US benchmark borrowing costs plunged to levels last seen in 1946 and those for Germany and the UK hit all-time lows as investors took fright at what they see as a disjointed policy response to the debt crisis in Spain and Italy. In a striking sign of the flight to haven assets, German two-year bond yields fell to zero for the first time, below the equivalent rate for Japan, meaning investors are willing to lend to Berlin for no return. US 10-year yields fell as low as 1.62 per cent, a level last reached in March 1946, according to Global Financial Data. German benchmark yields reached 1.26 per cent while Denmark's came close to breaching the 1 per cent level, hitting 1.09 per cent. UK rates fell to 1.64 per cent, the lowest since records for benchmark borrowing costs began in 1703. "They are extreme levels because we are in an extremely perilous situation. People just want to put their money somewhere where they think they will get it back. People may soon be paying Germany or the US to look after their money," said Gary Jenkins, head of Swordfish Research, an independent credit analysis company. The flight to safety came as the situation in Italy and Spain, the eurozone's third- and fourth-largest economies, deteriorated further. Italy held a disappointing debt auction and saw its benchmark borrowing costs rise above 6 per cent for the first time since January. The euro fell 0.8 per cent against the dollar to under $1.24 for the first time in two years. Confusion over how the Spanish government's rescue of Bankia, the stricken lender, will be structured led the premium Madrid pays over Berlin to borrow to hit fresh highs for the euro era at 540 basis points. Analysts said the elevated level meant that clearing houses could soon raise the amount of margin, or collateral, that traders need to post against Spanish debt, a move that led to the escalation of crises in Portugal and Ireland. The European Central Bank has made clear to Spain that it cannot use the bank's liquidity operations as part of a recapitalision of Bankia. However, the central bank said on Wednesday it had not been officially consulted on the plans. Equity markets globally fell on the eurozone fears with bourses in Paris, Frankfurt and London all dropping 2 per cent. But Nick Gartside, international chief investment officer for JPMorgan Asset Management, noted that while US bond yields had halved since April last year the S&P 500 equity market was at the same level. "One of those two markets is mispriced. Core government bonds are an efficient market and they are ahead," he added. Investors said borrowing costs for the US, UK and Germany were likely to continue to fall amid a worsening economic backdrop and the threat of more central bank intervention. Wealth managers have been moving client assets into currency havens in recent weeks, with the Swiss franc and the US dollar among the biggest beneficiaries "Risk aversion, a rapidly slowing global economy and unusually low policy rates will pin these short and intermediate maturity bonds at unprecedented low levels for quite a while," said Mohamed El-Erian, chief executive of Pimco, one of the world's largest bond investors. Mr Gartside said he could easily see German rates going below 1 per cent, following a path that only Japan and Switzerland have taken among major economies, while the US and UK could dip under 1.5 per cent. Markets are increasingly resigned to more turmoil until policy makers take more radical action. The two most popular plans of action for investors are for the ECB to buy Spanish and Italian bonds in unlimited size or for eurozone countries to agree on a fiscal union involving the pooling of debt. "You have to throw everything at it. Spain is just too big for half measures. The next intervention has to be not just massive in size but it has to show a total commitment," said Mr Jenkins. He recommends that the ECB set targets either for the premium Spain and Italy pay to borrow over Germany or for their yields.

Property prices in the capital’s most sought-after postcodes have been driven up by investors moving funds out of assets held in euros to buy into what is seen as a “safe haven” alternative. Foreign money seeking a refuge from the wider economic turmoil accounted for 60pc of acquisitions of prime central London property between 2007 and 2011, according to a report by Fathom Consulting for Development Securities. If the shared currency broke up completely, London property would initially be boosted by the continued flight towards a safe haven, the report predicts. But, once the break-up had taken place, demand for these assets as an insurance against this event would start to ebb. “Although fears about a messy end to the euro debt crisis may account for much of the gain in prime central London (PCL) prices that has taken place over the past two years, we find that a break-up of the single currency area is also the single greatest threat to PCL,” said researchers.

