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May 28th 2007 | DUBLIN

From Economist.com

Against the odds, Ireland's prime minister gets another term

AFP

FOR three weeks opposition parties had pressed Irish voters to opt for change. And for a while they looked like succeeding, as the electorate briefly flirted with the idea of a new government. But in the end voters chose not to oust Bertie Ahern from office after ten years running Europe’s most successful economy. On polling day voters opted for continuity instead of replacing Mr Ahern with an alternative centre-left government. Their heads (and their wallets) ruled their hearts, and they chose stability. By the night of Saturday May 26th, when the votes in the general election were finally counted, Mr Ahern and his Fianna Fail party had emerged the surprise winners, by a small margin.

Three times in a decade, Ireland’s “Teflon” taoiseach (prime minister) has led his party to a stunning victory. On June 14th, he is expected to be re-elected as taoiseach for a third successive term too. As in 1997, most likely he will form a minority centre-right coalition with the Progressive Democrats, a liberal party which lost its leader and most of its members, and rely on the support of some independents; or failing that he might forge an alliance with the Greens.

It was an election victory that few had predicted. Neither bookmakers, pollsters nor pundits imagined that Fianna Fail would lose a mere three seats in the 166-seat Dail (parliament). Most thought the party would suffer far more. At the outset of the campaign, Fianna Fail was trailing in the polls, and matters could hardly have been worse. Its leader, Mr Ahern, had become embroiled in a fresh row about his personal finances, involving undeclared loans and gifts received when finance minister in the 1990s. And Michael McDowell, the leader of the Progressive Democrats, his junior coalition partner, was threatening to leave government if the taoiseach failed to clarify matters fully.

Mr Ahern did so, and to almost everyone’s satisfaction, in what proved to be a turning-point in the campaign. His detailed explanation was the start of his election fight back, and of Fianna Fail’s recovery in the polls. Two days later, on May 16th, the taoiseach was the first Irish leader to address a joint session of both houses of Parliament at Westminster. Tony Blair and Bill Clinton later pitched in with their support, by offering an unprecedented (albeit solicited) public endorsement of Mr Ahern for his role in the Northern Ireland peace process. And, on May 18th, Mr Ahern was perceived to have won a widely watched television debate with Enda Kenny, leader of Fine Gael, the main opposition party.

In a matter of days Mr Ahern was transformed from a tired and dispirited leader on his way out of office into a statesman, whose skills in managing Ireland’s economic success offered just the reassurance necessary to rally undecided voters. Whether the electorate's continued confidence in his economic stewardship is justified remains to be seen. The economy is still expanding, but less exuberantly than it was. Increasing interest rates are beginning to curb the excesses in the property market. Sharply rising personal debt levels have dented consumer confidence.

One of the most remarkable turnarounds in Ireland’s electoral politics and the greatest comeback in Fianna Fail’s election history will have repercussions for Irish politics too. The casualties are the smaller political parties, squeezed in a presidential-style campaign that was dominated by Fianna Fail and Fine Gael, which have their origins in Ireland’s civil war in 1922.

No party was more tightly squeezed than Sinn Fein. It had hoped to double its representation in the Dail to ten seats but instead lost one. In power in Northern Ireland, the party had hoped to realise its ambition to be in government both north and south of the border. It failed dismally, with its president, Gerry Adams, failing to strike a chord with southern voters, and showing little understanding of economics, or familiarity with the detail of southern politics. In the end this vote for the status quo was a vote for the Celtic Tiger, and against any change that might threaten its survival.

POOR Jeff Immelt. Since taking control of General Electric (GE) in 2001, he has hardly put a foot wrong. He has reshuffled his pack of companies, divesting volatile ones and acquiring fast-growing businesses in higher-margin areas such as infrastructure and health care. Recent revenue growth has been zippy, in line with the company's target of two to three times global GDP growth. GE is forecasting profits of close to $23 billion this year, which would be double-digit growth over last year. Most analysts recommend the firm's shares.

But investors have shrugged. GE's share price has risen by 9.6% over the past 12 months, well below the S&P 500's 20% gain. Yet the share price of Siemens, its European rival, has jumped 39% during the same period, despite a corruption scandal (see chart). Mr Immelt's latest deal, the sale for $11.6 billion of GE's plastics unit to SABIC of Saudi Arabia, had little effect when it was announced on May 21st.

