Archives for October 2008

Gigantic dull red frames, in effect monstrous cranes, glide smoothly back and forth along Hamburg's dockside, carrying containers that are destined to travel all over the world.

Weirdly, and rather irritatingly as I am recording a radio piece, this ballet of mechanical behemoths is almost totally silent. The fork-lift trucks in the yard behind make more noise as they lift the individual containers, making a satisfying clanking sound.

Hamburg is Germany's biggest port, and for the last five years Germany has been the world's largest exporter. The majority of Germany's exports go to other parts of the European Union, with France as the major importer. But it is also German precision machine parts that have helped China's factories boom. The United States is also a big market.

With the whole of the globe as the target market, a global financial crisis is going to hurt.

Hans Heinrich Noll of Germany's shipowners' association professes himself an optimist, but he says they will be squeezed from both sides. People have less money to invest and the rest of the world isn't buying as much.

"It's a matter of demand. The financial and economic crisis will result in less demand for German exports: goods like machinery and cars, and high-technology products," he says.

"We have the largest container fleet worldwide, so we are very much dependent on the fate of trade worldwide and in particular the United States, Europe, China.

"We are not yet in the position to estimate what the effect will be on the real economy of the credit crunch, but there are some indications that freight rates are dropping and the demand for charter ships is declining.

"We had a boom for many years and now we have a quick decline in a short period of a few months."

To make it worse, more ships are being built for the German fleet and will be ready in a couple of years' time, perhaps as the downturn reaches a peak.

Mr Noll says politicians have to tell people that everything will be all right, whatever they really think, because this is not an economic crisis but a psychological one, about how people feel.

If he is a strategic optimist Reinhard Hauke seems the genuine article. We're talking in his factory in Schleswig-Holstein, a couple of hours' drive from Hamburg, standing in front of several glowing cherry-red fire engines.

 Ziegler Feuerschutz Rendsburg supplies everything a fire brigade could possibly need, and this part of the company doesn't export but sells to nearby local authorities.

They started in 1891, making fire hoses. Now their biggest operation is fitting all the kit into the chassis of fire engines. Each one is customised. Two men are at work rewiring the dashboard, while another drills into place frames that will hold communications equipment and computers for an incident control vehicle.

Mr Hauke, one of the bosses of the company, says "I think we are going to have a recession for a year and then we will be out of it. Our production is full: our books are full for nine months."

He takes me through a store room, crammed with shelves full of hose pipes, uniforms, caps and boots. In the draw of one metal cabinet there are medals for gallantry, silver bronze and gold.

"I don't worry too much because the situation of our company is ok. The bankers, the regional bankers will give money, give credit." He's talking not about the state banks but banks owned by city councils. "I am sure I know we will get the money we need to invest," he says.

Then I meet that rarest of beasts these days - a cheerful economist. Some argue that German banks at the regional level have exactly the same problems as those in the US and UK, and are worried about their reluctance to take money from the government. Not Christian Dreger from the German Institute for Economic Research.

"We do not see a credit crunch in the data. All the data tells us there is not a serious credit crunch in Germany. In Germany the financial conditions of private firms are in good shape, and we have evidence that investment activity is more financed by profits than when compared to Anglo-Saxon countries, where credit demand plays a much larger role.

"In the UK and US you find a strong impact of the stock market or house prices on private consumption, but you do not find that for continental Europe, and especially not for Germany," he says, unable to suppress a chuckle.

"Of course we are in a period of economic stagnation at the moment, because of weakening demand from the United States. In contrast, demand from emerging markets like China and India is still quite strong and they have a similar weight to the euro area.

But after all this unexpected optimism I talk to shoppers - and the story is very different.

Even before the latest financial crisis Germany was suffering from consumers pulling their horns in, not spending as much. German businesses were crossing their fingers and hoping confidence would return, but now that looks very unlikely.

In the early evening I stop in a cheap supermarket on the outskirts of a little town in eastern Germany. Astra, and her son Christian, who looks to be in his early twenties, have only a few items in their trolley and are choosing with care.

"We're being hit hard here. It's never been good in this region and we've always had to count the pennies but now it's worse," she says.

"Nowadays I try to go shopping only once or twice a week, so that I don't get carried away buying little things that I don't really need. I make sure I go to the supermarket on the way home so I don't use any more petrol than I need to, and always shop around for special offers. I write a list of what I need: bread, butter, just stuff like that. I used to pop in every evening and get a salad and some fresh fruit. Not any more."

She explains that the family runs a little shop, selling flowers and trinkets.

"I wouldn't normally shop at this time of day but we've had to close our own shop because there are no customers. People have to spend their money on rent, food, maybe fuel for the car, so they don't have anything left over for the little luxuries."

Christian and his wife have two children, the youngest just five weeks old. They help in the shop but Astrid says they are all going to have to talk about whether this can go on. Although the government has brought unemployment down, there are parts of eastern Germany where as many as 30% are out of work.

"Mum's right," Christian says "Fewer and fewer people come to the shop. I have to think about moving to the West or a big city in the East where there's work and a better standard of living. I don't want to, this is my home. But you can't live on love and air. It would be nice if you could, but you can't."

Astrid holds aloft a round advent calendar, a big circle of purple and gold filled with milk chocolates, examining it carefully.

"Look at this, it's very beautiful... very different. Lovely. It's good quality: I bet it tastes good too. But 11 euros 99! I don't even have to think about it! Not this year."

She goes on: "Christmas this year the family will be together, children and grandchildren. We'll all celebrate and have dinner together. It'll be nice. But only the little ones will get presents this year."

