US-backed former Egyptian spy chief, Omar Suleiman, and the Egyptian army take over, it would be as if the revolution never happened.

It is also concerned that Egyptian opposition forces have no clear vision how to rule the country. One negative option for Tehran is a political vacuum in Egypt that would allow EU and US ally Turkey to take over Egypt’s role as the pre-eminent Islamic power in the region.

Iran has become an international pariah primarily due to its alleged nuclear weapons programme.

But Mr Khaji’s remarks about the popular nature of the 1979 uprising come in the context of Iran’s brutal repression of latter-day anti-government movements. In 2009, at least 15 ‘Green Movement’ demonstrators were killed in the streets. Iran in January executed on drugs charges a Dutch-Iranian woman who took part in the protests, prompting the Netherlands to cut diplomatic ties.

On the likelihood of an Egypt-type uprising in Iran in future, some analysts believe the Iranian opposition’s “moment of opportunity” came and went two years ago.

But one diplomat from the region at Mr Khaji’s anniversary event on Friday was not so sure.

“The revolution in Egypt happened because people were kept under pressure for too long, like a spring,” the contact said. “You can keep a spring under pressure even for 1,000 years. But after 1,001 years, it will rebound.”

The Wall Street Journal on Friday reported the Green Movement has galvanised 30,000 people to take part in anti-government protests in the coming days on the back of events in Egypt.

A large security cordon has been deployed in the capital as local ESISCsources indicate that “several hundreds” of people gathered to protest in the capital. Reportedly, clashes erupted between protesters and security forces, with the latter firing live bullets at the crowd in Ferdowsi Square. Moreover, hired thugs are said to harass protesters and plain clothes police officers are dispersing crowds.

All the metro stations are closed and the main roads entering the capital have been blocked off in order to prevent more protesters flocking in. Additionally, military aircrafts are patrolling the skies over the city as at least 18 protesters have been detained.

The news was broken late Friday afternoon by Mr Mubarak’s vice-president, himself formerly in charge of the country’s intelligence service, renowned for its cruel treatment of suspects, but condoned by the US government due to his “help” with interrogating radical Islamists.

“In these difficult circumstances that the country is passing through, President Hosni Mubarak has decided to leave the position of the presidency,” Mr Suleiman said on national TV.

“He has commissioned the armed forces council to direct the issues of the state.”

The end of the 30-year long Mubarak regime has not come about easily. More than 300 people are believed to have died in street clashes with police since the beginning of the anti-government demonstrations, on 25 January.

The EU, at the beginning cautious in supporting the popular movement, has since grown gradually critical of Mr Mubarak – as Washington had also taken a cautious stance due to Israel’s concerns that a regime change may usher in radical Islamists from the Muslim Brotherhood movement.

Reacting to the news, EU Parliament chief Jerzy Buzek however called this “a historic day of peaceful, lasting and democratic change. I fully support the aspirations of the Egyptian people,” he said in a press statement.

But he also urged to “carefully cherish and protect the flowers of freedom obtained,” especially in regards to the military taking over the reigns of power ahead of general elections due this fall.

EU foreign policy chief Catherine Ashton took a less enthusiastic line. “The EU respects President Mubarak’s decision today,” she said in a press statement.

“By standing down, he has listened to the voices of the Egyptian people and has opened the way to faster and deeper reforms,” she added, while also saluting the “courage” of Egyptians demonstrating peacefully for democracy.

Ms Ashton repeated calls for an “orderly and irreversible transition towards democracy”, urging for the general elections to be free and fair.

British lawyers representing Swedish prosecutors argued for Assange’s extradition over allegations of rape, molestation and unlawful coercion lodged by two women who entered into brief relationships with Assange in Sweden last August.

Assange has denied said any wrongdoing, insisting he had consensual sex with both women.

Geoffrey Robertson, one of Assange’s lead attorneys, argued that Assange could not receive a fair trial in Sweden in part because rape cases there are heard in private. Conducting such a case in secret, without press and the public present, he argued, “risks a flagrant denial of justice.”

Given the broad laws governing extradition between European Union nations – which are structured to allow expedited extraditions — experts say Assange faces a hard-fought case. His lawyers, however, were challenging the Swedish petition on multiple grounds.