Why the subdued performance? The “I love Jack” premium baked into the share price under Mr Immelt's celebrated predecessor, Jack Welch, has long gone. It is harder to turbo-charge the shares of a firm that is already performing well. The benefits of diversification look less compelling when markets are buoyant. And GE's size means it has not benefited from the takeover speculation that has lifted other firms' share prices.

Some believe that GE would be more valuable if it broke itself up, or at least became more focused. Last month analysts at Citigroup proposed that it ought to spin off three big assets: NBC Universal, its media unit; its consumer-finance arm; and its property business. That would leave behind a simpler firm with a sharper focus on infrastructure, where Mr Immelt has assembled a powerful array of businesses to address the long-term needs of developing economies.

For the moment, GE is sticking to its many guns. Its ability to develop talented managers and run businesses well is not in question. It is unsentimental about getting rid of assets if their performance is not up to scratch—both Mr Immelt and Mr Welch once worked in the plastics unit. And it is keeping shareholders sweet with steadily rising dividends and a share-buyback programme.

But today's frantic dealmaking means conglomerates such as GE find it harder to argue that they are worth more than the sum of their parts. GE's plastics unit fetched over $1 billion more than the highest estimate of its value. Mr Immelt got an excellent price—but it rather awkwardly suggests that GE might be worth far more if it were broken up.

May 24th 2007 | BERLIN AND LONDON

From Economist.com

Turmoil among Europe's corporate champions

Claudio Munoz

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AT A time when Europe’s big companies can hold their heads up high, with results comparable to those of America’s corporate giants, comes a crop of boardroom upheavals and struggles for control—a surprising occurrence in the midst of a boom, and one that could mean tougher times ahead.

Wednesday May 23rd saw the unveiling of plans by Christian Streiff, the boss of PSA Peugeot Citroën, to redress falling profits. He moved to the car company after three disastrous months last year trying to run Airbus. At Peugeot he has called for nearly 5,000 jobs to be cut in France, but would avoid compulsory redundancies. Mr Streiff told shareholders that he would slash overheads by 30% and revive the company’s product range by launching 41 models by the end of 2010. Peugeot must contend with a car market where all the growth is far beyond Europe’s shores.

The new boss of Siemens, Europe’s leading engineering group and a bastion of German capital-goods manufacturing, comes with an appropriate name that translates as “fire extinguisher”. Peter Löscher, appointed on Sunday, has got a blaze to deal with at a firm engulfed by multiple bribery investigations and the departure of both its chairman and chief executive. He could be the blast of cold water that Siemens needs, but he faces the difficult task of mastering the giant conglomerate.

It is not just Peugeot and Siemens. Other prominent European companies in turmoil include EADS (the parent of Airbus), Daimler and Renault. The travails of Europe’s banks and energy firms largely stem from the belated introduction of a single market, while in other industries, such as telecoms and aviation, long-awaited consolidation is stirring things up. What is worrying about Siemens, EADS and others is that their woes may have a deeper cause: being wrongfooted by global competition.

Pessimists worry that the turmoil among Europe’s finest could herald the end of their success in the past ten years. Optimists hope that it will prompt a round of creative destruction that will enable European companies to raise their game and do better. The fate of these giants is particularly important because of the structure of the European economy.

Europe’s productivity is nearly one-third lower than America’s, according to a new study in the McKinsey Quarterly, because Europeans have chosen to work less than Americans. This sluggish productivity stifles the emergence of strong new firms and makes Europe heavily dependent on its existing corporate champions, which operate far beyond Europe. Their global scope means they can adapt to labour conditions at home—such as France’s 35-hour working week, or restrictions on their ability to sack redundant or unproductive workers—by eking out higher productivity elsewhere. Since Europe particularly relies on its corporate giants for its vigour, signs of turmoil in their ranks are worrying.