The Germany economy is undoubtedly strong and better placed to resist some of the effect of the downturn, but I can't help wondering if a lot more people will be trying to live on love and air by this time next year.

This is based on a piece broadcast on Friday morning on BBC Radio 4's Today programme. One more to come on Saturday, on how Germany sees itself.

UPDATE: Interesting debate on Chancellor Merkel.

I wrote that Germany was the most powerful country in Europe, because it is the biggest economy, the biggest exporter in the world (see article above) and arguably the strongest economy in Europe. There is no doubt in my mind that Germany is the major player within the European Union, although its wishes can be defeated by some alliances. Merkel's skill is perhaps that she doesn't allow that to happen.

Clearly Britain has more impressive armed forces, but I am not sure how much power that gives us in the real world. Since the Falklands our fights have been those endorsed by Nato or the US. We have a seat in the UN Security Council, which Germany doesn't. But I think in general it is easy for the British to underestimate the power of other European countries, because their influence is under-reported. I don't moan about that, it is natural the focus is on our leaders, but the danger is that it makes it look as if they are the only players. It is not just journalists, of course: I was struck while researching this piece that, while I have read two books about the bloke who probably won't be US president, none of the three biographies of Merkel that I know about have been published in English. I am sure the publishers know what they are doing, and there isn't an audience, but who is the more important - powerful, if you like - politician?

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I've been watching Mrs Merkel, her pale pink jacket a splash of colour among all the dark suits, talking to an audience of German entrepreneurs in Berlin. Her message is that there have to be new rules for a new economic system, to establish a new confidence.

She will discuss what this means in practice in Downing Street with Gordon Brown on Thursday. Less than a year away from the German elections it is perhaps time to take stock of how she is seen, in Germany and abroad.

Her speech was certainly more polished and confident than the nervous affairs I watched during the German election three years ago. But she is still an unlikely leader of Europe's biggest and most powerful country. Politicians who walk the world stage tend to grab you by the shoulder, fix you in the eye, characters who leak vim and vigour from every pore.

Mrs Merkel is not like that. Leading a government which combines the big left and right parties of German politics perhaps she can't be. After all, having a foreign minister across the cabinet table who will lead the opposition party and try to get your job in less than 12 months' time must be a little awkward.

In his magnificently plush offices, overlooking the whole of Berlin from the very top of the Axel Springer building, the editor of Germany's influential Die Welt newspaper told me: "She has done as well as she could because a great coalition is not the place to really march through and do whatever you please.

"Wherever you go there are checks and balances and some people in your coalition are positively working against you. She has matured, become very authoritative, people trust her and trust her more than her party."

But Berlin, says Mrs Merkel, is not her political home. It is Ruegen, Germany's largest island, around 200 miles away from the capital. It is her constituency, along with a bit of the Baltic coast. In the bright autumn sunshine this part of the old communist east seems a delightful place.

Inland the forests are carpeted with golden leaves, but the fields around them are still green. There are miles of sandy beaches around the island. In the harbour of Sassnitz puffs of fragrant smoke hang over a couple of the boats, exciting the gulls overhead. The boats are selling dozens of types of smoked fish, either to take away or wrapped in a bun, to munch on the harbourside in the thin autumn sunshine.

People buying their snacks do not speak of their chancellor with much passion, but there is no vitriol.

A man from Berlin says: "I think as a woman she is doing a sensational job.

"Politically I don't agree with her but she can be very switched on, very strategic, she knows what she wants, but she needs support from her colleagues."

A woman from Brandenburg is more worried. "She should do more for the poor. Times are getting worse for the little people and she should remember she comes from ordinary folk in the east. Politicians look after themselves and it makes me angry. She shouldn't forget where she came from."

But a man from Dresden feels secure with her at the helm. "I am a mathematician and she is a scientist: she thinks before she takes action. She knows how to pull the strings from behind the scenes, but she also speaks her mind."

What is interesting about this is that if you walked along the waterfront at Grimsby or Le Havre you would find considerably less difficulty squeezing critical views out of the voters. On a national level I have had the same difficulty finding critics who are not political rivals. While many wish she had done more, they also say she is constrained by the grand coalition.

A member of her local party, Sebastian Takker - who owns a local travel business - is a fan, although he admits he would have liked the grand coalition to have done more, to have introduced more economically conservative reforms. But his comments are revealing.

"When you talk to her you never know what she is thinking. She doesn't express her emotions and keeps her feelings under control. When she came round my business she spoke to everyone, including my nine-year-old son. He's a fan of hers now."

He says she asks all the right questions, and gets to the point, she's not just saying something to be polite. "It's her big advantage. Even if at first she knows nothing about a subject she quickly follows what it's about. You know by the questions she asks that she really gets it."

This is exactly what I hear from diplomats and politicians who know her. She does her homework by asking lots of questions, discovering where her potential allies and opponents are coming from, and then uses the knowledge to cut deals. It is a way of working particularly suited both to leading a coalition and the politics of the European Union.

Her biographer Jacqueline Boysen tells me that she is convinced Germany's leader was formed by her childhood in the East, where as the daughter of a Lutheran pastor in a communist society she was stigmatised and felt like an alien.

"She knows how to hide her thoughts, how to behave in a surrounding that is not really friendly to her. She doesn't appear as a winner, even in discussions where her position is accepted. She is not addicted to a certain ideology, so she tries to find the facts and decides by arguing, not by principles."

But has she been less than fleet-footed of late? Her attack on the Irish for unilaterally guaranteeing their bank loans was followed a day later by announcing something that looked very similar, but turned out not to be. While President Sarkozy has been typically hyperactive during the crisis she has largely been visible by blocking his plans, without suggesting alternatives.