 Five years after joining the European Union, this town 13 miles outside of Romania's capital is still waiting for the jump in living standards its politicians said membership would bring. Four out of five people have no indoor toilet or running water. Homes are heated with wood-burning stoves and most people raise animals in their yards to survive. Just one in five of Petrachioaia's 3,375 inhabitants has a job. Now Europe's newest citizens - the 100 million people in Romania and nine other eastern European countries who have joined the 27-member bloc since 2004 - may have to retire their earlier dreams. A growing number of economists working in think tanks and investment banks say the economic crisis in Europe has hurt the chances the EU's poorest members will catch up to, or converge with, living standards in their richer counterparts. Convergence - the trend for new member countries to move towards Europe's average GDP per capita - has long been one of the rewards of EU membership. That was what politicians almost universally promised in the run-up to membership, saying generous development aid from Brussels and foreign investment could help them follow the example of Ireland, whose boom took it from EU laggard to Celtic Tiger. The former Communist states in eastern Europe appeared to be following the same path. But convergence has now slowed in many places, and economists say it could come to a stop in around 20 years at levels far lower than earlier hoped. "Catching up is unlikely to proceed as rapidly as we thought before 2008," said Ville Kaitila, a researcher at ETLA, The Research Institute of the Finnish Economy, referring to the most widely used measuring stick for living standards. "Even though there has been overall long-term convergence in the EU, convergence is not a natural law." The economic slowdown over the past four years is already taking a toll. Angered by austerity measures and slow progress, some voters have swung away from reform-minded parties in favour of those that promote stronger social safety nets and reject economic reforms. Constantin Florea, a 63-year-old former mill worker in Petrachioaia who subsists on a military pension of 100 euros a month and by raising animals, sums up the disillusionment. "I thought they were supposed to raise our wages and pensions and create jobs for young people after we joined," he said as his heifer munched on grass by the side of a road. "If I didn't have this cow, I'd starve." Boom to bust In the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia, people popped champagne and danced in the streets when the EU ushered them into its club eight years ago. Bulgaria and Romania had to wait another three years for accession, which politicians and economists said would boost their economies. It had elsewhere. In Ireland economic reforms and a torrent of EU development funds, foreign investment and a lending boom to firms and consumers boosted GDP per capita from 65 percent of the EU average in 1960, 13 years before EU entry, to almost 150 percent in 2008. At first, it looked like the EU newcomers would go the same way. In the run-up to membership and immediately after, foreign firms ploughed cash into factories in Hungary, the Czech Republic and Slovakia, making the latter the world's top car producer per head and, in less than a decade, pushing its GDP per person to 75 percent of the bloc's average from just 50. While the rest of the EU expanded at 2 percent a year from 2000 to 2008, the new eastern states easily grew at double that rate, with Latvia peaking at 11.2 percent in 2006. Convergence looked a sure thing. Bulgaria's GDP per person reached 44 percent of the EU average in 2008, from just 28 percent at the start of the decade. Romania's rose two-thirds to 47 percent. The crisis ended the boom, and slowed convergence. Every country in the region save Poland has had a recession in the past four years. Latvia shrank by more than a fifth from 2008 to 2010, and a two-year contraction in Romania wiped more than 8 percent off its annual output. Many western European members also suffered recessions. The worst-off - debt-choked Greece - is in its fifth year of what looks set to be a 20 percent contraction. But it started from a much higher pre-crisis base and its living standards are still roughly 80 percent of the EU average, neck-and-neck with the richest new EU state, Slovenia, and well ahead of the poorest. Ireland too has dropped from its peak but is still roughly at Germany's level. Not so fast Since the crisis, eastern Europe's governments have imposed austerity