Yet might a shake-up be exactly what the giants need? The arrival at Siemens of Mr Löscher, a fresh-faced outsider, has led to renewed suggestions that the sprawling conglomerate ought to be broken up. Germany’s Daimler, as it will be known upon completing its sale of Chrysler, its American arm, is also in disarray. Daimler bought Chrysler to spread car-development costs over a wider revenue base. Its admission of defeat could be seen as a mature decision, as the company cuts its losses. But it leaves Daimler with no obvious strategy and it may even look like a target, given its unusual make-up: the world’s leading luxury-car brand, the world’s biggest truckmaker and a big shareholding in one of Europe’s most troubled groups, EADS.

The first thing Nicolas Sarkozy did as France’s new president was fly to Berlin to talk to Angela Merkel, inter alia, about the crisis at EADS. The next day he was in Toulouse, reassuring Airbus workers that the French state would help when Airbus wanted more capital, but also expressing his desire to see the government eventually replaced on the shareholders’ register by industrial and financial stakeholders. But this confusing pragmatism suggests little more than a wish to end the clumsy Franco-German stalemate over the future development of EADS and Airbus.

In the good years, European giants could have been forgiven for thinking that, having put themselves right, they could thrive by just getting on with the job. The uncomfortable truth now dawning is that today, as business globalises, large firms have to put themselves right time and again.

May 23rd 2007 | NEW YORK

From Economist.com

A display of force in the Persian Gulf is unlikely to change Iranian minds over the country's nuclear programme

AFP

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IT IS easy to see why nine American warships carrying 17,000 personnel were sent steaming into the Persian Gulf, in broad daylight, on Wednesday May 23rd. That show of force coincided with a planned announcement from the International Atomic Energy Agency (IAEA) suggesting that Iran has been taking big strides in its nuclear programme, despite demands from the UN, Europe and America that the Islamic republic co-operate with international inspections and stop its research. Adding to the pressure France’s new president, Nicolas Sarkozy, made it clear, again on Wednesday, that he considers a nuclear-armed Iran “unacceptable” and that he would support tougher sanctions to discourage the government in Tehran.

But none of that seems likely to make much difference in Iran. The country’s leaders, who relish confrontation, have promised to resist “any kind of threat”. President Mahmoud Ahmadinejad recently gave warning of “severe” retaliation—presumably including attempts to blockade the Strait of Hormuz, where the American warships patrol and through which huge quantities of crude oil pass each day—if foreign forces were to attack Iran.

Outsiders worry that Iran is moving faster than expected in its nuclear programme. The IAEA says some 1,300 centrifuges are now spinning to enrich uranium at a facility in Natanz, a difficult task that many were not sure Iran could pull off. Some 3,000 centrifuges are probably needed to produce enough weapons-grade uranium to make a bomb in less than a year, and Iran may bring another 600 online by this summer. Iran insists the programme is strictly civilian, but many outsiders are convinced that the real intention is to get the means to make a nuclear weapon sooner rather than later.

A diplomatic confrontation will continue as outsiders struggle to bring effective pressure to bear. Iran’s negotiators will meet representatives from America and Europe later this month when they will claim to be willing to deal pragmatically over the nuclear programme. But attempts to talk have failed before. Even understanding the relative strengths of extremists and moderates among Iran’s leaders is difficult. The former seem to have an upper hand at the moment, apparently supporting insurgents in neighbouring Iraq and, possibly, in Afghanistan.

In Iran itself the space for liberals and dissidents is shrinking: women are harassed for immodest dress; an Iranian-American female scholar was recently arrested, jailed and charged—bizarrely—with plotting the overthrow of the regime. Less widely reported was the detention of Hossein Mousavian, a former top nuclear negotiator. He is accused of espionage after he allegedly had contact with employees of a foreign embassy. Iran is also holding an Iranian-American journalist for Radio Farda, an American-funded Persian-language station.

It is unclear whether the moderates in Iran, backed by a large middle class, can be encouraged to assert themselves. Tougher economic sanctions over the nuclear programme would risk generating more support for the hardliners, as would any military strikes. But engagement of Tehran’s leaders in effect means letting the country get away with flouting international rules on nuclear development. More troubling, the IAEA’s boss, Mohamed ElBaradei, has split from western powers, with a suggestion that Iran should be allowed to retain some uranium-enrichment capacity—a proposal that is expected to draw complaints from American and European envoys.

