Emergency hearing set on Harrisburg filing (Reuters)

(Reuters) – An emergency hearing on the bankruptcy filing by the city of Harrisburg was set for Monday after the city's mayor late on Thursday submitted a petition to have the filing dismissed.

Harrisburg filed for Chapter 9 bankruptcy on Wednesday after a 4-3 vote by the City Council. Mayor Linda Thompson opposed the filing and has challenged its legality.

In Thursday's court documents, the mayor asserted the bankruptcy petition was invalid. The bankruptcy court granted the request for an emergency conference to address the matter and a hearing to dismiss the case. The mayor's petition said pleadings to the court would be filed shortly.

The hearing was set for 9:30 a.m. ET on Monday.

The filing has stirred up a host of conflicting views and debate about the legality of the council's move. Thompson has said she is "ashamed" of the council's behavior.

Pennsylvania's governor, Tom Corbett, has said the city would be better off if it agreed to a rescue plan under a state program for distressed cities, which has seen Philadelphia and other cities through crises.

The state filed on Friday its objection to Harrisburg's bankruptcy. The state said it did not dispute that the city faced "serious financial difficulties" but said state law prohibits a bankruptcy filing by the city.

Harrisburg's crisis has been a year in the making. The city of about 50,000 is hampered by $300 million in debt incurred from an expensive revamp of its incinerator and is struggling to fund key city services.

Harrisburg is one of a handful of municipalities that has flirted with bankruptcy in the wake of the recession of 2008 that devastated budgets in state and local communities. Some say it could become a touchstone for whether other cities will follow this path to extract concessions from creditors and others.

Mark Schwartz, an attorney for the city council, in an interview with Reuters Insider on Thursday, said the Chapter 9 filing was "absolutely" legal, rejecting charges from the mayor and Harrisburg's surrounding Dauphin County that the council did not have the authority for the filing.

City Controller Dan Miller told Reuters Insider that the filing was the right move for the debt-strapped city.

On Thursday, Charles Zwally, special council for Dauphin County, said the county was weighing its options, saying that "we don't believe that they are authorized to file."

Bond insurer Assured Guaranty also questioned the legality of the filing.

At the root of Harrisburg's troubles is a financing scheme used to fund a state-of-the-art renovation of its trash-burning plant that left the city deeply in debt.

The incinerator is owned by the Harrisburg Authority, a separate municipal entity, but the city and Dauphin County guarantee much of that debt.

In December 2010, with Harrisburg facing the prospect of bond defaults, deep service cuts, or worse, Pennsylvania officials put the city under its Act 47 law, which obliges faltering cities to implement plans to ward off Chapter 9 municipal bankruptcy filings.

In July, the City Council rejected a state-approved rescue plan, which called on the city to renegotiate labor deals, cut jobs, and sell or lease the city's major assets -- its parking garages and the incinerator. In August, the council again rejected a similar plan.

(Reporting by Chip Barnett, David Gaffen and Edith Honan in New York, Tom Hals in Wilmington, Delaware, and Jessica Hall in Harrisburg; Editing by Leslie Adler)

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WFP begins emergency airlifts to hunger-stricken Somalia (AFP)

NAIROBI (AFP) – The World Food Programme airlifted 10 tonnes of emergency supplies to Mogadishu Wednesday to feed thousands of malnourished children in drought-hit Somalia.

Somalia is the Horn of Africa country worst affected by a prolonged drought -- the region's worst in 60 years -- that has put some 12 million people in danger of starvation and spurred a global fund-raising campaign.

Pictures and footage of skeletal children with only a faint flicker of life left in them have conjured up memories of the 1984 Ethiopia famine in which an estimated one million people died.

The peanut-based paste flown to Mogadishu Wednesday was the first in a series of deliveries which aims to supply 100 tonnes of the nutritional supplement to 35,000 children every month, a spokesman said.

The scope of the catastrophe is huge though and delivering aid to one of the most dangerous countries in the world is difficult.

Nearly half of Somalia's estimated 10 million people are in need of relief assistance, owing to the effects of relentless violence and the drought that prompted the UN to declare famine for the first time this century.

Wednesday's airlift also to kicked off a series of WFP deliveries that will go to the Ethiopian town of Dolo on the border with Somalia and to the town of Wajir in northern Kenya, Orr said.

The WFP was forced to pull out from southern Somalia in early 2010 after they were banned by the Al Qaeda-inspired Shebab rebels, who control large areas of the region.

A handful of relief groups were however spared the insurgents' ban, but have been struggling to cope with the rising numbers of people in need of humanitarian aid.

At the weekend, the International Red Cross said it had handed out 400 tonnes of food in drought-hit areas controlled by the hardline Shebab rebels, the first ICRC-led drops into such areas since 2009.

The bulk of Somalia's drought-affected people are in the country's southern regions.

Last week, the UN declared famine in two southern Somalia regions of Bakool and Lower Shabelle, where up to 350,000 people are at risk of starvation.

In Nairobi, a team of humanitarian organisations met with donors to streamline operations to assist victims of the drought that has also hit parts of Ethiopia, Djibouti, Kenya and Uganda.

Aid agency Oxfam criticised French Agriculture Minister Bruno Le Maire for announcing this week that the Nairobi meeting -- a monthly round-table between aid agencies and donors -- was a major conference on the region's crisis.

"Is the diplomatic activity stirred up by France recently not a smokescreen to hide its weak financial commitment?," Jean-Cyril Dagorn, an Oxfam official said in a statement.

