13 key stories to watch for in 2013




Among the few virtual certainties of 2013 is the ongoing anguish of Syria and the decline of its president, Bashar al-Assad.




STORY HIGHLIGHTS


  • Look for more unrest amid power transitions in the Middle East

  • Disputes and economic worries will keep China, Japan, North Korea in the news

  • Europe's economy will stay on a rough road, but the outlook for it is brighter

  • Events are likely to draw attention to cyber warfare and climate change




(CNN) -- Forecasting the major international stories for the year ahead is a time-honored pastime, but the world has a habit of springing surprises. In late 1988, no one was predicting Tiananmen Square or the fall of the Berlin Wall. On the eve of 2001, the 9/11 attacks and the subsequent invasion of Afghanistan were unimaginable. So with that substantial disclaimer, let's peer into the misty looking glass for 2013.


More turmoil for Syria and its neighbors


If anything can be guaranteed, it is that Syria's gradual and brutal disintegration will continue, sending aftershocks far beyond its borders. Most analysts do not believe that President Bashar al-Assad can hang on for another year. The more capable units of the Syrian armed forces are overstretched; large tracts of north and eastern Syria are beyond the regime's control; the economy is in dire straits; and the war is getting closer to the heart of the capital with every passing week. Russian support for al-Assad, once insistent, is now lukewarm.


Amid the battle, a refugee crisis of epic proportions threatens to become a catastrophe as winter sets in. The United Nations refugee agency says more than 4 million Syrians are in desperate need, most of them in squalid camps on Syria's borders, where tents are no match for the cold and torrential rain. Inside Syria, diseases like tuberculosis are spreading, according to aid agencies, and there is a danger that hunger will become malnutrition in places like Aleppo.


The question is whether the conflict will culminate Tripoli-style, with Damascus overrun by rebel units; or whether a political solution can be found that involves al-Assad's departure and a broadly based transitional government taking his place. U.N. envoy Lakhdar Brahimi has not been explicit about al-Assad's exit as part of the transition, but during his most recent visit to Damascus, he hinted that it has to be.









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"Syria and the Syrian people need, want and look forward to real change. And the meaning of this is clear to all," he said.


The international community still seems as far as ever from meaningful military intervention, even as limited as a no fly-zone. Nor is there any sign of concerted diplomacy to push all sides in Syria toward the sort of deal that ended the war in Bosnia. In those days, the United States and Russia were able to find common ground. In Syria, they have yet to do so, and regional actors such as Turkey, Qatar, Saudi Arabia and Iran also have irons in the fire.


Failing an unlikely breakthrough that would bring the regime and its opponents to a Syrian version of the Dayton Accords that ended the Bosnian war, the greatest risk is that a desperate regime may turn to its chemical weapons, troublesome friends (Hezbollah in Lebanon and the Kurdish PKK in Turkey) and seek to export unrest to Lebanon, Iraq and Jordan.


The Syrian regime has already hinted that it can retaliate against Turkey's support for the rebels -- not by lobbing Scud missiles into Turkey, but by playing the "Kurdish" card. That might involve direct support for the PKK or space for its Syrian ally, the Democratic Union Party. By some estimates, Syrians make up one-third of the PKK's fighting strength.


To the Turkish government, the idea that Syria's Kurds might carve out an autonomous zone and get cozy with Iraq's Kurds is a nightmare in the making. Nearly 800 people have been killed in Turkey since the PKK stepped up its attacks in mid-2011, but with three different sets of elections in Turkey in 2013, a historic bargain between Ankara and the Kurds that make up 18% of Turkey's population looks far from likely.


Many commentators expect Lebanon to become more volatile in 2013 because it duplicates so many of the dynamics at work in Syria. The assassination in October of Lebanese intelligence chief Brig. Gen. Wissam al-Hassan -- as he investigated a pro-Syrian politician accused of obtaining explosives from the Syrian regime -- was an ominous portent.


Victory for the overwhelmingly Sunni rebels in Syria would tilt the fragile sectarian balance next door, threatening confrontation between Lebanon's Sunnis and Hezbollah. The emergence of militant Salafist groups like al-Nusra in Syria is already playing into the hands of militants in Lebanon.