They argued that Sweden should not have requested Assange’s extradition because prosecutors there have not yet officially filed criminal charges against their client, instead issuing a warrant based on their desire to question Assange in connection with the allegations.

They have also suggested that the case is politically motivated, one of the rare justifications for refusing inter-European extradition requests. The defense asserts that the allegations against Assange amount to a conspiracy that would end with Assange being extradited to the United States to face charges for the leaking of secret State Department documents on the Internet.

The lawyers acting on behalf of Swedish prosecutors dismiss the conspiracy theory as false and unfounded.

Though the hearing is set to conclude on Tuesday, most analysts believe the judge will not issue a written verdict in a week or two. After that decision comes down, both parties will have the right to appeal to Britain’s high court in a process that could drag on for months.

On Monday, about a dozen Assange backers gathered outside the Belmarsh high-security prison, where the court is being held. Some were wearing orange Guantanamo Bay prison outfits, while others wielded placards reading “don’t shoot the messenger,” and “the truth has been raped.”

The prospect of a prosecution, and a public trial, threatens to expose some of the C.I.A.’s deepest secrets if defense lawyers try to protect their clients by revealing how they operated on the agency’s behalf. It could also tarnish what the Bush administration once hailed as a resounding victory in breaking up the nuclear arms network by laying bare how much of it remained intact.

“It’s like a puzzle,” Andreas Müller, the Swiss magistrate, said at a news conference in Bern on Thursday. “If you put the puzzle together you get the whole picture.”

The three men — Friedrich Tinner and his two sons, Urs and Marco — helped run the atomic smuggling ring of A. Q. Khan, an architect of Pakistan’s nuclear bomb program, officials in several countries have said. In return for millions of dollars, according to former Bush administration officials, the Tinners secretly worked for the C.I.A. as well, not only providing information about the Khan network’s manufacturing and sales efforts, which stretched from Iran to Libya to North Korea, but also helping the agency introduce flaws into the equipment sent to some of those countries.

The Bush administration went to extraordinary lengths to protect the men from prosecution, even persuading Swiss authorities to destroy equipment and information found on their computers and in their homes and businesses — actions that may now imperil efforts to prosecute them.

While it has been clear since 2008 that the Tinners acted as American spies, the announcement by the Swiss magistrate on Thursday, recommending their prosecution for nuclear smuggling, is a turning point in the investigation. A trial would bring to the fore a case that Pakistan has insisted is closed. Prosecuting the case could also expose in court a tale of C.I.A. break-ins in Switzerland, and of a still unexplained decision by the agency not to seize electronic copies of a number of nuclear bomb designs found on the computers of the Tinner family.

One of those blueprints came from an early Chinese atomic bomb; two more advanced designs were from Pakistan’s program, investigators from several countries have said.

Ultimately, copies of those blueprints were found around the globe on the computers of members of the Khan network, leading investigators to suspect that they made their way to Iran, North Korea and perhaps other countries. In 2003, atomic investigators found one of the atomic blueprints in Libya and brought it back to the United States for safekeeping.

Mr. Müller, the Swiss magistrate, investigated the Tinner case for nearly two years. He said Thursday that his 174-page report recommended that the three men face charges for “supporting the development of atomic weapons” in violation of Swiss law.

They are accused of supplying Dr. Khan’s operation with technology used to make centrifuges, the machines that purify uranium into fuel for bombs and reactors. Dr. Khan then sold the centrifuges to Libya, Iran and North Korea and perhaps other countries.

Mr. Müller’s recommendation comes as a new book describes previously unknown details of the C.I.A.’s secret relationship with the Tinners, which appears to have started around 2000.

The book, “Fallout,” by Catherine Collins and Douglas Frantz, scheduled to be published next month, tells how the C.I.A. sent the men coded instructions, spied on their family, tried to buy their silence and ultimately had the Bush administration press Switzerland to destroy evidence in an effort to keep the Tinners from being indicted and testifying in open court.

Ms. Collins is a freelance writer and investigator, and her husband, Mr. Frantz, is a former investigations editor for The New York Times and a former managing editor of The Los Angeles Times. He currently works on the staff of the Senate Foreign Relations Committee.