Indeed, she has blocked or watered down many plans that have emanated from the Elysee during the French presidency of the EU.

The Mediterranean Union has become something much less grand than the president's initial vision. Recently the suggestion of a European fund to save banks, European sovereign wealth funds to protect European companies from "foreign" takeover, and European economic governance have all been given the thumbs-down.

While her office dismisses as "nonsense, a made-up story" the article in a Swiss newspaper claiming she had made a formal complaint about the way Sarkozy pats and kisses her, she doesn't look as if she enjoys his attentions. While this is trivial, her sense of almost bafflement at the Frenchman's style is apparent.

At EU level many diplomats and commission politicians prefer Mrs Merkel's rather more level-headed approach. At home too, while of course there are political opponents, there is not a huge amount of criticism of her style. Most see it as an inevitable product of Germany's political system. Not the author of Merkelland, Richard Meng, who is now a Social Democrat member of Berlin's city government. He says "she has done better than many people thought, but this doesn't mean she is very very good.

"She's sympathetic, she does a job that is ok, but there is no big expectation. The grand coalition could have done more, I would have expected more big solutions and they've only had small solutions. Mrs Merkel is not a politician with big aims. She is not a politician who has aims, projects, I often think she knows where she wants to go today, but she doesn't think about what to do the day after."

Perhaps modern Germany is mature and, despite the downturn, comfortable enough not to look beyond managerial solutions. Perhaps next year's election will show otherwise.

This is based on a piece broadcast on Thursday morning on BBC Radio 4's Today programme. Two more to come on subsequent days: on the German economy on Friday and how the country sees itself, to be broadcast on Saturday.

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Marbella

Although we all know it's true, flying in from rainy Brussels or Britain it is almost unbelievable that there is somewhere a couple of hours away that is not just a bit warm, but scorching hot. A place where people stroll in beachwear under a palm-fringed promenade, before taking a bracing dip in the sea.

There is temptation in paradise. People will take foolish risks to make sure they can return again and again.

The problems with fraudulent timeshares have been well advertised, but the latest scam is apparently holiday clubs. The idea behind them is explained in this brilliant little film by one victim:

"What happens is all the usual stuff with scratch cards and 'ooh you've won a star prize' and then a trip to an office in town for a gratingly long lecture on the glory of their product. Their pitch is that if a company gathers quite a bit of cash from lots of people then economies of scale means that they can sell luxury holidays at bargain basement prices... The trick is that after you've paid a vast deposit, er... nothing happens. No holiday. And you can't easily get your money back."

Two-thirds of the victims are British. One consumer group tells me they get about 40 phone calls of complaint a day and deal with around 10,000 cases a year. It is the biggest single area of complaint to European consumer groups, which really staggers me.

Walking down one of Malaga's main streets a lawyer who is taking on cases on behalf of ripped-off customers points out offices where the companies were based. When these companies are fingered he says they move on and tweak their official name and carry on much as before.

Damian Vazquez has formed Abogado to fight the abuses in the courts. He tells me "we get a lot of problems still because the law doesn't work here".

"The criminal justice system is slow dealing with fraud cases and it can take three or four years for it to come to court. I would like Brussels to give out more information and to stretch the time limit for getting out of any contract."

Although the European Parliament has passed legislation on timeshares, which sort of works, it voted overwhelmingly today in favour of new measures.

MEPs like the Conservatives' Malcolm Harbour and Labour's Arlene McCarthy have been pressing for a tightening of the law. It will ban up-front payments, introduce a standardised form all over the European Union, and extend the cooling-off period to two weeks. If buyers aren't given the standard form they will have the right to withdraw for three months and if they aren't told of the right to withdraw then it is extended for a year.

I'm looking for someone who thinks all this is a bad thing (and there may be some in today's debate), but haven't so far found them.

I know many of you disagree with the very idea of EU-wide laws. How would you deal with such cross-border scams? This is not a rhetorical "isn't the EU wonderful" question - I mean it seriously. What are the alternatives?

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I am looking forward to hearing Cathy Ashton's (we don't call her baroness, in Brussels, evidently) grilling tonight. UKIP's Nigel Farage is one of the MEPs who will question her on her fitness to become the European commissioner for trade.

He is always pugnacious and crisp, which explains why he gets broadcast more than some other European politicians would like. But I'm told he won't be going for the cheap gag tonight but a key, serious question: Is she big enough for a big job ?

Britain and the other 26 EU countries don't, strictly speaking, have a trade policy. They have decided to have a single EU policy, which makes this trading bloc far and away the biggest in the world. One billion euros trade with the US alone: every single day. And of course we are in challenging times, with the financial crisis and the collapse of world trade talks in the summer. Gordon Brown and the G8 say it's more important than ever to get the trade talks going. He has entrusted his former leader of the Lords with that job.

Had he made her say foreign secretary or home secretary, eyebrows would have been raised. But the commission is often seen by cynical British eyes as a dead-end sinecure for failed politicians. She is of course unelected: but so are Condoleezza Rice and Hank Paulson, not to mention many in the French cabinet. It is not that unusual. But does she have the punch, the weight, the experience to do this job?

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16:35 CET: Which president will wear blue jeans? President George W is famously dressed down at Camp David. I can see President Sarkozy in designer denim, chic if not terribly western. But I have problems imagining President Barroso in Genoa's most famous gift to the world or indeed a Stetson. Perhaps, given the discussions on the world financial crisis, something patched and rather "grapes of wrath" would work.