The coming week may act as a barometer for the prospects of any progress soon. On May 28th America’s ambassador in Iraq will meet an Iranian counterpart, but to talk only about Iraq’s security both sides insist. A couple of days later the next round of negotiations is expected between the EU’s foreign-policy chief, Javier Solana, and Iran’s current nuclear negotiator, Ali Larijani. Despite the show of force and the reports of the IAEA, there is little sign that Iran is ready to back down.

www.savenetradio.org

By DOREEN CARVAJAL
PARIS, May 13 — Since Pandora.com closed its box of digital musical delights this month to users outside the United States, the complaints have been pouring in from Dubai to Patagonia.

It is “a step back to the dark ages in the music world!” fumed Mario from Mexico City. Declared a user from Spain: “Why can’t they leave us in peace?”

With 6.5 million registered users, Pandora stands at the vanguard of the sprawling, global Internet radio market. But like other Webcasters, it faces an increase in royalty rates in the United States and is struggling with competing royalty collection agencies all over the world.

On May 3, that chaos prompted Tim Westergren, a former musician who founded Pandora in a San Francisco apartment, to pull the plug on the international market, blocking foreign visitors through computer Internet protocol addresses, which identify the country of the user.

“This is a watershed period that we’re going through,” said Mr. Westergren, who had intended to start a British site this week but postponed the project as the company wrestles with the royalties issue.

Internet radio sites are global by nature, streaming musical programs digitally to users all over the world. But there is no one-stop global shopping for royalty collections, which means that Pandora has to negotiate separate agreements with institutions from each territory or directly with music labels.

Global demand, though, respects no boundaries. The American Internet radio audience climbed to 34.5 million in March, and the share of listeners in Europe is even higher at 49.5 million, according to comScore, a marketing research company that tracks Internet traffic.

Those listeners are logging on to sites that can tailor programming to eclectic tastes. Live365.com, for instance, is a 10-year-old network of thousands of members who create their own online stations offering fare as diverse as Konkani music from the west coast of India or hundreds of versions of “Ave Maria.”

The expanding market has overwhelmed the existing royalty structure. But the International Federation of the Phonographic Industry in London has just completed an international agreement to develop a more manageable way to stream across competing territories and collect royalties.

“In actual practice, companies had two options if they wanted to remain legal,” said Lauri Rechardt, a legal consultant who helped negotiate the agreement for the federation, which represents 1,400 record companies in 70 countries. Either they limited their service to certain territories for which they had cleared the rights, Mr. Rechardt said, or they faced the physically impossible task of striking deals with hundreds of record labels.

Mr. Rechardt said he expected 40 national royalty collection agencies in the United States, Europe, Asia and Latin America to sign the agreement within the next few months. On Friday, Gramex, the Finnish collection agency, was the first to sign.

But the agreement leaves rate-setting to each individual country, and for the moment the United States is poised to set what could be, in effect, a global benchmark. The proposed increases could raise the cost of sound recordings for Internet stations 300 percent to 1,200 percent, and have set off a furious political struggle.

Currently, Webcasters pay a percentage of revenue in performance royalties for music streamed to the United States to an industry-backed association called SoundExchange, which collects and distributes the money. But the Copyright Royalty Board has set new rates effective July 15 that change the structure so that Webcasters are charged each time a user listens to a song.

The pending rate increases have sparked an intense lobbying campaign in Congress by small Webcasters and large ones like AOL Radio and Clear Channel.

Those efforts prompted Senators Ron Wyden, Democrat of Oregon, and Sam Brownback, Republican of Kansas, to introduce legislation last Thursday to reverse a Copyright Royalty Board decision setting the new rates.

John L. Simson, executive director of SoundExchange in Washington, said that the Webcasters had managed to portray themselves as a grassroots collection of gritty, independent Webcasters, but the ones who would benefit most were large companies with deep pockets like AOL Radio and Clear Channel.

“Do you say that if this service plays this music I get paid very handsomely, but if this service pays my music I don’t?” Mr. Simson said of the divide in resources between big Internet radio companies and smaller independents. “I think it’s a very delicate issue. And I think in any new area like the Internet there will be some businesses that survive and some that don’t.”

Along with a lobbying campaign in Congress, Webcasters are also pursuing a public relations offensive online through the SaveNetRadio coalition, which is urging listeners to contact their legislators to support the Internet Radio Equality Act.