The C.I.A. has never commented on its relationship with the Tinners. But the story has leaked out, in bits and pieces, after news reports of Dr. Khan’s illicit atomic sales forced Pakistan’s government to expose the atomic ring and place Dr. Khan under house arrest. But Pakistan never allowed him to be interrogated by the C.I.A. or international nuclear inspectors, perhaps out of fear that he would implicate other Pakistani senior officials.

As a result, there has never been a full accounting of his activities, few of his associates have been tried or jailed, and there are strong indications that some of his suppliers are still operating.

But if the Pakistanis were worried about revelations surrounding Dr. Khan and whom he might have worked with in the Pakistani military and political hierarchy, the C.I.A. was worried about the Tinners.

The new book says the Bush administration grew so alarmed at possible disclosures of C.I.A. links to the family that in 2006 Secretary of State Condoleezza Rice lobbied Swiss officials to drop their investigation.

The book says the C.I.A. broke into a Tinner home in 2003 and found that the family possessed detailed blueprints for several types of nuclear bombs.

Paula Weiss, a spokeswoman for the C.I.A., declined to comment, and lawyers for the Tinners did not immediately respond to requests for comment. The Tinners have said that they were not aware that the equipment they supplied was intended for nuclear weaponsprojects.

Based on Swiss investigators’ findings, the book suggests that the bomb designs may have spread to a half dozen outposts of Dr. Khan’s empire around the globe — including Thailand, Malaysia and South Africa — and sharply criticizes the C.I.A. for leaving those plans in the hands of people suspected of being nuclear traffickers.

In late 2007, the Swiss government, under strong American pressure, decided to drop legal proceedings on espionage charges against the Tinners and other charges against a number of C.I.A. operatives who had operated on Swiss soil in violation of the country’s laws.

In early 2008, the more limited investigation on trafficking charges inched forward with great difficulty because the Swiss government — again at the behest of United States officials — had destroyed an enormous trove of computer files and other material documenting the business dealings of the atomic family. That action led to an uproar in the Swiss Parliament.

But in 2008 Swiss investigators discovered that 39 Tinner files scheduled for destruction had been overlooked, giving the authorities fresh insights into the ring’s operation — and new life for the legal case.

In his news conference on Thursday, Mr. Müller harshly criticized the Swiss government for having “massively interfered in the wheels of justice by destroying almost all the evidence.” He added that the government had also ordered the federal criminal police not to cooperate with his investigation.

If the Tinners are formally charged and their case goes to trial in Switzerland, they face up to 10 years in prison if they are found guilty of breaking laws on the export of atomic goods. All three men spent time in Swiss jails pending the outcome of the espionage and trafficking inquiries. The time they have already spent in jail would count toward any possible sentence.

In early 2009, Marco Tinner was freed after more than three years of investigative detention, and his brother Urs was released in late 2008 after more than four years in jail. Their father, Friedrich, was released in 2006.

Mr. Müller recommended that, in addition to charges of atomic smuggling, Marco Tinner should be accused of money laundering.

The Swiss attorney general is now studying the magistrate’s report and will decide next year whether to file charges against the Swiss family of atomic spies and entrepreneurs.

Joseph Steven Proctor, 32, was shot by soldiers at a checkpoint in the Pacific state of Guerrero in August. At the time, there were conflicting reports about whether he had fired first at the soldiers.

But the conclusion of the Mexican military investigation, which was forwarded to the U.S. Embassy in Mexico and obtained by CNN, indicates that an assault rifle found in Proctor’s possession was planted.

According to the document, a soldier alerted his commander that the dead American was not armed. In response, the commander “proceeded to send another officer with an AR-15 rifle, in order to be placed in the vehicle, using the hands of the deceased to try to simulate an attack against military personnel, and that he had died when the attack was countered,” the document states.

According to the Mexican military, Proctor tried to flee from two checkpoints on the highway. Soldiers fired at him when he fled the first checkpoint, and hit his car, but not Proctor, the investigation found. When he tried to flee the second checkpoint, two soldiers fired at him, injuring him, though he managed to drive for three more kilometers before succumbing to his injuries and crashing, the document states.

“I am happy somebody is looking into what happened and is letting the world know,” said Proctor’s mother, Donna Proctor. “I am missing a son and a grandson is missing a father.”