Never mind. It is a first time for the European Union to be so feted and listened to seriously by an American president, even one with only a few months of political life left in him.

At the end of the council meeting Jose Manuel Barroso said that his message would be that the world needs new rules and regulations and that these should be based on the European model, "not gung-ho liberalism".

If he looks happy it's not just because of the agreements on the economy. The commission appears satisfied by the agreement. Yes, I know I called it a "tragedy" for those who backed the climate change plan, and I stick by the view that there will be some very tricky arguments in the months ahead, which will result in a seriously watered-down package.

But the counter-argument goes like this. Despite all the moans, no-one has suggested that the target of a 20% reduction of greenhouse gases by 2020 is wrong. The deadline for an agreement is still December, despite serious pressure to leave out a date from the text published at the end of the summit.

The Poles are playing to the gallery, because of the tricky political situation at home. But the commission has bent over backwards to be helpful over the issue of state subsidies of shipyards and come December it will be payback time.

The speeding-up of pipeline projects in new laws, all under the collective rubric of "the energy security package", is hugely important to the Baltic countries which are worried about over-reliance on Russia, and they will go quietly.

Berlusconi is acknowledged as a problem, but he was much more muted in his end-of-council news conference and wasn't even asked by Italian journalists about his threat to use a veto on the climate package. Merkel's intervention on behalf of the plan was crucial, not least because she didn't back any delay or watering-down, despite Germany's concern for the impact on its own industry.

That's the theory. I think the problem is, as so often, money. The Poles obviously want more money. Sarkozy was talking about help for the car industry. So were the Italians. But Germany is not in a mood to pay up and neither is anyone else in the current economic climate. I don't doubt there will be a deal in December: I just wonder how ambitious it will be.

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For those who want the European Union to walk with power and purpose on the world stage this summit is both triumph and tragedy. Remember, the EU values two things almost above anything else: looking united; and looking relevant, giving a lead to the rest of the world.

Triumph, because all 27 countries have agreed to a bank rescue plan based on the plan agreed in Paris last weekend. At its heart is a plan to encourage banks to lend to each other by underwriting their loans. There were under the surface squabbles between the British, French and Irish about whose idea it was first. But they are clear it was a plan born in Europe. The European countries of the G8, the G4 if you like, back the summit to design new financial rules for the whole world, and could fairly be said to be in the lead here too.

There were a few wobbles, as the eastern countries were concerned that money would run from their banks to the now more secure ones in the West. But the Czech prime minister said before the meeting began: "Our house is on fire: you don't ask the firemen to change their boots on the way in". Whether the firemen, boots or not, will put out the blaze is quite another question.

Tragedy, because of what has happened to the climate change plans. This was, inspired by Tony Blair, the commission's big idea. Something, it's obvious, that individual countries can't do on their own, something popular with the public, something where there was a vacancy for world leaders, showing the way to laggards and doubters.

But the financial crisis has, as far as I can see, left the plan in tatters. Eight Eastern European countries led by Poland says it's too expensive for them. They could be looking for more money, but in the current climate the richer countries will be reluctant to dig deep in their pockets. More serious still, one of the richer countries, Italy, has fundamental objections. Silvio Berlusconi wasn't Italian prime minister when the deal was signed and now he says he'll veto it. The general behind-the-scenes view is "that's Silvio for you".

But amused smiles at eccentric grandstanding may not be enough. As I understand it, the target of a 20% reduction in CO2 remains, but it is a shell, and the detailed paper on how to achieve it has been withdrawn. Here the EU is not leading the world but reflecting it: poor countries protesting they shouldn't take the brunt of change, one big country doubtful about the science and more worried about short-term economic consequences. More details when I get them.

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17:00 CEST: The prime ministers of eight Eastern European countries have issued a statement calling for changes to the EU's climate change package.

The eastern eight (the Czechs and Slovenes haven't joined in) argue that at a time of "serious economic and financial uncertainties" the package has to be reconciled with economic growth. They say that for less affluent members of the European Union, reducing greenhouse gases has been achieved at "a very high social and economic cost".

I am not yet sure if they want to scupper the whole thing or are after more money from the richer countries.

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The leaders are all round the table and Mr Brown's new-found confidence has show no signs of abating: he says that he not only wants a new global agreement on the markets and regulation but thinks this is a good time to push for a trade agreement, after the failure of the Doha round.

In a separate room the foreign ministers are meeting and their main topic will be whether to resume talks about a new partnership and co-operation agreement with Russia. The talks were called off after the war with Georgia.

The UK Foreign Secretary David Miliband tells me on his way in that the talks in Geneva should get under way first and in "due course" address this issue. Most of his colleagues may be keen on getting the ball rolling now. But Mr Miliband may be interested to hear that, according to Georgian officials, the talks in Geneva have collapsed. The Russians did not turn up for the opening session, they say.

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Gone are the days when Gordon Brown would whisk into Brussels at the last possible moment and leave as soon as he could. He was here bright and early to meet commission president Barroso to discuss the plan to reform the regulation and monitoring of the global economy.

But first they will have to soothe the fears of the New East, particularly the Czechs, that the current plan on the table will leave them behind. They are worried about "capital flight": that people will take money out of their banks to put it in those in the West, which are guaranteed. I have promised myself not to use any cliche containing the word "bouncing", but there is clearly a worry the smaller, if more dynamic, economies of the East may go in a different direction to those big economies of the West.

There's also a concern that the EU may water down its commitment to the free market, with talk of punishing fat cats and increasing regulation.

Tightening global belts will have other knock-on effects. The environment commissioner is suggesting the ambitious EU plans on climate change may have to be cut back, partly to satisfy the Poles.