Last.fm, a popular Webcaster in London that is also a social networking site, will be affected by the rate increases, but is not terribly worried because of direct deals that it has negotiated with major labels, according to Christian Ward, a spokesman for Last.fm.

“The industry trusts us,” Mr.Ward said, “which means that there are always ways around the issues. It will be difficult, but we’ll find our way around the problem.”

American immigration reform, Britain's energy policy, California's greener cars and Myanmar's lack of democracy

AFP

• EXPECT a the debate on immigration in America to intensify, after the White House and a leading group of senators struck a provisional deal on reform that could allow an amnesty for many illegals. The full Senate will now discuss the proposals and the House—which has proven more sceptical about reforms—will follow suit. If Congress and the executive can somehow agree that this reform plan is the way forward, George Bush may claim an impressive domestic achievement.

• AS CONCERNS for energy security and the environment become more pressing, Britain's government releases its latest energy policy proposals on Wednesday May 23rd. The white paper is expected to call for the building of new nuclear power plants and to seek ways of promoting energy efficiency, the wider use of renewable energy sources like wind and the creation of micro plants. To speed up the building of new power plants, and to encourage more private investment, the government wants to cut red tape, although environmentalists warn that safeguards may be lost.

• STRUGGLING carmakers in America will study the outcome of the first of two hearings called by the Environmental Protection Agency to consider California's attempt to enforce tough emissions standards for new cars after 2009. George Bush's administration, accused of pandering to friends in Detroit, appears to be dragging out the process that would allow California to act. Such is the size and importance of California's market that any new emissions rules would set the standard for the rest of America. That would pile costs on to an already troubled industry. But it might be smart for the planet.

• THE latest period of house arrest for Aung San Suu Kyi, a continual irritant to the authoritarian junta that runs Myanmar (formerly Burma), is set to end. The inspiring leader of Myanmar's democracy movement has been almost permanently detained since winning an election in 1990 that the country's ruling generals promptly annulled (she was also detained earlier). Her prospects still look gloomy. Myanmar's Nobel laureate is likely, once again, to campaign openly for democracy and basic human rights. In response, once again, expect the junta to order her re-arrest.

May 17th 2007 | NEW YORK

From The Economist print edition

Mid-range brands suffer as department stores focus on “private label” clothing

THIS month Liz Claiborne, an American clothing firm, reported a 65% drop in profits for the first quarter, largely due to a 7% fall in sales in its wholesale division. This includes clothing lines such as Dana Buchman and Ellen Tracy, which the firm sells to department stores. Take a stroll through JCPenney, one of America's biggest department stores, and you can see why sales have plunged. Private-label brands such as Worthington, Arizona and a.n.a., designed and made by JCPenney, now make up nearly 50% of its total sales. At Macy's, another big department store, private-label lines have been growing three times as fast as wholesale lines—making private-label clothes the fastest-growing product category in American department stores.

Macy's has devoted extra floor space to private labels such as American Rag and Alfani, and has even displayed them in the sorts of in-store boutiques normally reserved for designer brands. Last year JCPenney opened a temporary store in New York's Times Square devoted to its private-label brands. (The trend is not limited to America: private-label brands are on the rise in British department stores such as Selfridges and Harrods, which are expanding their own clothing lines.)

Department stores are also working with famous designers and celebrities to differentiate their offerings, increase their appeal and generate extra publicity. Last year Oscar de la Renta and Elie Tahari signed on to create clothing lines for Macy's, which already has a line of Donald Trump menswear (presumably woven from a strange, orange natural fibre). In the autumn Vera Wang, a designer best known for her wedding dresses, will unveil a line of women's clothing at Kohl's, a budget-conscious department store.

Design teams work directly with clothing manufacturers to create private-label lines, avoiding the mark-up applied by apparel companies which normally serve as middlemen between retailers and manufacturers. This means higher margins for the department stores. Robert Drbul of Lehman Brothers, an investment bank, estimates that private-label brands are 10-15% more profitable. But the risks are greater, too: if the clothes sell poorly, the retailers absorb all the losses.