measures including layoffs and wage cuts for state workers, to tackle inefficiencies. Foreign banks have shut off credit. Loans are harder to get. Romania has just re-entered recession. "When we joined the EU people believed their world will change," said Decebal Floroaica, a 38-year-old priest who has just opened the first soup kitchen in Pitesti, a southern Romanian town of around 180,000. "Our euphoria was at a maximum and they thought everybody would find jobs abroad. Now we're realising maybe the EU is not the land of milk and honey." Economists now expect growth to remain below potential for several years, squeezing the ability of countries to gain ground on their richer neighbours. "Citizens of new member states must have expected fast convergence. As a result they have been disappointed," Peter Halmai and Viktoria Vasary, Hungarian experts on transition economists, said in an email. "The convergence machine continues to work, but at a lower level than expected earlier... In certain countries convergence has stopped or slowed down to a great extent." In forecasts updated from a 2010 paper published in The European Journal of Comparative Economics, Halmai and Vasary see growth in the new member states outpacing that of the EU's original 15 countries, with a peak in 2030 or 2040. That is when a demographic crisis is expected to hit eastern Europe, as a steep decline in the birth rate after the end of communism in 1989 brings a large fall in the workforce as generations born before then retire. "The real convergence will stop from 2030 onwards and even a moderate divergence from the EU-15 might occur," Halmai and Vasary wrote. Though they concede that their long range forecasts are uncertain, the economists believe that in most advanced states - Slovakia, Slovenia and the Czech Republic - the eventual ceiling of convergence will peak just around the EU norm before falling back to below that level. Poland would top out at 76 percent of the EU average in 2060, they said, far short of last year's boast by former finance minister Leszek Balcerowicz that Poland could catch Germany in 20 years, and behind even countries such as troubled euro zone member Portugal. The poorest two, Bulgaria and Romania, would struggle to break the 60 percent barrier in the next 30 years, and the latter could fall back to below present levels, they said. Zsolt Darvas, a research fellow at Brussels-based think tank Bruegel, said that compared to Ireland's performance two decades ago, the eastern states are lagging, with some coming to resemble the path of Portugal, Spain and Greece, which made advances but then hit a wall. Darvas thinks Bulgaria and Romania still "have a lot of chances to converge" but that realistically "in 40-50 years, if they will be around 50 percent of the EU average, that would not be bad for these countries." END OF MILK AND HONEY It's not as if EU membership has brought no improvements. In Petrachioaia, the main road was paved for the first time in 2008, a year after Romania joined the EU. The last of the town's four schools got plumbing two years ago. In Bucharest, the capital, luxury cars have replaced dilapidated Soviet-era Dacias and western brands from Gucci to Starbucks stand where just a decade ago were grim shops labeled "shoes" and "food". But problems persist. Romania's highways link only three cities, and none reach a land border or a port, a red flag for exporting investors. Only about a quarter of the population hold down steady jobs - there are roughly the same number of pensioners and the same again of subsistence farmers - so the country's production potential is below its better-off peers. And while Ireland benefited from EU funds, Romania, dogged by corruption, bureaucracy and a lack of co-financing, has used just 8 percent of the 19 billion euros available since 2007. Polls show that fewer than half of Romanians now have faith in the EU, down from over two thirds before entry. Tom Gallagher, a professor of east European politics at Bradford University, said that raises the risk of political dissent or a rise of radical parties if people become frustrated with the wealth gap. "Romania will be a permanent drag on the EU if we continue to fall behind, and the country faces long-term underdevelopment and decay unless there is a relaunch of the partnership with the EU," Gallagher said. Petrachioaia school director Minu Iordanescu, 56, has already adjusted his expectations. "Living conditions can get better, but that may take 50 years," he said. "So maybe my grandchildren will taste a more civilized life."