Iraq, too, is not immune from Syria's turmoil. Sunni tribes in Anbar and Ramadi provinces would be heartened should Assad be replaced by their brethren across the border. It would give them leverage in an ever more tense relationship with the Shia-dominated government in Baghdad. The poor health of one of the few conciliators in Iraqi politics, President Jalal Talabani, and renewed disputes between Iraq's Kurds and the government over boundaries in the oil-rich north, augur for a troublesome 2013 in Iraq.


More worries about Iran's nuclear program


Syria's predicament will probably feature throughout 2013, as will the behavior of its only friend in the region: Iran. Intelligence sources say Iran continues to supply the Assad regime with money, weapons and expertise; and military officers who defected from the Syrian army say Iranian technicians work in Syria's chemical weapons program. Al-Assad's continued viability is important for Iran, as his only Arab ally. They also share sponsorship of Hezbollah in Lebanon, which, with its vast supply of rockets and even some ballistic missiles, might be a valuable proxy in the event of an Israeli strike against Iran's nuclear program.


Speaking of which, there are likely to be several more episodes in the behind-closed-doors drama of negotiations on Iran's nuclear sites. Russia is trying to arrange the next round for January. But in public, at least, Iran maintains it has every right to continue enriching uranium for civilian purposes, such as helping in the treatment of more than 1 million Iranians with cancer.


Iran "will not suspend 20% uranium enrichment because of the demands of others," Fereydoun Abbasi-Davani, head of Iran's Atomic Energy Organization, said this month.


International experts say the amount of 20% enriched uranium (estimated by the International Atomic Energy Agency in November at 297 pounds) is more than needed for civilian purposes, and the installation of hundreds more centrifuges could cut the time needed to enrich uranium to weapons-grade. The question is whether Iran will agree to intrusive inspections that would reassure the international community -- and Israel specifically -- that it can't and won't develop a nuclear weapon.


This raises another question: Will it take bilateral U.S.-Iranian talks -- and the prospect of an end to the crippling sanctions regime -- to find a breakthrough? And will Iran's own presidential election in June change the equation?


For now, Israel appears to be prepared to give negotiation (and sanctions) time to bring Iran to the table. For now.


Egypt to deal with new power, economic troubles


Given the turmoil swirling through the Middle East, Israel could probably do without trying to bomb Iran's nuclear program into submission. Besides Syria and Lebanon, it is already grappling with a very different Egypt, where a once-jailed Islamist leader is now president and Salafist/jihadi groups, especially in undergoverned areas like Sinai, have a lease on life unimaginable in the Mubarak era.



The U.S. has an awkward relationship with President Mohamed Morsy, needing his help in mediating with Hamas in Gaza but concerned that his accumulation of power is fast weakening democracy and by his bouts of anti-Western rhetoric. (He has demanded the release from a U.S. jail of Sheikh Omar Abdel Rahman, convicted of involvement in the first bombing of the World Trade Center in 1993.)


The approval of the constitution removes one uncertainty, even if the opposition National Salvation Front says it cements Islamist power. But as much as the result, the turnout -- about one-third of eligible voters -- indicates that Egyptians are tired of turmoil, and more concerned about a deepening economic crisis.


Morsy imposed and then scrapped new taxes, and the long-expected $4.8 billion loan from the International Monetary Fund is still not agreed on. Egypt's foreign reserves were down to $15 billion by the end of the year, enough to cover less than three months of imports. Tourism revenues are one-third of what they were before street protests erupted early in 2011. Egypt's crisis in 2013 may be more about its economy than its politics.


Libya threatens to spawn more unrest in North Africa


Libya's revolution, if not as seismic as anything Syria may produce, is still reverberating far and wide. As Moammar Gadhafi's rule crumbled, his regime's weapons found their way into an arms bazaar, turning up in Mali and Sinai, even being intercepted off the Lebanese coast.


The Libyan government, such as it is, seems no closer to stamping its authority on the country, with Islamist brigades holding sway in the east, tribal unrest in the Sahara and militias engaged in turf wars. The danger is that Libya, a vast country where civic institutions were stifled for four decades, will become the incubator for a new generation of jihadists, able to spread their influence throughout the Sahel. They will have plenty of room and very little in the way of opposition from security forces.