Dagorn said that France, which called for a donors conference on Monday in Rome as the current G20 leader, had yet to boost its pledge for more funds for the crisis.

"Nothing concrete has been proposed by the G20, or even France in terms of direct support to small-scale agriculture and pastoralists to increase local food production," Oxfam said in a statement.

Officials said the UN had received about $1 billion (696 million euros) during Monday's Rome conference on the Horn of Africa drought, but needs a billion more by the end of the year to cope with the emergency.

The World Bank on Monday pledged more than $500 million, with the bulk of the money set to go towards long-term projects to aid livestock farmers while $12 million would be for immediate assistance to those worst hit by the crisis.

However charities have slammed low aid pledges and say not enough is being done.

The UN Office for the Coordination of Humanitarian Affairs said southern and central Somalia regions, the displaced and refugees in Kenya and Ethiopia were "of greatest concern for the coming six months," according to a statement.

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Exclusive: EU calls emergency meeting as crisis stalks Italy (Reuters)

BRUSSELS (Reuters) – European Council President Herman Van Rompuy has called an emergency meeting of top officials dealing with the euro zone debt crisis for Monday morning, reflecting concern that the crisis could spread to Italy, the region's third largest economy.

European Central Bank President Jean-Claude Trichet will attend the meeting along with Jean-Claude Juncker, chairman of the region's finance ministers, European Commission President Jose Manuel Barroso and Olli Rehn, the economic and monetary affairs commissioner, three official sources told Reuters.

Van Rompuy's spokesman Dirk De Backer said: "It's a coordination, not a crisis meeting." He added that Italy would not be on the agenda and declined to say what would be discussed.

However, two official sources told Reuters that the situation in Italy would be discussed. The talks were organized after a sharp sell-off in Italian assets on Friday, which has increased fears that Italy, with the highest sovereign debt ratio relative to its economy in the euro zone after Greece, could be next to suffer in the crisis. A second international bailout of Greece will also be discussed, the sources said.

The spread of the Italian 10-year government bond yield over benchmark German Bunds hit euro lifetime highs around 2.45 percentage points on Friday, raising the Italian yield to 5.28 percent, close to the 5.5-5.7 percent area which some bankers think could start putting heavy pressure on Italy's finances.

Shares in Italy's biggest bank, Unicredit Spa, fell 7.9 percent on Friday, partly because of worries about the results of stress tests of the health of European banks that will be released on July 15. The leading Italian stock index sank 3.5 percent.

The market pressure is due partly to Italy's high sovereign debt and sluggish economy, but also to concern that Prime Minister Silvio Berlusconi may be trying to undermine and even push out Finance Minister Giulio Tremonti, who has promoted deep spending cuts to control the budget deficit.

"We can't go on for many more days like Friday," a senior ECB official said. "We're very worried about Italy."

Monday's emergency meeting will precede a previously scheduled gathering of the euro zone's 17 finance ministers to discuss how to secure a contribution of private sector investors to the second bailout of Greece, as well as the results of the stress tests of 91 European banks.

GREECE

Greece is already receiving 110 billion euros ($157 billion) of international loans under a rescue scheme launched in May last year but this has failed to change market expectations that it will eventually default on its debt.

Senior euro zone officials worry that progress toward a second Greek bailout, which would also total around 110 billion euros, is not being made quickly enough and that the delay is poisoning investors' confidence in weak economies around the region.

"We need to move on this in the next couple of weeks. It's not a case of waiting until late August or early September as Germany is saying. That's too late and markets will make us pay for it," a top euro zone official told Reuters on Saturday.

German officials insist they too want to put together the second Greek bailout as quickly as possible, but the private sector's contribution is proving to be a major sticking point.

Germany, the Netherlands, Austria and Finland are determined that banks, insurers and other private holders of Greek government bonds should bear some of the costs of helping Athens. But more than two weeks of negotiations with bankers represented by the Institute of International Finance (IIF), a lobby group, have made next to no progress on agreeing a formula acceptable to all sides.

Initially talks focused on a complex French plan for private creditors to roll over up to 30 billion euros of Greek debt, buying new bonds as their existing ones matured. Around half of proceeds from Greek bonds maturing before the end of 2014 would be rolled over into very long-term debt while 20 percent would be put into a "guarantee fund" of AAA-rated securities.

But as that plan has floundered, Berlin has revived a proposal to swap Greek bonds for longer-dated debt that would extend maturities by seven years. Proposals to buy back Greek bonds and retire them have also been floated.

In a buy-back, the euro zone's bailout fund, the European Financial Stability Facility, might buy Greek bonds from the market, or the EFSF might lend Greece money to buy bonds. However, these schemes would require further changes to the EFSF's rules and would therefore have to go through national parliaments, an official source said.

SQUARE ONE

A senior euro zone official told Reuters on Friday that rather than progress being made in the talks with the IIF, as IIF managing director Charles Dallara has said, all sides were close to being "back to square one."

Dallara will attend the meeting of euro zone finance ministers in Brussels on Monday.

Since the euro zone's debt crisis erupted last year, the region's rich governments have aimed to limit it to Greece, Ireland and Portugal, which have signed up to bailouts totaling 273 billion euros -- a sum that is small compared to the financial resources of the zone as a whole.

Spain, commonly seen as the next potential domino in the crisis, has managed to retain its access to market funding through fiscal reforms. But because of the large sizes of the Spain and Italy, pressure on the euro zone would increase dramatically if those countries eventually needed financial assistance.

(Additional reporting by Francesca Landini in Milan and Gernot Heller in Berlin; Editing by Andrew Torchia)

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