President Barroso said that the plans were not an aperitif or digestif to be taken when everyone was feeling good, but essential. However, he seemed unaware of his commissioner's interview with the BBC when I asked him about it. He suggested he would strongly resist any dilution of the plan, saying that it would be a "complete mistake" for Europe to go cold now, because that would send the wrong signals out to the world and make a final deal less likely. He said he would ask the EU's prime ministers and presidents over dinner tonight if they wanted short termism or to show ethical responsibility.

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In wartime unexpected leaders, flawed leaders come to the fore, while men and women of moderation and apparent good sense can be broken.

Perhaps it is the same with financial crises.

Today's meeting of the leaders of the European Union countries may see a subtle shift in relations at the top table.

Gordon Brown, it's widely acknowledged, is having a good war. Both the Americans and other Europeans are adopting his plan. Other leaders defer to his economic knowledge.

Sarkozy, too, currently has a spring in his raised platforms. He's often regarded as a bit flighty, firing off ideas left, right and centre without thinking them through, or even bothering to tell his diplomats and civil servants. But his restless spirit has seen him restlessly searching for a way out of the crisis.

His first meeting in Paris was a dangerous gamble that didn't pay off. Without a clear outcome or agenda warm words failed to reassure the markets and preceded a week of turmoil (the worst day in history part 47). But last weekend's get-together was apparently on the money. Unity was agreed, and unity was what was required. In the words of one diplomat, "he's a high-wire act and so far he has stayed on the wire."

But Angela Merkel, with a very high reputation in Europe for cool, level-headed, unegotistical problem-solving, has rather come a cropper. Loudly protesting against the Irish bail-out of their banks during the first Paris summit, she appeared to adopt their scheme the next day, only to say she hadn't. Now she has gone along with the Sarkozy plan with some enthusiasm. But she clearly wasn't taking the lead.

This judgement comes hedged with caveats. I hate the journalistic practice of "build 'em up and knock 'em down". It's often based on exceedingly superficial observations, so David Miliband can't be prime minister because he waved a banana - good thing photographers weren't around to catch that shot of Bismarck with a pineapple. Or even Garibaldi with the biscuit. Of course if the markets go crazy in the next few days we will all shake our heads and wonder how Mr Brown didn't realise his plan was ludicrous.

When people start losing their homes and jobs they will be ready with the bucket of ordure to tip on his head. But for now he is something of a hero to other European leaders. It's not the first time of course: he was widely applauded in Brussels for keeping the Lisbon Treaty alive at the June summit, because he didn't call off British ratification. Careful Gordon, you might get a reputation as a Good European.

By the way, sorry I haven't commented on any of your recent replies and thoughts. Internet wasn't the best in Georgia and I didn't have a lot of time. I will read and reply to you soon.

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The phrase "financial tsunami" has been used a lot during this crisis, but I have a feeling that for most of us the wave is still towering above us. We know it's going to hit, we are frightened, but we haven't yet felt the impact.

I feel a lot of the discussion going on is scary, but it's very difficult to know what it's going to mean for you and me. To put it another way, it's a bit like discussing in huge detail the behaviour of neutrinos and isotopes before the moment the mushroom cloud appears.

We are still waiting for full details of the French and German rescue plans after cabinet meetings in Paris and Berlin, but they will presumably follow the agreement set out after yesterday's meeting in the French capital.

I have been trying to translate it from financial babble into plain English for my own benefit. This is what I think it means:

1. Healthy banking is important for all of us, for jobs and growth.

2. We will do something about it and have been doing stuff, particularly making bank dealings more open to scrutiny.

3. And we need to do more.

4. We will act together to restore confidence and get money flowing again.

5. So that individual countries and the EU's single market are protected, Eurozone countries have to act together following these guidelines: make accounting rules and the rules of the commission flexible enough to ensure banks have enough money to function.

6. We welcome the recent coordinated interest rate cuts.

7. And hope central banks will look at ways of getting more money into the system in the long term.

8. Our governments will act together to make sure banks have enough money in the long term. We welcome semi-nationalisations and guarantees to banks to encourage them to start lending to each other again.

9. It's better if the money can be raised privately.

10. National regulators should act to help increase stability, and value banks realistically, not according to current freak conditions.

11. We will support the financial systems but will make sure the shareholders and management bear the brunt, not taxpayers. And if we act, the banks have to sort themselves out.

12. The summit of leaders on Wednesday should set up new means for coordination between countries.

13. And we'll keep you up to date on how it's all going.

Will this defuse the ticking bomb or even reduce the impact of the blast?

Meanwhile, you'll be glad to know the commission's midday press conference was dominated by a warning about listening to MP3 players at high volume. We may all end up on the streets, but at least we'll have our hearing.

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Convoy Kouchner was quite literally chaos on wheels. A high-speed chase through what was the Russian buffer zone between Georgia and South Ossetia.

The French foreign minister, who helped negotiate the ceasefire during the war, was out in front in a blue French armoured car, followed by another such vehicle, and then a train of police cars and in their wake a ragtag and bobtail of local and international journalists, gunning their engines trying to keep up.

The armoured car would stop, sometimes for hardly more than a minute, Georgian police would jump out, lining the route, pointing their sub-machine guns into the middle distance, cameramen and reporters screeched to a halt and ran up to the head of the convoy, just in time to take a couple of pictures as rather bewildered locals coming the other way tried to drive through the mass of abandoned vehicles.

After grabbing a couple of pictures of the minister saying something wise, everyone ran back to their cars and the convoy then moved off again, amid much honking and hooting, losing stragglers at each stop.