The emergence of the Islamist group Ansar Dine in Mali is just one example. In this traditionally moderate Muslim country, Ansar's fighters and Tuareg rebels have ejected government forces from an area of northern Mali the size of Spain and begun implementing Sharia law, amputations and floggings included. Foreign fighters have begun arriving to join the latest front in global jihad; and terrorism analysts are seeing signs that al Qaeda in the Islamic Maghreb (AQIM) and groups like Boko Haram in Nigeria are beginning to work together.


There are plans for an international force to help Mali's depleted military take back the north, but one European envoy said it was unlikely to materialize before (wait for it) ... September 2013. Some terrorism analysts see North Africa as becoming the next destination of choice for international jihad, as brigades and camps sprout across a vast area of desert.


A bumpy troop transition for Afghanistan


The U.S. and its allies want to prevent Afghanistan from becoming another haven for terror groups. As the troop drawdown gathers pace, 2013 will be a critical year in standing up Afghan security forces (the numbers are there, their competence unproven), improving civil institutions and working toward a post-Karzai succession.



In November, the International Crisis Group said the outlook was far from assuring.


"Demonstrating at least will to ensure clean elections (in Afghanistan in 2014) could forge a degree of national consensus and boost popular confidence, but steps toward a stable transition must begin now to prevent a precipitous slide toward state collapse. Time is running out," the group said.


Critics have also voiced concerns that the publicly announced date of 2014 for withdrawing combat forces only lets the Taliban know how long they must hold out before taking on the Kabul government.


U.S. officials insist the word is "transitioning" rather than "withdrawal," but the shape and role of any military presence in 2014 and beyond are yet to be settled. Let's just say the United States continues to build up and integrate its special operations forces.


The other part of the puzzle is whether the 'good' Taliban can be coaxed into negotiations, and whether Pakistan, which has considerable influence over the Taliban leadership, will play honest broker.


Private meetings in Paris before Christmas that involved Taliban envoys and Afghan officials ended with positive vibes, with the Taliban suggesting they were open to working with other political groups and would not resist girls' education. There was also renewed discussion about opening a Taliban office in Qatar, but we've been here before. The Taliban are riven by internal dissent and may be talking the talk while allowing facts on the ground to work to their advantage.


Where will North Korea turn its focus?


On the subject of nuclear states that the U.S.-wishes-were-not, the succession in North Korea has provided no sign that the regime is ready to restrain its ambitious program to test nuclear devices and the means to deliver them.



Back in May 2012, Peter Brookes of the American Foreign Policy Council said that "North Korea is a wild card -- and a dangerous one at that." He predicted that the inexperienced Kim Jong Un would want to appear "large and in charge," for internal and external consumption. In December, Pyongyang launched a long-range ballistic missile -- one that South Korean scientists later said had the range to reach the U.S. West Coast. Unlike the failure of the previous missile launch in 2009, it managed to put a satellite into orbit.


The last two such launches have been followed by nuclear weapons tests -- in 2006 and 2009. Recent satellite images of the weapons test site analyzed by the group 38 North show continued activity there.


So the decision becomes a political one. Does Kim continue to appear "large and in charge" by ordering another test? Or have the extensive reshuffles and demotions of the past year already consolidated his position, allowing him to focus on the country's dire economic situation?


China-Japan island dispute to simmer


It's been a while since East Asia has thrown up multiple security challenges, but suddenly North Korea's missile and nuclear programs are not the only concern in the region. There's growing rancor between China and Japan over disputed islands in the East China Sea, which may be aggravated by the return to power in Japan of Shinzo Abe as prime minister.


Abe has long been concerned that Japan is vulnerable to China's growing power and its willingness to project that power. Throughout 2012, Japan and China were locked in a war of words over the Senkaku or Diaoyu islands, with fishing and Coast Guard boats deployed to support claims of sovereignty.


In the days before Japanese went to the polls, Beijing also sent a surveillance plane over the area, marking the first time since 1958, according to Japanese officials, that Bejing had intruded into "Japanese airspace." Japan scrambled F-15 jets in response.


The islands are uninhabited, but the seas around them may be rich in oil and gas. There is also a Falklands factor at play here. Not giving in to the other side is a matter of national pride. There's plenty of history between China and Japan -- not much of it good.


As China has built up its ability to project military power, Japan's navy has also expanded. Even a low-level incident could lead to an escalation. And as the islands are currently administered by Japan, the U.S. would have an obligation to help the Japanese defend them.