The Sunday Telegraph never got any letter from Mikhail Khodorkovsky, admitted reporter Tom Parfitt who claimed his article was based on a message from the imprisoned ex-oligarch. In a piece published on May 26, the journalist refers to “a letter” that  “passed to The Sunday Telegraph from his prison cell,” saying that “Khodorkovsky urged a ban on 308 officials including high-profile figures such as Russian deputy prime minister Vladislav Surkov, youth leader Vasily Yakemenko and controversial elections chief Vladimir Churov.” Russia’s radio Svoboda says it contacted the reporter after the lawyers of the imprisoned tycoon said the article misrepresented Khodorkovsky’s words in the headline and refers to a letter that never existed. The journalist admitted that his newspaper did not receive any message from the imprisoned ex-head of Yukos, and that Khodorkovsky was only interviewed by the newspaper in written form. “The fact that Khodorkovsky referred to Garry Kasparov’s list of 308 Russian officials involved in human rights violation and urged the British government to compare it to the list of Russian delegation members invited to the Olympics in London gave me a reason to assert that he’d want Britain to ban them from visiting the Olympics,” Tom Parfitt told Svoboda Radio. The press-center website of the former head of Yukos Khodorkovsky and the former head of Menatep Group Platon Lebedev published the full text of the interview. According to this, the ex-tycoon was asked whether the UK should deny entry permission to Vladimir Putin during the Olympics in London. “It’ll be very difficult for the British government to ban any head of state from coming to the Olympics, especially if this state is a member of the Big Eight and the Council of Europe,” Khodorkovsky answered, adding that “the British government could do something to emphasize the importance of human rights while hosting the Olympics.” “In June 2011 one of the Russian opposition leaders Garry Kasparov presented the US House of Representatives with a list of people involved in human rights abuse, and I would call on the British government to pay extra attention to Kasparov’s list and compare it to the list of the Russian delegation members who are set to visit London in 2012,” Khodorkovsky said. Garry Kasparov presented US Congressmen with the blacklist of high-ranking Russian officials who according to rights organizations were involved in violation of human rights. The US House of Representatives was then discussing a bill to pass visa sanctions on foreign officials involved in rights abuse. In May, the British Foreign Office announced its decision to ban foreign officials guilty of rights violations from the London Olympics.

Chairman of the Ukrainian Parliament Vladimir Litvin hopes that the joint project with Russia on building Antonov-70 aircraft will get off the ground. Speaking at a session of the inter-parliamentary commission on cooperation in Voronezh (south of Moscow), he pointed out that that city was already implementing a joint Russian-Ukrainian project on building Antonov-148 planes. Litvin believes that it is time to revive the inter-parliamentary working group on cooperation between Russia and Ukraine in high technology fields, including aircraft building and space research. The working group was set up at the commission’s previous session which was held in Kiev in November 2010. The Antonov-70 is a medium-haul cargo plane developed by the Antonov design bureau in Kiev. It is intended for both the military and commercial use. An aircraft of this model made its first flight in 1994.

Russian Foreign Minister Sergei Lavrov said on Monday that Moscow was deeply alarmed by the killing of at least 108 people in the Syrian town of Houla but that it was clear both President Bashar al-Assad's government and rebels were to blame. "We are dealing with a situation in which both sides evidently had a hand in the deaths of innocent people," Lavrov said after talks with British Foreign Secretary William Hague. "Nobody is taking (blame) off the government and nobody is taking it off the fighters, but we must understand how it all happened so that such a thing never happens again," Lavrov told a joint news conference. Lavrov hinted Moscow could increase pressure on Assad to abide by U.N.-Arab League envoy Kofi Annan's peace plan. But he gave no indication Russia, which has aided Assad with arms supplies and U.N. Security Council vetoes and opposed external pressure for his ouster while strongly backing Annan's plan, was changing course. Lavrov and Hague agreed foreign nations should work harder to push the government and rebels into compliance with the April 12 ceasefire but they accented different sides, with Hague suggesting Russia must lean harder on Assad. Hague, on a pre-planned visit to Russia a day after the U.N. Security Council condemned the killing of at least 108 people in Houla, said "we look to Russia as having a particularly powerful role in being able to exert that additional pressure." Hague said Annan's plan - whose demand for a government withdrawal of heavy weapons from cities and towns has not been fulfilled - was "at the moment the only hope for Syria to fight to break the cycle of violence." Like Assad, Russia has blamed rebels for most of the violence that persisted since the ceasefire took effect and said foreign countries are aiding them with encouragement and weapons supplies. Indicating Moscow is also frustrated with the government, Lavrov said it "deeply alarms us that the Annan plan is being implemented in an unsatisfactory way." He said he and Hague agreed that "leading states ... upon which the conduct of one or the other side in Syria depend, should make additional efforts to work out clear and verifiable mechanisms for implementation of Annan's plan. We will be working on work on this in the near future." However, Lavrov criticised nations he said were arguing that there could be no solution the crisis in Syria - where the United nations says government forces have killed more than 9,000 people since March 2011 - without Assad's exit from power. "All the external players need to be playing the same game: the game directed at implementing the Annan plan, and not the game of the regime change," he said.