Furthermore, private-label brands do not appeal to all buyers. Marshal Cohen of NPD Group, a market-research firm, notes that private labels are unpopular among the wealthy and the young, who account for about one-fifth of the market. This gives traditional brands an opening. Liz Claiborne plans to expand its high-end lines, such as Juicy Couture and Lucky Jeans, in department stores. As well as being more profitable than mid-range brands such as Ellen Tracy, their sales have been growing by 20-30%. The firm says it will continue to acquire luxury brands such as Kate Spade, which it bought last December, to focus on customers who find private-label brands unappealing.

For their part, department stores are under pressure from fashion chains such as H&M and Gap, which are using many of the same tactics. H&M launched its “M by Madonna” line in March, creating hysteria as customers queued for hours to buy the clothes. The company has now moved on to its next celebrity line—a limited collection of swimwear inspired (and modelled) by Kylie Minogue, a singer. Kate Moss, a supermodel, designed a line of clothes for Topshop, a British fashion chain, that is also being sold in Barneys, a New York department store. And Gap's high-end line, Banana Republic, has signed a five-year deal with Safilo Group, an Italian luxury-eyewear firm, to sell Banana Republic-branded frames and sunglasses in Safilo's Solstice stores, other retailers and possibly in department stores, too.

Mr Cohen predicts that department stores will respond by creating stand-alone shops for their private-label brands and selling their wares in other stores. There is, after all, only so much floor space in any given department store. If so, the future for private-label brands may well be outside their parent companies' doors.

Paul Wolfowitz agrees to quit the World Bank. His successor faces a double challenge

AFP

IT WILL not be the first time the great powers have gathered in Potsdam to sort out the aftermath of a long-running conflict. The city, where the Allies divvied Germany up after the second world war, will this weekend welcome the finance ministers from the G8 group of rich countries. Paul Wolfowitz, the World Bank’s president, is scheduled to join them—but as a defeated party. On Thursday May 17th, after a protracted struggle to save his job, he finally accepted defeat. Mr Wolfowitz is scheduled to leave the World Bank on June 30th.

Earlier this week a report written by seven of the bank’s directors concluded, with scathing language, that in the summer of 2005 he had broken the institution’s rules, breached his contract, and fallen short of the high ethical standards of his office. All of this in an effort to appease Shaha Riza, his girlfriend, who left her job at the bank when he took his. He smoothed his girlfriend’s exit, bowing to her demand for a hike in pay, sharp annual increases and a big promotion (or two) on her return. He should never have put himself in the middle of the dispute, the report argued, though he insisted he was only following his directors’ sketchy advice.

The scandal has eclipsed all the Bank's other efforts, and rendered him unable to lead effectively. On Thursday the White House seemed to acknowledge this reality. At a press conference in the Rose Garden, George Bush, who picked Mr Wolfowitz two years ago, said “I regret it has come to this.” Hours later, Mr Wolfowitz handed in his resignation.

With the his regime on the way out, optimists see blue skies opening up before them. Surely, the bank should now free itself of the unwritten rule that its president is always America’s choice, while the Europeans pick the head of the IMF. The bank should choose its next leader on merit, much as the World Trade Organisation selected its current head, Pascal Lamy. It should also cast its net widely. Why not get Kemal Dervis, an ex-World Banker who helped haul Turkey out of a financial crisis? Or even better, Ngozi Okonjo-Iweala, another bank alumnus who brought fiscal sanity to Nigeria as its corruption-fighting finance minister?

Unfortunately, the Americans are in no mood to cede their privilege. And having endured one war of attrition, the bank cannot now afford a second lengthy battle over its future. The next bank president, like the last, will be a Bush nominee. Some wags note that Tony Blair, Britain's prime minister, will be out of a job a couple of days before the World Bank post becomes available.

Others to consider would be Robert Zoellick, who served as Mr Bush’s trade representative and remains respected in international circles. Stanley Fischer, Israel’s central bank governor, would be a popular choice. An American born in Zambia, he has served as the bank’s chief economist and the IMF’s chief firefighter.

An old bank hand would start with some advantages. He would inherit a corps of 8,600 under-motivated staff in full command of a jargon and house culture that can bewilder new bosses. “The bank has a set rhythm,” says Ashraf Ghani, chancellor of Kabul University, who once worked there. “Anyone who masters its rhythm, runs the bank.”