Few analysts expect conflict to erupt, and both sides have plenty to lose. For Japan, China is a critical market, but Japanese investment there has fallen sharply in the past year. Just one in a raft of problems for Abe. His prescription for dragging Japan out of its fourth recession since 2000 is a vast stimulus program to fund construction and other public works and a looser monetary policy.


The trouble is that Japan's debt is already about 240% of its GDP, a much higher ratio than even Greece. And Japan's banks hold a huge amount of that debt. Add a shrinking and aging population, and at some point the markets might decide that the yield on Japan's 10-year sovereign bond ought to be higher than the current 0.77%.


Economic uncertainty in U.S., growth in China


So the world's third-largest economy may not help much in reviving global growth, which in 2012 was an anemic 2.2%, according to United Nations data. The parts of Europe not mired in recession hover close to it, and growth in India and Brazil has weakened. Which leaves the U.S. and China.


At the time of writing, the White House and congressional leadership are still peering over the fiscal cliff. Should they lose their footing, the Congressional Budget Office expects the arbitrary spending cuts and tax increases to be triggered will push the economy into recession and send unemployment above 9%.



A stopgap measure, rather than a long-term foundation for reducing the federal deficit, looks politically more likely. But to companies looking for predictable economic policy, it may not be enough to unlock billions in investment. Why spend heavily if there's a recession around the corner, or if another fight looms over raising the federal debt ceiling?


In September, Moody's said it would downgrade the U.S. sovereign rating from its "AAA" rating without "specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium term." In other words, it wants action beyond kicking the proverbial can.


Should the cliff be dodged, most forecasts see the U.S. economy expanding by about 2% in 2013. That's not enough to make up for stagnation elsewhere, so a great deal depends on China avoiding the proverbial hard landing.


Until now, Chinese growth has been powered by exports and infrastructure spending, but there are signs that China's maturing middle class is also becoming an economic force to be reckoned with. Consultants PwC expect retail sales in China to increase by 10.5% next year -- with China overtaking the U.S. as the world's largest retail market by 2016.


Europe's economic outlook a little better


No one expects Europe to become an economic powerhouse in 2013, but at least the horizon looks a little less dark than it did a year ago. The "PIGS' " (Portugal, Ireland/Italy, Greece, Spain) borrowing costs have eased; there is at least rhetorical progress toward a new economic and fiscal union; and the European Central Bank has talked tough on defending the Eurozone.


Mario Draghi, president of the European Central Bank, fended off the dragons with the declaration in July that "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough."



Draghi has promised the bank has unlimited liquidity to buy sovereign debt, as long as governments (most likely Spain) submit to reforms designed to balance their budgets. But in 2013, the markets will want more than brave talk, including real progress toward banking and fiscal union that will leave behind what Draghi likes to call Europe's "fairy world" of unsustainable debt and collapsing banks. Nothing can be done without the say-so of German Chancellor Angela Merkel, renowned for a step-by-step approach that's likely to be even more cautious in a year when she faces re-election.


Elections in Italy in February may be more important -- pitching technocrat Prime Minister Mario Monti against the maverick he replaced, 76-year old Silvio Berlusconi. After the collapse of Berlusconi's coalition 13 months ago, Monti reined in spending, raised the retirement age and raised taxes to bring Italy back from the brink of insolvency. Now he will lead a coalition of centrist parties into the election. But polls suggest that Italians are tired of Monti's austerity program, and Berlusconi plans a populist campaign against the man he calls "Germano-centric."


The other tripwire in Europe may be Greece. More cuts in spending -- required to qualify for an EU/IMF bailout -- are likely to deepen an already savage recession, threatening more social unrest and the future of a fragile coalition. A 'Grexit' from the eurozone is still possible, and that's according to the Greek finance minister, Yannis Stournaras.


Expect to see more evidence of climate change


Hurricane Sandy, which struck the U.S. East Coast in November, was the latest indicator of changing and more severe weather patterns. Even if not repeated in 2013, extreme weather is beginning to have an effect -- on where people live, on politicians and on the insurance industry.


After Sandy, New York Gov. Andrew Cuomo said that after "the last few years, I don't think anyone can sit back anymore and say, 'Well, I'm shocked at that weather pattern.' " The storm of the century has become the storm of every decade or so, said Michael Oppenheimer, professor of geosciences at Princeton.


"Climate change will probably increase storm intensity and size simultaneously, resulting in a significant intensification of storm surges," he and colleagues wrote in Nature.