According to the Mexican military, criminal proceedings were brought against the two soldiers who fired at the second checkpoint. An arrest warrant was issued and they were arrested in September. They will face a military trial on charges of homicide and providing a false report.

There was no mention in the document about the commander who ordered the weapon to be planted, and it was unclear if he faced any disciplinary measures.

Donna Proctor said the investigation clarifies her son’s actions that night.

“My son was listed as a maniac shooting at them with one of their rifles,” she said. “We are glad to know that this will be looked into but, for my grandson, it doesn’t bring back his daddy.”

U.S. and Western intelligence agencies, determining the 82-year-old leader was terminally ill, have been watching for a transition of power in the Middle Eastern nation that is a vital U.S. ally, the Times reported Monday.

Earlier this month, several newspapers in the region said Mubarak sought treatment at a French hospital, but a senior Egyptian government official interviewed by the Times said the accounts were “without any factual basis whatsoever.”

The Times said there were other indications Mubarak’s health is failing. In March, the Egyptian leader went to Germany for what was said to be gall bladder surgery.

Steven Cook, a senior fellow and Egyptian affairs specialist at the Council on Foreign Relations, told the Times people in Cairo “were mellow about the prospect of him being ill. Everyone understood the end was near; the estimates were 12 to 18 months.”

Egypt’s presidential elections are scheduled for September 2011.

“We know he is dying, but we don’t know when he will die,” a senior U.S. intelligence officer told the Times.

“You can be dying for a long time, by the way,” he said, citing former Cuban President Fidel Castro as an example. Castro has been in failing health for some time, yet recently was interviewed on a Cuban television show.

Preliminary reports suggest that at least 30 men were involved in the attack. According to a witness, the armed men pulled 23 people outside, lined them up and shot them. However, any further details are not provided yet.

Chihuahua State Police Spokesman Fidel Banuelos states that, the gunmen had left messages blaming the victims of being criminals.

No group has claimed responsibility for the inciden

Despite the crisis unfolding in the euro zone, the world economy continues to recover. Recent indicators for the US and some emerging markets (particularly in Asia) have been strong, and the Economist Intelligence Unit sees no clear evidence that the turmoil in Europe has undermined this otherwise improving picture. We think world GDP in purchasing power parity (PPP) terms will grow by 4.1% in 2010, up from 3.9% in last month’s forecast. We have also substantially revised our currency forecasts, and now expect a much weaker euro.

It is impossible, nonetheless, to ignore the fiscal crisis in the euro zone. The situation carries major risks for financial stability and even the future of the single currency. But our projections still indicate that the crisis will have little worse than a neutral impact on GDP growth. In essence, while austerity measures in some countries will depress domestic demand, a weaker euro will boost exports. With emerging markets still powering ahead and the US economy also getting back on its feet, the recovery in the rest of the world should be largely unaffected.

There remain other major challenges to the sustainability of the global recovery, however. For some time, we have held the view that temporary factors such as fiscal stimulus and inventory adjustments have been driving growth, and that the global economy is too weak to expand at the same speed once these forces wear off. This view is reflected in our forecast for next year, when we think global GDP growth in PPP terms will slow to 3.5%. Yet the “upside risks” to global growth are also increasing. Private-sector balance sheets in a number of major economies have improved, as companies have returned to profit and as households have reduced debt. This will allow private-sector demand to generate a degree of self-sustaining momentum in the coming months, though we remain sceptical that this will be sufficient to offset the fading of fiscal stimulus and inventory effects.

Developed world

We have raised our forecast for US growth, and expect the world’s largest economy to grow by 3.3% in 2010 and by 1.8% next year. Yet our forecast for 2011, in particular, remains much more pessimistic than consensus. We still think that fundamentals will hold back the economy once short-term effects recede. There is also a high risk that a stronger US dollar resulting from the problems in the euro area could undermine export prospects.

The sustainability of Japan’s recovery remains uncertain. On the plus side, the improvement in the global economy, particularly rapid growth in China, will boost Japan’s exports in 2010 despite the strength of the yen. But the negatives, including sluggish domestic demand, deflation and political indecision, will weigh heavily. Real GDP will grow by just 1.7% this year.