But the next president will not have much time. He will arrive in the middle of a campaign to coax new money from donors; the very governments that last month fretted openly about the bank’s credibility and reputation. He will need to raise at least $25 billion this year just to keep the bank’s aid from shrinking in the medium term. Even before the past month’s controversies, some donors were balking at this bill. One or two European governments, Mr Wolfowitz thought, saw his troubles as a convenient excuse to renege on their financial commitments.

A bigger worry must be America. It remains the bank’s single biggest contributor, stumping up almost 14% of the money the last time the begging bowl was passed around. Given the tenacity with which it fought for its man, one might assume the White House cherishes the institution he led. In fact it cares little about the bank, and knows even less. The armistice it agreed on May 17th might have arrived sooner, but Mr Wolfowitz’s former colleagues seemed to put personal loyalties above their country’s interest, let alone the bank’s. Now some of the agency’s more hysterical critics think it has fallen to a European coup. The risk is that Mr Bush will take revenge by steering America’s money elsewhere.

That would further undermine the bank’s place in the world. It is already losing its most lucrative customers—such as Brazil and Mexico—to the capital markets, which now rush in where once only the bank dared to tread. And it faces stiffer competition for aid dollars from other, more fashionable conduits for generosity: the presidential plans, millennium accounts, global funds and so on.

Whoever succeeds Mr Wolfowitz faces a delicate balancing act. He must restore the morale of the bank’s staff while retaining the confidence of its American donors. The bank began its life rebuilding a war-blasted Europe. Now it must begin rebuilding itself.

May 16th 2007 | JERUSALEM

From Economist.com

The Palestinian disunity government

Reuters

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AT LEAST 40 people have been killed, so far, in this week’s fighting between Fatah and Hamas gunmen in Gaza. It is the worst violence since the two parties formed a unity government in March, and it seems to prove that their coalition’s chief goal—to stop such fighting—is unattainable.

That was pretty much expected. The last sticking-point in the two parties’ talks was whom to put in charge of the bloated security forces. Over the years these have acted as an employment sponge for veterans of the “resistance” against the Israeli occupation. Fatah, which ran the Palestinian Authority for its first 13 years, dominates the forces in the West Bank, but in Gaza Hamas has added several thousand of its own men since taking over the PA in elections last year. On top of that, Gaza’s large clans and criminal gangs have their own powerful militias.

Hani Qawasmeh, the man eventually chosen as interior minister, drew up a plan for co-ordination between security chiefs as well as clan leaders. But as a bureaucrat with no power base of his own he had little clout. In particular, he complained that he was being undermined by his underling, Rashid Abu Shbak, who in practice is loyal to Mohammed Dahlan, a Fatah strongman in Gaza who has been quietly restoring his political influence after a period out in the cold. Last week Mr Abu Shbak ordered Fatah forces on to the streets of Gaza without Mr Qawasmeh’s say-so. Some of Hamas’s men, seeing themselves sidelined, opened fire on them. That quickly escalated into this week’s carnage. On the morning of Wednesday 16th May Hamas gunmen attacked Mr Abu Shbak's home, killing several of his bodyguards.

Mr Qawasmeh, who had tried to resign three weeks before, has now quit for good. Ismail Haniyeh, the prime minister, took over. But he can, at best, cool things down for a while. Fatah is divided over whether to support the unity government, with Mr Dahlan in the “no” camp, biding his time until Fatah is strong enough to challenge Hamas in Gaza; Mr Abu Shbak’s provocation could have been a test of force. A similar split bedevils Hamas; its anti-unity hardliners were left out of the coalition and, like Mr Dahlan, are suspected of sometimes stoking the violence.

But as well as ducking bullets from Hamas-Fatah battles and clan feuds, in the past few months Gazans have suffered a rise in attacks of a more mysterious nature. Dozens of internet cafes, video shops and other establishments have been bombed. Often the perpetrators claim to espouse fundamentalist Islam or al-Qaeda-style jihadism, things hitherto mostly alien to the Palestinians. One such group, the Army of Islam, recently claimed to be holding the BBC’s Gaza correspondent, Alan Johnston, who was kidnapped in March. Most think it is just a front for a criminal gang, and that may be true with many of the bombings too. But it all adds to the climate of fear and the sense that Gaza is beyond any mere politician’s control.