At one village, where Mr Kouchner stopped for about quarter of an hour, he spoke to a woman whose house had been blown up at the beginning of the war. He stood and chatted with her in front of the shell of her home, its roof blown off, twisted metal and glass crunching under our feet. Mr Kouchner later said it was "very sad, but not hell".

Perhaps a woman we spoke to in the village might not agree. She told us that she had just come back to visit her house and it was all in ruins, so she would be returning to the refugee camp in Gori. She said she only just managed to escape the bombs, and many of her neighbours were killed then and afterwards. She'd got ill living in the camp and was worried that as she was all alone she had no one to help her out. As she put it, "there is no one to bring me a glass of water if I call out from my bed".

Mr Kouchner was not trying to be insensitive, but is proud of the peace deal negotiated on behalf of the European Union. He described it as "not perfect, but a document negotiated under fire". He said it had stopped the Russians rolling on to take the capital Tbilisi.

But what bothers the Georgian government is that they say the Russians have kept land taken in the war, particularly the area of Akhalgori, an area of 26 villages next to, or in, South Ossetia, depending on your point of view. Mr Kouchner's convoy must have passed the turn-off on their way back to the capital, but did not go to investigate.

Whatever you call the area, the Russians weren't there before the war, and are now. No one seems to dispute that. So it is logical to see it as a breach of the ceasefire which states they must move troops back to where they were before the conflict began.

Mr Kouchner didn't suggest this logic was wrong, but didn't seem too bothered about this breach. He said the ceasefire was "not complete, not perfect". When I pressed him he said: "Did you listen for the noise of shots? Is the withdrawal complete? Yes, yes" - and pulled a face. He said that this and other problems would be a question for a conference that starts in Geneva next week.

Another journalist had a go, asking how he could say that the ceasefire had not been breached. "Do you have another solution?" he asked. "Step by step we'll do it."

Mr Kouchner has a habit of asking questioners what they would do and many European diplomats agree with him that there's no point in being purist about this.

One very senior European diplomat told me they were in for the long haul and the peace process is likely to last as long as that to solve the status of Kosovo. Many in the EU think the status quo is the best they will get and better than they could have hoped for in August.

As the senior diplomat put it, "time to take the money and run".

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Get Ganley! That's the word going out from Dublin and Brussels...

I sit in the office of a senior politician, a serious man who is taking a conspiracy theory seriously, a man who has taken time to get the measure of the man in his cross-hairs... a man who feels his enemy is acting on behalf of an alien, foreign ideology.

No sniper from the Irish secret service, if there is one, is carefully packing away infra-red sights, no hit man from the European Parliament's non-existent military wing is spending time with mercury tilt switches.

But Declan Ganley, the millionaire businessman who bankrolled and masterminded the successful "No" campaign in the Irish referendum, is a target all the same. Many in the European establishment would like to see Mr Ganley come a cropper, see his campaigning days terminated and his nascent political career liquidated before he can do any more damage.

The mysterious Mr Ganley is now talking about turning his think-tank Libertas into an EU-wide political party. He's been touring Europe looking for support for his campaign to turn next year's elections to the European Parliament into another referendum: on what he calls the anti-democratic Europe of the Lisbon Treaty. You remember - that's the one that so many say is just like the constitution the Dutch and French threw out.

But the European Parliament has instructed the Irish authorities to investigate his funding and motives: many believe that the mysterious Mr Ganley is a stooge of the American military industrial complex, doing the bidding of the right-wing neo-cons in the CIA and Pentagon, hell-bent on smashing the rise of a political Europe.

I write "mysterious" because I think it must be obligatory under international journalistic law. Every article does it. Several times. In fact, he's not mysterious, but open and accessible. What they mean is he's exotic, like a character from a mystery movie. An Irishman who speaks with not a lilt but a London accent, who lives in singer Donovan's old mansion, who travels around by helicopter or Mercedes or Rolls Royce, who went to the former Soviet Union and made millions out of timber and telecoms, as capitalism emerged blinking and unfolding from the wreckage of the old system. He holds the Louisiana Distinguished Service Medal. That medal says a lot to his foes. He received it for getting emergency communications up and running after Hurricane Katrina - he's chairman and chief exec of a company that specialises in secure emergency communications networks and has a $200m contract with the American military. That is what raises both hackles and suspicions.

The senior politician sitting in front of me has clearly been giving it a lot of thought: he traces a lot of Mr Ganley's ideas to a particular individual at a particular right-wing Washington think-tank.

I express some scepticism. But he enthusiastically tells me: "You can do a lot with textual analysis - he says 'European elites' a lot. It's not an expression that springs to the lips of a boy from an Irish village - it's neo-con language".

I am impressed, but when I put the term into Google the top hits are articles from The New Statesman and The Guardian - not usually thought of as CIA tools.

Mr Ganley shrugs off the accusations when I ring him. I'm trying to arrange an interview, but he's in an airport about to get on a plane to the States. "Off to see my controllers," he says cheerfully. Later, as I try to pin him down, he fires off a characteristically colourful rebuttal. "Madder than a box of monkeys... patronising to the Irish people to suggest that someone put something in their cornflakes that morning to get mind control and influence their vote." But is he close to the neo-cons?

"Ridiculous and untrue... it is utterly baseless," he says. "These people in Brussels would rather talk about anything than the subject. I want the EU to be prosperous, respected and stand tall in the world, and that's only going to happen if we bring democracy to the heart of it."