In Europe, in contrast, the economic situation has not lacked for drama—though sadly for the wrong reasons. The euro area is in the worst crisis since its inception, as investor fears of sovereign default in Greece have become contagious. The EU and IMF have launched a massive joint stabilisation programme. This has lowered financing costs, but underlying concerns about governments’ solvency remain unresolved. We think that Greece will eventually restructure its debt, probably in 2012.

The need for other countries in the euro zone to accelerate budgetary repairs as a precautionary measure, to prevent bond markets from losing faith, will further undermine demand. The only consolation is that the weakening of the euro will benefit export-oriented economies such as Germany and the Netherlands. For the euro zone as a whole, this will come close to offsetting the negative impact of fiscal retrenchment. As a consequence, our euro area GDP forecast remains little changed, with projected growth of 0.7% this year and 0.8% in 2011. However, this export-driven growth will be uneven, with some of the fiscally weakest countries benefiting the least. They will pay the price for years of focusing on domestic markets, at the expense of cultivating strong export bases.

Emerging markets

With some exceptions, emerging markets have weathered the global financial and economic crisis of the past two years much better than rich countries. Indeed, financial conditions are now too expansionary in a number of countries, and policymakers are turning their thoughts to the containment of inflationary pressures. Policy has already started to tighten, and we expect interest-rate hikes and other tightening measures in many more countries in the rest of 2010.

Asia, unsurprisingly, is at the forefront of the emerging-market upturn. China’s economy, which grew by a heady 11.9% in the first quarter of this year, is grabbing the attention, but indicators for other markets such as Singapore, Taiwan and South Korea have also been very strong. We think Asia and Australasia as a whole, excluding Japan, will post GDP growth of 7.2% in 2010. On the negative side, concerns about asset bubbles are rising.

Eastern Europe has fared less well, having been hit hard by the global recession, but the outlook is improving. Exports and industrial output are recovering in most countries. However, recent financial-market volatility underlines the threat of contagion from the crisis in the euro area.

Latin America, with exceptions like Venezuela, is in increasingly good shape. The policy improvements of recent years have made the region more resistant to economic and financial shocks. Chinese demand for commodities has been beneficial. We have raised our forecast for Brazil, the region’s largest economy, and now expect real GDP growth of 6.3% in 2010. This has pushed up our forecast for Latin America as a whole, which will grow by 4.2% this year.

Growth in the Middle East and Africa will also pick up robustly in 2010, thanks to higher oil prices, a stronger global economy and, in many cases, loose domestic policy. However, within this region North Africa will grow relatively modestly because of its dependence on exports to, and remittances from, the weak EU economy. Sub-Saharan Africa is benefiting from Chinese demand for commodities and will enjoy GDP growth of 4.5% in 2010.

Exchange rates

The European fiscal crisis has led the euro to fall sharply against most major currencies, and our new forecast assumes a much weaker euro over the next few years. The €750bn (US$930bn) European rescue package, announced on May 10th, briefly boosted the euro, but the single currency has subsequently continued its slide. On May 14th it was trading at less than US$1.25:€1, compared with US$1.33:€1 at the end of April.

Concerns over government solvency also pose risks to the dollar, yen and sterling, given the fiscal problems facing the US, Japan and the UK. However, on balance the fact that the situation is most acute in the euro area is likely to boost these currencies relative to the euro. The crisis in Europe also means that the European Central Bank is likely to delay raising interest rates for longer, making other currencies relatively more attractive to investors.

The US dollar, in particular, will remain the main safe-haven currency. We expect it to trade at an average of US$1.30:€1 in 2010, strengthening further to US$1.22:€1 in 2011.

Commodities

We expect oil to cost an average of US$80 a barrel in 2010, up from US$62 last year. Global demand for oil will start to recover in 2010, following two consecutive years of falling consumption. However, the impact of economic stimulus packages will fade in 2011, leading to a renewed downturn in OECD demand. This suggests that prices will ease to an average of US$78.5 a barrel in 2011.

Average prices of industrial raw materials will be much higher this year than in 2009. Base-metal prices, which have been supported by Chinese buying, will also benefit from a recovery in OECD consumption in 2010. However, Chinese demand growth will ease later this year. As a result, we believe that much of the good news has already been factored into base-metal prices and that, at best, they will sustain their earlier gains this year.