In the U.S., government exposure to storm-related losses in coastal states has risen more than 15-fold since 1990, to $885 billion in 2011, according to the Insurance Information Institute. The Munich RE insurance group says North America has seen higher losses from extreme weather than any other part of the world in recent decades.


"A main loss driver is the concentration of people and assets on the coast combined with high and possibly growing vulnerabilities," it says.


Risk Management Solutions, which models catastrophic risks, recently updated its scenarios, anticipating an increase of 40% in insurance losses on the Gulf Coast, Florida and the Southeast over the next five years, and 25% to 30% for the mid-Atlantic and Northeastern states. Those calculations were done before Sandy.



Inland, eyes will be trained on the heavens for signs of rain -- after the worst drought in 50 years across the Midwest. Climatologists say that extended periods of drought -- from the U.S. Midwest to Ukraine -- may be "the new normal." Jennifer Francis at the Institute of Marine and Coastal Sciences at Rutgers University has shown that a warmer Arctic tends to slow the jet stream, causing it to meander and, in turn, prolong weather patterns. It's called Arctic amplification, and it is probably aggravating drought in the Northwest United States and leading to warmer summers in the Northern Hemisphere, where 2012 was the hottest year on record.


It is a double-edged sword: Warmer temperatures may make it possible to begin cultivating in places like Siberia, but drier weather in traditional breadbaskets would be very disruptive. The U.N. Food and Agriculture Organization reports that stocks of key cereals have tightened, contributing to volatile world markets. Poor weather in Argentina, the world's second-largest exporter of corn, may compound the problem.


More cyber warfare


What will be the 2013 equivalents of Flame, Gauss and Shamoon? They were some of the most damaging computer viruses of 2012. The size and versatility of Flame was unlike nothing seen before, according to anti-virus firm Kaspersky Lab.



Gauss stole online banking information in the Middle East. Then came Shamoon, a virus that wiped the hard drives of about 30,000 computers at the Saudi oil company Aramco, making them useless. The Saudi government declared it an attack on the country's economy; debate continues on whether it was state-sponsored.


Kaspersky predicts that in 2013, we will see "new examples of cyber-warfare operations, increasing targeted attacks on businesses and new, sophisticated mobile threats."


Computer security firm McAfee also expects more malware to be developed to attack mobile devices and apps in 2013.


U.S. Defense Secretary Leon Panetta is more concerned about highly sophisticated attacks on infrastructure that "could be as destructive as the terrorist attack on 9/11."


"We know that foreign cyber actors are probing America's critical infrastructure networks. They are targeting the computer control systems that operate chemical, electricity and water plants and those that guide transportation throughout this country," he said in October.


Intellectual property can be stolen, bought or demanded as a quid pro quo for market access. The U.S. intelligence community believes China or Chinese interests are employing all three methods in an effort to close the technology gap.


In the waning days of 2012, the interagency Committee on Foreign Investment in the United States said "there is likely a coordinated strategy among one or more foreign governments or companies to acquire U.S. companies involved in research, development, or production of critical technologies."


It did not name the country in its unclassified report but separately noted a growing number of attempts by Chinese entities to buy U.S. companies.


Who will be soccer's next 'perfect machine'?



There's room for two less serious challenges in 2013. One is whether any football team, in Spain or beyond, can beat Barcelona and its inspirational goal machine Lionel Messi, who demolished a record that had stood since 1972 for the number of goals scored in a calendar year. (Before Glasgow Celtic fans start complaining, let's acknowledge their famous win against the Spanish champions in November.)


Despite the ill health of club coach Tito Vilanova, "Barca" sits imperiously at the top of La Liga in Spain and is the favorite to win the world's most prestigious club trophy, the European Champions League, in 2013. AC Milan is its next opponent in a match-up that pits two of Europe's most storied clubs against each other. But as Milan sporting director Umberto Gandini acknowledges, "We face a perfect machine."


Will Gangnam give it up to something sillier?



Finally, can something -- anything -- displace Gangnam Style as the most watched video in YouTube's short history? As of 2:16 p.m. ET on December 26, it had garnered 1,054,969,395 views and an even more alarming 6,351,871 "likes."


Perhaps in 2013 the YouTube audience will be entranced by squirrels playing table tennis, an octopus that spins plates or Cistercian nuns dancing the Macarena. Or maybe Gangnam will get to 2 billion with a duet with Justin Bieber.