The chief archivist of Russia’s counterintelligence service said Monday it will continue searching for clues about the mystery of Holocaust hero Raoul Wallenberg, who vanished while in Soviet captivity. Lt.-Gen. Vasily Khristoforov said that his agency, the Federal Security Service, has no reason to withhold any information about the Swedish diplomat from the public eye. He rejected critics’ allegations that his service, the main KGB successor, could be hiding documents related to Wallenberg’s fate. 0 Comments Weigh InCorrections? Personal Post “Believe me, had such an information been known to us, the Russia archivists would have been the first to publish and show it,” Khristoforov told The Associated Press. “When some people say that we are defending the pride of the uniform ... it’s ridiculous. This is another state and a different special service.” Khristoforov insisted that he and his colleagues would have no inclination to whitewash the record of Soviet dictator Josef Stalin’s much-feared secret police, known under its Russian acronym, NKVD. “I doubt that any of the Federal Security Service officers today would associate himself with the NKVD and would try to defend the uniform of the NKVD,” he said. “That’s why this argument doesn’t stand criticism.” Khristoforov was taking part in an international conference that included researchers from Sweden, Hungary, Israel and Russia. Some of the speakers strongly urged Khristoforov’s agency to give independent researchers investigating the Wallenberg mystery free access to their archives. “I think full access is really needed,” said Ingrid Carlberg, a Swedish author who recently published a book about Wallenberg. “They can’t possibly know what kind of puzzles I have that could be matched with pieces of information in those archives. If we put them all together, we will have a clearer picture.” Wallenberg is credited with saving thousands of Jews in Budapest by distributing Swedish travel documents or moving them to safe houses. He was arrested in Budapest by the Soviet Red Army in 1945. The Soviets initially denied Wallenberg was in their custody, then said in 1957 that he died of a heart attack in prison on July 17, 1947. The Russian government has never formally retracted the initial Soviet version, but some officials acknowledged that Wallenberg likely had been killed. In 2000, Alexander Yakovlev, the one-time chairman of a presidential panel investigating the fate of repression victims, said he had been told by a former KGB chief that Wallenberg was killed in Lubyanka prison. That year, Russia also conceded that Soviet authorities had wrongfully persecuted Wallenberg and posthumously rehabilitated him as a victim of political repression.

Russia’s most senior military officer said Thursday that Moscow would strike and destroy NATO missile defense sites in Eastern Europe before they came online if the U.S. pushes ahead with deployment. “A decision to use destructive force pre-emptively will be taken if the situation worsens,” Russian Chief of General Staff Nikolai Makarov said at an international missile defense conference in Moscow attended by senior U.S. and NATO officials. The threat comes as talks about the missile defense system, which the U.S. and its allies insist is aimed at Iranian missiles, appear to have stalled. “We have not been able to find mutually acceptable solutions at this point, and the situation is practically at a dead end,” Russian Defense Minister Anatoly Serdyukov said. Ellen Tauscher, the U.S. special envoy for strategic stability and missile defense, insisted the talks about NATO plans for a missile defense system using ground-based interceptor missiles stationed in Poland, Romania and Turkey were not stalemated. But she acknowledged Wednesday that the recent elections in Russia and the upcoming elections in the U.S. make it “pretty clear that this is a year in which we’re probably not going to achieve any sort of a breakthrough.” She reiterated that the U.S.-built system, still in development, is being designed to shoot down Iranian intermediate-range missiles aimed at Europe, not Russian intercontinental ballistic missiles (ICBMs). Russian officials insist that the system has the capability to shoot down their ICBMs, thus robbing their nuclear deterrent of its credibility and destabilizing the Cold War-era balance of mutually assured destruction. Neither the State Department nor the Pentagon had any immediate comment on the Russian threat Thursday.