Iraq can't defend itself fully before 2020: general (Reuters)

BAGHDAD (Reuters) – Iraq's defense chief has said his military will not be fully ready to defend Iraq from external threats until 2020 to 2024, according to a U.S. inspector's report released on Sunday.

Lieutenant General Babakir Zebari has repeatedly warned that Iraq's security forces, rebuilt after the 2003 invasion that ousted strongman Saddam Hussein, would not be ready for years.

President Barack Obama announced on October 21 that American troops would fully withdraw from Iraq by year-end, as scheduled under a 2008 security pact between the two countries.

Both Iraqi and U.S. military leaders have said the army and police are capable of containing internal threats from Sunni insurgents and Shi'ite militias that launch scores of attacks monthly, but that they lag in external defense.

"General Zebari suggested that the MOD (Ministry of Defense) will be unable to execute the full spectrum of external-defense missions until sometime between 2020 and 2024, citing ... funding shortfalls as the main reason for the delay," said the report from the U.S. Special Inspector General for Iraq Reconstruction (SIGIR).

Zebari said the air force would not be able to defend Iraqi airspace until 2020 and is not capable of supporting ground combat operations, citing a long-delayed deal to buy F-16 warplanes from the United States, the SIGIR report said.

"An army without an air force is exposed," the report quoted Zebari as saying.

Iraq delayed its purchase of F-16s earlier this year to divert money to social programs.

Officials said in late September that Iraq had signed a deal to buy 18 of the combat jets. The first delivery is not expected for several years.

Washington has around 39,000 troops still in Iraq, down from a peak of about 170,000 during the war. Violence has dropped sharply from the sectarian bloodbath of 2006-07 when tens of thousands died.

As it tries to reintegrate itself into the region after years as a pariah, Iraq is warily eyeing neighbors such as Iran, Saudi Arabia, Turkey and Syria.

Iraqi leaders have accused neighbors of meddling, and U.S. military officials say Iran arms Shi'ite militias in Iraq.

"While we have no enemies, we also have no real friends," the SIGIR report quoted Zebari as saying of the Iraqi government's relations with its neighbors.

(Reporting by Jim Loney; Editing by Alistair Lyon)

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Germany, France split on bank aid before summit (Reuters)

BERLIN/PARIS (Reuters) – Germany and France were split ahead of crucial talks on Sunday over how to strengthen shaky European banks and fight financial market contagion to prepare for a possible Greek default.

Under strong U.S. and market pressure Chancellor Angela Merkel and President Nicolas Sarkozy will try to bridge differences on how to use the euro zone's financial firepower to counter a sovereign debt crisis that threatens the global economic recovery.

A ratings downgrade on both Italy and Spain by Fitch Ratings on Friday underscored the grim climate.

A German source said Paris wanted to be able to tap the euro zone's 440 billion euro rescue fund to recapitalize its own banks, which have the largest exposure to peripheral euro zone debt, while Berlin insisted the fund should be used only as a last resort when no national funds are available.

After meeting Dutch premier Mark Rutte, Merkel confirmed the German position was that the European Financial Stability Facility was a backstop to be used "only if that country is unable to cope on its own.

A French Treasury source told Reuters that Paris believed banks unable to raise capital on the open market should be able to tap the fund, but talk of divergences with Berlin was premature since the issue had not yet been debated.

Merkel said struggling banks should look first to the markets, then their national government, and only in the last instance the EFSF, and with reforms as a strict condition.

"This will definitely be discussed at the next summit," she said, referring to an EU leaders meeting on October 17 and 18 for which she and Sarkozy will attempt to set the agenda.

The French government and the Bank of France had dismissed until this week any need to recapitalize French banks and are now wrangling over how to do it in a way that does not put the country's top-notch credit rating at risk.

"I hear that the French are scared that too much bank recapitalization could jeopardize the French AAA and that is why they push for the EFSF solution for French banks. I expect Merkel to stick to national funds for recapitalization," said economist Jacques Delpla, a member of the French government's advisory council of economic analysis.