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Kanye West, Kim Kardashian expecting baby: reports






(Reuters) – Rapper Kanye West and reality TV star Kim Kardashian are expecting their first child, celebrity media outlets reported on Monday.


Fans and family took to Twitter to congratulate the celebrity power couple.






“Been wanting to shout from the rooftops with joy and now I can!” wrote Kardashian’s sister Kourtney. “Another angel to welcome to our family. Overwhelmed with excitement!”


According to E! News, West, 35, announced the news from the stage at a concert in Atlantic City on Sunday.


Kardashian, 32, who rose to fame five years ago for her appearances in reality TV show “Keeping Up with the Kardashians”, was the most-searched person on the Yahoo! website in 2012.


She married basketball player Kris Humphries in August, 2011, in a lavish, made-for-TV wedding, but the couple divorced just 72 days later.


(Editing by Paul Casciato)


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China to keep prudent monetary policy in 2013: central bank






BEIJING (Reuters) – China will stick to a prudent monetary policy next year and keep consumer prices stable, its outgoing central bank governor, Zhou Xiaochuan, said on Monday, in fresh sign that Beijing won’t be changing direction when the new government takes over in 2013.


Reiterating China’s long-stated vow to reduce the level of central planning in its economy and make room for more market forces, Zhou also said China will deepen reforms in its financial sector in 2013.






“In 2013, we will continue to implement prudent monetary policy and make policies more pre-emptive, targeted and flexible,” Zhou said in a brief new year address.


“We will keep overall price levels basically stable and promote healthy and sustainable growth of the economy,” he said. “We will also further deepen financial reforms and the opening up of financial markets.”


Zhou’s remarks follows similar comments from China’s soon-to-be-retired president, Hu Jintao, who promised that reform of China’s economic growth model would be a crucial theme next year.


Hu said in a separate new year address broadcast nationally that China’s economy will grow at a balanced and sustainable pace in 2013, whilst noting the challenge from sluggish growth for the world economy.


“Transforming the economic growth model will be a main theme,” Hu said, without giving further details. “The trend of weak global economic growth will continue.”


China’s leaders have repeatedly promised to encourage domestic consumption and reduce the nation’s heavy reliance on exports for growth, a task that has become more pressing due to expectations of prolonged weak demand in developed nations.


Most analysts and academics agree China needs to transform its growth model to allow consumption, not exports and investment, to drive activity.


But there is no clear agreement on how or when China can pursue such changes.


Zhou, who has been head of the central bank since 2003, is set to retire in coming months.


Hu will relinquish office March 5 when China starts its annual parliament meeting, to make room for his successor Xi Jinping.


(Reporting by Aileen Wang and Koh Gui Qing; editing by Jonathan Standing)


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Experts Forecast the Cost of Failure to Compromise






Even if President Obama and Republicans in Congress can reach a last-minute compromise that averts some tax increases before Monday’s midnight deadline, experts still foresee a significant drag on the economy in the first half of 2013 from the fiscal impasse in Washington.


While negotiators in the capital focus on keeping Bush-era tax rates in place for all but the wealthiest Americans, other tax increases are expected to go into effect regardless of what happens in the coming days. For example, a two percentage point jump in payroll taxes for Social Security is all but certain after Jan. 1, a change that will equal an additional $ 2,000 from the paycheck of a worker earning $ 100,000 a year.






Many observers initially expected the lower payroll-tax deduction rate of 4.2 percent to be preserved. But in recent weeks, as it became clear that political leaders were prepared to let that rate rise to 6.2 percent, economists reduced their predictions for growth in the first quarter accordingly.


Largely because of this jump in payroll taxes, Nigel Gault, chief United States economist at IHS Global Insight, is halving his prediction for economic growth in the first quarter to 1 percent from an earlier estimate of just over 2 percent. That represents a significant slowdown in economic growth from the third quarter of 2012, when the economy expanded at an annual rate of 3.1 percent.


Mr. Obama has pushed to preserve Bush-era tax rates on income below $ 250,000 a year but Republicans have held out for a higher threshold, perhaps in the neighborhood of $ 400,000 a year. Republicans also favor deeper spending cuts to curb long-term budget deficits — a move many Democrats oppose.