Mr Ganley's views are a little curious. He always paints himself as in favour of the European Union, but says he wants a different sort of EU, one with an elected president. That would horrify many British Eurosceptics as well as his supposed mentor in that Washington think-tank. Then the unelected European commissioners would be reporting directly to an elected politician, rather as the unelected Condoleezza Rice or Hank Paulson report to George W. So perhaps there is something of an American model in his thinking.

I am not quite sure if the American defence establishment, rather than some intellectuals, are particularly bothered about the Lisbon Treaty. Most Washington right-wingers are happy enough to sneer at Europe in general, and do worry that the EU could undermine Nato. But a significant number would love the EU to do more foreign policy and spend more on bombs and bullets and take care of its own borders, particularly as those currently in power in Paris and Berlin are pretty keen on the transatlantic alliance.

As I leave the politician's office he hands me photocopies of a book called Blood Money, about American business deals in Iraq. There are underscorings, annotations, scribbled questions in the margins: "nb who his partners?" All because it mentions a "mysterious Irish entrepreneur Declan Ganley". Will they succeed and get Ganley? It's a mystery to me.

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The sun is blazing, the mountains hazy in the background, the vines are heavy with big bunches of small, sweet grapes and a wood fire laid on the ground is blazing away. A delicious smell of roasting meat wafts in the direction of the round stone table where I sit with my hosts.

It is an idyllic setting to enjoy some of the best things in life, even if I am here because of some of the worst things in life - war and economic ruin. We have been filming in the vineyards, talking about the effect of the war with Russia and the rather more longstanding economic embargo, particularly against the extremely popular Georgian wine. I have heard a lot about Georgian hospitality, but experiencing it is quite another matter altogether.

After half a dozen toasts I feel it is time for me to propose one, on behalf of the away team, for the home: glass in hand I propose a toast to a good harvest, peace and prosperity. My hosts are kind but firm. I have already taken a sip from my rather large glass and that will never do. I have to drain it and have it filled again with the slightly sherry-like white before I can continue.

Squares of pork and lamb on green wood sticks join the good bread, fresh and salted tomatoes and peppers already on the table. The formal interviews are over, so I ask what our hosts, the owner of the vineyards, his brother and some friends really think about the Americans. His answer slightly surprises me. He talks about a nation born in bloodshed and theft of land from the native Americans: the US only understands conquest and military might. Are they worse than the Russians then, the country that has just fought a war with his country? They are all as bad as each other.

What about the European Union? I ask. Compared to the Americans or Russians aren't we just a bit weedy, a bit wet? I hope the translator knows what I mean.

Listen, we love our guests. You can stay a week, two weeks, a month, but you are our guests. We want to be an independent country.

To me he puts his finger on an important argument. It is more than understandable why Russia doesn't want one of its old friends or vassals to slip into the arms of potential enemies. It is striking that Georgia, for all the talk of Europe, begins where the eastern edge of Turkey stops. It is further east than Moscow.

I have just been to Gori, where there stands a huge statue of Stalin, Georgia's most famous son. Georgia became part of the tsarist empire in 1800 and after a brief post-revolutionary period of independence became part of the Soviet Union. The problems of South Ossetia can be traced directly to Uncle Joe's strategy of divide and rule for his homeland.

To the Russian ambassador to Nato, Dmitry Rogozin, the arguments of history are powerful ones. He tells me that just because you like someone's wife it doesn't mean you can take her home. He quickly adds that Georgia and Ukraine may not be Russia's wife, but they are neighbours and if other countries want a partnership with Russia they should consult with Russia about its neighbours. He says unfortunately for Americans there is no saw in international politics: Georgia cannot be cut away from the region and placed in the Caribbean. How would America have liked it if Canada and Mexico had been invited to join the Warsaw Pact? he says.

But does - or more important, should - a country have the right to invite who it chooses to sup and toast, rather than be automatically placed in one camp or another by the vagaries of history or geography?

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VARIANI: The Russian checkpoint at Variani, which has been here six weeks, has now been dismantled and the Russians have gone. I've just seen a convoy of three lorries, three tanks and an armoured vehicle roll out. As soon as they were gone the Georgians came in. One man and his small boy put a Georgian flag up on the post where they had been. And now Georgian troops are waiting in four pick-up trucks to follow them.

The real question here is not does this meet the terms of the European Union's ceasefire to get rid of these checkpoints by Friday - it clearly does - but how far will the Russians actually withdraw? How far they will go back? Clearly they intend to stay in South Ossetia and the EU will have to decide whether that breaches or meets the terms of their ceasefire.

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A Russian soldier, who looks about 14, shoulders not his rifle but a road sign and puts it back in place by the checkpoint, where a comrade carrying a sub-machine gun waves cars and the occasional horse and cart past.

The red-white-blue of the Russian flag still flutters over this encampment and two tanks still point their guns at the roadside. But the Russians are packing their bags, even though they won the war. It was a small conflict, but Europe's first war of the 21st Century has already had global repercussions. Metal barriers are being packed into lorries, floodlights are coming down. Tanks will soon be on the move.

This checkpoint is the last one along the road into South Ossetia. In August there was one every 50 yards or so. The Russians have until Friday to meet the terms of the ceasefire negotiated by French President Nicholas Sarkozy on behalf of the European Union and withdraw troops back to their original positions before the war began.

The EU is pretty pleased with itself that it has stepped in to stop a fight on its doorstep, and happy that it has been able to swiftly deploy around 200 monitors to check that the Russians are keeping their word.

There's little doubt in my mind that so far the EU countries have been able to stick together and make their case. When it was clear the Russians weren't meeting the terms of the ceasefire Sarkozy, armed with a threat to call off talks on a new trade deal with Russia, flew to Moscow and got them to accept the monitors and the deadline. Others have been pleased to see the EU extend its foreign policy in this way. The United States and Nato were seen as parties to the dispute, so they could hardly have acted as honest brokers.