France has the highest debt-to-GDP ratio of any of the six triple-A countries in the euro zone at 86.2 percent.

If France, the second largest guarantor of the rescue fund after Germany, were to lose its top-notch rating, the whole edifice of financial support for Greece, Portugal and Ireland would crumble.

DEXIA SQUABBLE

A senior European diplomat said that because of its exposure and concern for its credit rating, France was more hesitant than Germany or Britain about the need to restructure Greece's debts and take losses as soon as possible.

Preserving France's AAA status was politically sensitive seven months before a presidential election in which Sarkozy is trailing the opposition Socialists in opinion polls, he said.

Many major European banks continue to insist they need no more capital, although the International Monetary Fund says up to 200 billion euros must be injected.

The chief executive of Societe Generale , Frederic Oudea, told Reuters Insider TV the main problem was not one of capital but liquidity as interbank lending dries up.

"The main issue is a crisis of confidence in the sovereign. ... What is important is to deal with the Greek issue as quickly as possible and then rebuild confidence in the capacity of each bank in Europe to reduce its debt," Oudea said at SocGen's Paris headquarters.

Some banks are clearly in need, however.

France and Belgium are arguing over whose taxpayers should pay to salvage cross-border municipal lender Dexia, which came close to collapse this week and is to be broken up.

Moody's Investor Service on Friday said it may cut Belgium's credit rating.

U.S. President Barack Obama implored European leaders on Thursday to come up with a plan before a Group of 20 major economies summit in Cannes, France, on November 3-4, saying the euro zone crisis was the biggest cloud over the U.S. economy.

Bank of Japan Governor Masaaki Shirakawa said on Friday that the European sovereign debt woes were putting Japan's economy under growing strain.

Shirakawa told a news conference in Tokyo that "global growth is slowing as a trend" and European growth was "stalling" as debt worries mount.

European Commission President Jose Manuel Barroso said on Thursday the EU's executive arm was preparing a plan for bank recapitalization across the 27-nation bloc.

However, other EU officials have made clear it would only be a set of guidelines for national measures and an approach for cross-border banks, and not a common European mechanism or mandatory rules on recapitalization.

The European Banking Authority, which coordinates national regulators, is reassessing banks' capital buffers based on data provided for stress tests conducted in July, which showed that only eight banks failed, requiring just 2.5 billion euros in extra capital.

A euro zone supervisory source said a figure of 180-200 billion euros cited by International Monetary Fund and private economists reflected the impact of writing down sovereign bond holdings to current low market prices and assuming that Greece and perhaps another country would default.

DEFAULT POSSIBLE?

Both Merkel and Sarkozy have reaffirmed in the last week that a Greek default must be avoided because it would have potentially catastrophic consequences for the European and global economy.

The French Treasury source said Paris was open to modifying some elements of a July 21 agreement by euro zone leaders to make private bondholders share the cost of a second bailout for Greece, such as debt maturities and interest rates, but a full-scale rewrite was undesirable.

German and Finnish officials argue that since market conditions have changed, banks may need to take more than the agreed 21 percent write-down on their Greek holdings.

A team of EU and IMF inspectors is continuing negotiations with Greece on reforms required to release a vital 8 billion euro aid installment by mid-November.

Fitch late Friday cut Italy's sovereign credit rating by one notch and Spain's by two, citing a worsening of the euro zone debt crisis and a risk of fiscal slippage in both states.

The downgrades knocked the wind out of the euro, which slipped 0.3 percent to $1.3388, leaving it rooted in a downtrend that began at $1.4548 on August 29.

Italy's rating fell to A-plus from AA-minus, and Spain's was lowered to AA-minus from AA-plus. Both countries, respectively the third and fourth largest economies in the euro zone, were placed on a negative outlook suggesting further downgrades could come in future.