* Price tag higher than market had expected

* ConocoPhillips shares up 1.2 pct; Sinopec down 0.3 pct

* Canadian regulators not expected to block deal

HONG KONG/CALGARY, Alberta, April 13 (Reuters) – A subsidiary of China’s Sinopec Group (0386.HK)(600028.SS)(SNP.N) agreed to pay $4.65 billion for ConocoPhillips’s (COP.N) stake in a Canadian oil sands project, marking the country’s second largest investment in North America.

China, Asia’s largest refiner, has been scouring the globe and spending billions of dollars on energy resources to support booming growth in the world’s third-largest economy.

China’s power and energy companies spent around $20 billion alone last year on outbound acquisitions, an amount that includes Sinopec’s $7.2 billion purchase of Addax Petroleum, a company with oil assets in West Africa and Iraqi Kurdistan.

The latest Sinopec deal, China’s fifth-largest acquisition in history, underlines a resurgence in interest in the vast but difficult-to-extract oil sands energy resource located in the province of Alberta.

Investment in the oil sands has jumped since crude prices shot past $80 a barrel with the global economic recovery gaining traction.

U.S.-based oil major ConocoPhillips said it would sell its 9.03 percent interest in the Syncrude Canada Ltd project to China’s top refiner. The deal, China’s largest-ever purchase of a Canada-based asset, is set to close in the third quarter.

The price paid for the ConocoPhillips stake “is more than the market was expecting. They were expecting about $4 billion,” said Phil Skolnick, an analyst with Genuity Capital Markets. “It just shows that the Chinese are a different kind of buyer.”

Indeed, China’s state-owned companies can take a longer-term view of major investments in sectors such as energy, where they have outbid many domestic players having no need to tap public markets for financing.

DEAL TO CLOSE IN Q3

In a separate statement, Sinopec International Petroleum Exploration and Production Corp, a Sinopec subsidiary, said the transaction was subject to government and regulatory approvals in China and Canada.

State-owned Sinopec controls Hong Kong-listed China Petroleum & Chemical Corp (Sinopec Corp), which announced in March that it will buy a stake in upstream assets in Angola for $2.46 billion. [ID:nTOE62P02C]

Syncrude, the largest project in the oil sands, has operated since 1978, and can now pump out 350,000 barrels a day, roughly 13 percent of Canada’s overall oil output.

The ConocoPhillips transaction differs from other Chinese oil sands deals, which involved early-stage projects, according to FirstEnergy Capital Corp analyst Mike Dunn.

“Sinopec will continue to buy overseas assets but their priority will be on more developed projects that have started to generate profits,” said Gideon Lo, an analyst at DBS Group Research. Sinopec is seen expanding in overseas E&P markets and reducing its reliance on the volatile refining sector in China.

For ConocoPhillips, the deal is part of a 2-year, $10 billion program of asset sales. When it first said it was putting the stake on the block last October, analysts pegged the value at $3.6 billion to $4 billion.

“This deal goes a long way in helping them reach their $10 billion asset-sale goal. It’s probably a bigger chunk than they had anticipated,” said Allen Good, analyst with Morningstar.

After Monday’s announcement, ConocoPhillips shares climbed 64 cents, or 1.2 percent, to $55.96 on the New York Stock Exchange. Sinopec shares edged up 0.3 percent to HK$6.61 in a broader market .HSI down 0.6 percent.

Syria is becoming increasingly comfortable with its regional position. It is being courted by all sides with political interests at stake in the Middle East, and its fledgling market economy is attracting the attention of serious international investors. How secure is this comfort zone that Syria has managed to create?

The arrival in Damascus on March 31st of Walid Jumblatt, the leader of Lebanon’s Druze minority, was symbolic of the political and diplomatic advances that Syria has made in the past few years. Mr Jumblatt has oscillated between allegiance to Damascus and fierce criticism of the Syrian regime. After the assassination of Rafiq al-Hariri, the architect ofLebanon’s post-war reconstruction, in February 2005, Mr Jumblatt was unrestrained in his attacks on Syria and its president, Bashar al-Assad. However, since his failed bid in May 2008 to strip away some of the powers of Hizbullah, the heavily armed Lebanese Shia group backed by Syria and Iran, Mr Jumblatt has reverted to deference to Damascus. He even absented himself from a ceremony on March 16th to mark the anniversary of the assassination of his own father in 1977 by presumed Syrian agents, and he used the medium of Al Jazeera television station to apologise for some of his earlier remarks about the Syrian leader. Mr Assad finally consented to grant an audience to Mr Jumblatt, who was quoted by the official Syrian news agency as praising his host’s commitment to upholding Lebanon’s security and stability and endorsing “resistance” against Israel.