The Russians can block and influence missions by the United Nations and the Organisation for Security and Co-operation in Europe (OSCE). So it was perhaps natural that the EU should be the West's instrument of choice. There is no doubt for this sometimes ponderous organisation that the monitoring mission has been organised at the double. But should the EU be pleased with itself? Many think Sarkozy's peace deal is deeply flawed and the monitors powerless.

I catch up with some of the British monitors in their white four-wheel drive. They've borrowed them from the OSCE: their own vehicles are still at customs. The monitors are half-civilian, half-police, and strictly unarmed. Most of them have a military background, but it is quite clear their job is to watch and report back, not to enforce the peace deal. If the Russians fail to meet the terms of the agreement that will be up to their political masters, the EU's 27 foreign ministers, to make that declaration and decide what to do.

The British monitors and their Swedish companions in the vehicle behind are going to have a tricky task. Everybody knows that the Russians, having recognised the breakaway regions of South Ossetia and Abkhazia, are not going to leave what they regard as new countries. The EU foreign ministers may choose to decry this, or they may fudge the issue, but at least everyone knows what the reality is.

But the case of Akhalgori is much more difficult. This area, with about 26 ethnically Georgian villages within it, wasn't part of the old South Ossetia. But some diplomats fear that the Russians won't remove this checkpoint and the Russians will in effect grab the land.

The attitude of many I speak to is that the Sarkozy-brokered deal is imperfect, but the best that's on offer. Those of a generous nature think it was the best deal he could get, those of a sourer disposition think that he was suckered by the Russians and simply gave them diplomatic cover for a ceasefire that gave them everything they wanted. The Russians of course will say they were defending South Ossetians and the Georgians were the aggressors.

It's the same story with the monitors. One enthusiast tells me that these men and women are more powerful than if they were armed with guns: Russia fears being embarrassed in the eyes of the world and the verdict of at least the West hangs on their reports. Others see them as mere bystanders, bearing powerless witness to whatever the Russians choose to do. We will see over the next few days.

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Knock me down with a feather - Mandelson back in the cabinet. A powerful symbol of Labour reconciliation or desperation for Gordon to reach across to a man he despises?

For Mandelson to say yes when he's spent a lot of time in Brussels looking back across the water and despairing in a kind of "told you so fashion." is just as powerful.

Barroso is talking to Downing Street about a replacement now. It's not Hoon, and not Hewitt but it will be a woman. If Beckett is going back to the cabinet, I am rather left scratching my head.

UPDATE 10:45AM: The other women at cabinet level at the moment are Hazel Blears, Jacqui Smith, Yvette Cooper and Baroness Ashton. Outside the cabinet, Baroness Vadera is very close to Brown and has a strong business background. Any other thoughts?

UPDATE: 01:00PM: Baroness Ashton is confirmed as Mandelson's replacement.

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President Sarkozy is a man who likes to get his ducks in a row. That is why details of the emergency summit on the economy are still so very hazy. He wants the leaders of Britain, Italy, Germany, the Commission and the European Central Bank to join him in Paris this weekend. But there's no point in holding such a high-profile summit just to chat. It has to come up with a concrete plan of action or it looks worse than nothing.

Although they are now denying it, there was a paper written by a French civil servant proposing a 300bn-euro bail-out fund. Gordon Brown didn't like it, and perhaps more importantly neither did German leader Angela Merkel. Downing Street prefers the case-by-case, nation-by-nation solutions that have been happening so far. Other Sarkozy ideas such as a holiday from the EU's rules against state aid are scarcely more popular. It's the frequent EU dilemma: when is the lowest common denominator so low that it's worthless?

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Why doesn't the European Union have a single regulator to oversee banks? After all, there are 40 big banks which operate in several different EU countries.

The Irish commissioner Charlie McCreevy would clearly love to go down this road, but says it is "devilish difficult" to get the agreement of individual countries to back such a plan.

What he has come up with is the idea of "a college of supervisors". It means if a bank in one country wants to do business in another the respective regulators will get together to share information.

Mr McCreevy said that finance ministers had only given a "light benediction" to this plan. As for getting them to agree to pan-European regulation, he felt the current crisis should have galvanised ministers, but it has not. "It is a desperately difficult political debate. It is not going forward, because there would not be political support for it at all."

He's also announced some other measures to make the system more stable. Banks will be stopped from lending more than a quarter of their money to one individual or business. They will also have to share more of the risk of certain financial products with their customers.

Trade commissioner Peter Mandelson told me: "We have recognised for some time there is a need for change, a need for tightening, a need for greater prudence frankly, because what we've seen operating is not simply an American export, we've seen how these elements have developed across the world: an excess of risk-taking, frankly some would say greed, but also some poor policy and decision-making. The point about markets is that they function fine as long as there is somebody there second-guessing when risk or policy is getting a little bit out of control."

I put it to him that some would say "here we go again: more red tape, more regulations from the EU".

"Well, what is the alternative?" he replied. "We don't want deterioration in our financial system, we don't want to be any more exposed than we need to be to the contagion spread from the United States. A lot of the financial system in Europe operates across borders, so we need an overall European role to supervise it. Not to replace national regulators, but to support them, enable them to collaborate and co-operate."

Quick note to Tomireland, who is disturbed by my "non-reporting" of the European arrest warrant. It was introduced in May 2005, a few months before I got this job so it is a bit old hat as a news story. Do you mean this? I agree worth keeping an eye on.

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