(Additional reporting by Jean-Baptiste Vey and Catherine Bremer in Paris, Paul Carrel in Berlin, Philipp Halstrick in Frankfurt, Julien Toyer in Brussels,; Writing by Paul Taylor/Mike Peacock/Glenn Somerville)

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Feds: Mine faked reports before fatal W.Va. blast (AP)

By TIM HUBER and VICKI SMITH, Associated Press Tim Huber And Vicki Smith, Associated Press – 1?hr?6?mins?ago

BEAVER, W.Va. – Coal company managers pressured miners to generate a second set of reports omitting chronic safety problems to mislead inspectors before an underground explosion killed 29 men last year, federal regulators said Tuesday.

Kevin Stricklin, coal administrator for the Mine Safety and Health Administration, said top management at the Upper Big Branch mine was required to countersign safety inspection books that collect miners' daily reports on conditions. The mine was owned by Massey Energy until Alpha Natural Resources bought its rival this month.

"The investigation team concluded that the managers were aware that chronic hazardous conditions were not recorded," he said during a briefing on the federal investigation. Testimony from some of the 266 witnesses MSHA has interviewed also "indicated that management pressured examiners to not record hazards in the books."

Federal investigators first revealed they had found two sets of books — one focused on safety, the other on production — during a private meeting with the victims' families Tuesday night. It's one of the few revelations to come from the ninth briefing since the investigation began last summer into the deadliest U.S. coalfield disaster in four decades.

Alpha Natural Resources spokesman Ted Pile said Wednesday the company was hearing about the faked reports for the first time.

"It's a claim I'm sure we'll look into as we conduct our own review of what happened," Pile said in an email to The Associated Press.

In a public briefing Wednesday, Stricklin showed side-by-side comparisons of records that purported to document the same shift on three different dates in the month before the accident. In each case, the official book that inspectors would have seen showed few, if any, hazards, while the production reports indicated various problems with faulty machinery, explosive methane gas and bad roof conditions.

"If a coal mine wants to keep two sets of books, that's their own business," Stricklin said. "They can keep five sets of books if they want. But what they're required to do is list all the hazards in the official book.

"This is the book that not only MSHA looks at ... but it should be the book that miners and other people who are going into the mine should look at so they would be aware of any conditions in the mine before they go in," Stricklin said.

On April 5, 2010, the day of the blast, a pre-shift inspection report identified very few hazards. But Stricklin says other documents showed six of 10 conveyor belts needed to be coated with pulverized limestone to prevent coal dust from exploding, and five belts needed cleaning.

Bobbie Pauley, the only woman who worked underground at Upper Big Branch, said she was not surprised by MSHA's revelation.

"You put in an inspection report what you wanted the inspectors to see," said Pauley, who lost fiance Howard "Boone" Payne in the blast.

"Zero, zero, zero deters MSHA from coming back. If they see a potential problem recorded in a book, then they're going to come back and investigate it time after time after time," she said. "Well, no coal operator wants to be pounded by MSHA every day.

Pauley returned to Upper Big Branch only briefly after the explosion and now works aboveground at another former Massey operation bought out by Alpha. She was among some 200 people attending Wednesday's briefing.

MSHA has drafted its final report but told victims' families it likely won't be delivered until October.

The explosion also remains the subject of a criminal investigation by the U.S. Department of Justice, and MSHA has said it won't release some information to avoid hindering that probe. It largely reiterated its past public statements, offering more detail but no new theories.

So far, only one Massey employee has been indicted. Security chief Hughie Stover is charged with three federal crimes for allegedly lying to the FBI and MSHA and obstructing justice by ordering a subordinate to throw away thousands of pages of security documents from the mine.

MSHA contends the explosion started with a small, naturally occurring release of methane or natural gas that was then fueled by coal dust into a devastating inferno that tore through the mine in a series of explosions over a few minutes. The agency has blamed a poorly maintained cutting head on a piece of mining equipment for sparking the blast and a malfunctioning water sprayer for failing to douse it.

An independent investigation commissioned by former Gov. Joe Manchin reached the same conclusion last month.

That study accused Massey of ignoring the most basic safety practices in the industry, allowing highly explosive coal dust and methane gas to accumulate, and failing to provide either enough fresh air flow or enough pulverized limestone on the mine's walls to render coal dust inert.

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