The appearance of Mr Jumblatt in Damascus and the earlier visit of Saad al-Hariri, the Lebanese prime minister, in December mark the abandonment of the quest launched by the March 14th movement in 2005 for a form of Western-guaranteed independence forLebanon. Syria maintains that this quest arose from the excessive zeal of the Bush administration (supported in this instance by France, under the presidency of Jacques Chirac) to impose their own vision on the region without having properly thought through the likely consequences. There is now broad international acceptance of the balance of power in Lebanon, in which the allies of Syria and Iran wield ultimate control over security policy within a government of all factions. That acceptance does not always equate to approval—the new US ambassador designate to Damascus, Robert Ford, for example, expressed concern during his confirmation hearings in Congress about Syria’s role in helping Hizbullah to upgrade its weapons systems—but there is no appetite for a return to the Bush-Chirac era of pressure on Syria over Lebanon.

US-Israeli breach

The recent very public disagreements between the Obama administration and Israel have given Mr Assad a good opportunity to rehearse his argument that the US should be prepared to put pressure on Israel to make the meaningful concessions necessary to achieve a lasting Arab-Israeli peace settlement. Mr Assad places his policy of resistance—or backing Hizbullah, Hamas and Islamic Jihad—in this context, maintaining that Arab offers of conciliation have been tried before without satisfactory results. However, Mr Assad also has to reckon with the fact that Barack Obama faces constraints from a viscerally pro-Israel Congress, and he has to take into account Syria’s vulnerability on both the military and economic fronts. Joshua Landis, a prominent commentator on Syrian affairs, argues in his blog that this is a reason for Syria to bolster its resistance credentials through all means: “building up Hizbullah, acquiring nuclear capability, developing better weapons, using Iran to scare Israel, upgrading its economy and relations with important powers such as Turkey, Saudi Arabia, Russia, and France”. This list is a fair summary of Mr Assad’s actual policies, but some of the items would appear to contradict others—most glaringly, it is questionable whether Syria’s economic progress and continued good relations with France, Turkey and Saudi Arabia would be compatible with an all-out drive to develop nuclear weapons, or indeed to try to achieve conventional military parity with Israel. Perhaps mistakenly, many Western and Israeli policy analysts assume that “resistance” is a ploy, and that self-interest will ultimately induce Syria to strike a deal whereby it would regain the Golan Heights in return for signing a peace treaty with Israel and dropping its anti-Israeli allies.

Iraqi conundrum

There are also elements of contradiction in Syria’s stance towards Iraq. Syria has a major economic stake in Iraq’s stability and prosperity. According to the Syrian Central Bureau of Statistics, Iraq was by far the country’s largest export market in 2008, accounting for S£118bn (US$2.5bn) out of Syria’s total exports of S£708bn. Syria has nevertheless faced accusations from the US and from Iraq’s prime minister, Nouri al-Maliki, of colluding in the activities of al-Qaida and Baathist subversives based on its soil. Mr Maliki now looks to be in trouble, having failed to secure the largest number of seats in the general election, owing to the major gains by Ayad Allawi, whose cross-sectarian Iraqiya list virtually swept the board in Sunni Arab areas of the country. An Allawi-led government would appear to suit Syria’s interests, as it would be likely to foster stability in the Sunni-dominated provinces along the border, and could prompt more Iraqi refugees to return home. Such a government would also be welcomed by Saudi Arabia, and could trigger increased investment in Syria by Saudi banks and companies targeting the Iraqi market. A Sunni Arab tilt of this kind might not fit in with Iran’s wishes, but Mr Assad could have an opportunity to play a role in brokering a compromise—Mr Allawi in any event would be unable to form a government, or even take part in one, without working with some Iranian-backed factions. The first round of deliberations among Iraqi parties about the complexion of the new government took place in Tehran, much to the dismay of Mr Allawi. The second is likely to be held in Damascus.