While hopes dimmed Sunday afternoon that a deal could be reached before Jan. 1, most observers said they did not expect the full impact from more than $ 600 billion in potential tax increases and spending cuts to swamp the economy right away. Indeed, a compromise could be struck in the coming weeks that heads off the worst of the fallout.


In the event no compromise is found, however, the Congressional Budget Office and many private economists warn that the sudden pullback in spending and the rise in taxes would push the economy into recession in the first half of the year. Under this outcome, Mr. Gault said, the economy could shrink by 0.5 percent over all of 2013.


With the clock ticking, some observers bolstered their criticism of Washington. “If we have a recession, it’s unforgivable,” said Bernard Baumohl, chief global economist at the Economic Outlook Group. “For the first time in modern history, we will have a self-inflicted recession in the U.S.”


Despite Washington’s history of delaying fiscal compromises to the last possible minute — as in the fight over raising the debt ceiling in the summer of 2011 — investors had assumed until very recently that a deal would be completed before year-end.


But last week, stocks sold off as hopes for a quick compromise faded. More pressure on shares is expected beginning on Monday, especially if the fight does indeed slip into 2013. If anything forces politicians to act, Mr. Baumohl said, it could be a sell-off on Wall Street. “The politicians need to be pressed by markets to be forced to the table,” he said.


Payroll managers at many companies are also watching the negotiations closely but have already prepared systems for the two percentage point change in payroll taxes, said Scott A. Schapiro, a principal at KPMG.


“We’re primarily closed down from Christmas to New Year’s,” he said, “but our payroll folks are working. Payroll has to be around.”


“This is one of the most obvious effects of the fiscal cliff,” Mr. Schapiro added, “because it will affect all taxpayers.” The Social Security payroll tax applies to the first $ 113,700 of annual income, he said. It was first cut by Congress in late 2010 to help give the economy a jolt, and was extended again last year to cover 2012.


Another big question mark is whether unemployment benefits for more than two million jobless Americans will be extended beyond Jan. 1. While there is still the possibility these payouts for the long-term unemployed will be preserved as the negotiations go down to the wire, failure to extend them would deliver another sizable blow to a still-fragile economy, experts said.


“This is not just an inside-the-Beltway-game,” said Vincent Reinhart, chief United States economist at Morgan Stanley. “Both the payroll tax increase and the change in unemployment benefits would hit hand-to-mouth consumers hard. This has consequences for the whole economy.”


Consumer spending is especially critical right now, because many businesses have pulled back already, citing the fiscal impasse in Washington as a prime concern. Until recently, consumers have been more optimistic about the economy, although sentiment has eroded in recent weeks as anxiety increased about just what policy makers would do in terms of taxes and spending.


If it were not for the uncertainty in Washington and the fallout from the fiscal impasse, Mr. Reinhart said, the economy would be growing at an annual rate of 2 percent to 2.5 percent. Instead, he estimated growth in the fourth quarter of 2012 at just under 1 percent, and said he expected it to edge up only slightly to around 1 percent in the first half of 2013. Unemployment, now at 7.7 percent, is about 0.3 percentage point higher than it otherwise would be, he added.


To be sure, the impact from some other scheduled changes will not be felt right away — and could still be reversed if a deal is completed in the coming weeks. For example, automatic spending cuts set to hit the Pentagon budget as well as nonmilitary programs are spread out between now and the end of the 2013 fiscal year in September, giving legislators time to change course and head off any major impact.


But the longer the standoff continues, the deeper the economic damage, experts said. “Because the politicians couldn’t get out of the way,” Mr. Reinhart said, “growth in the last quarter of 2012 and the first two quarters of 2013 will be below trend. There is a real cost of not coming to the table.”


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Wall Street opens lower without "cliff" solution


NEW YORK (Reuters) - Stocks opened lower on Monday, the last trading day of the year, as political leaders in Washington worked to find agreement that would keep the United States from falling off the "fiscal cliff."


The Dow Jones industrial average <.dji> was down 51.99 points, or 0.40 percent, at 12,886.12. The Standard & Poor's 500 Index <.spx> was down 4.09 points, or 0.29 percent, at 1,398.34. The Nasdaq Composite Index <.ixic> was down 5.20 points, or 0.18 percent, at 2,955.11.


Major indexes are on track for their sixth straight day of losses, though the S&P 500 remains up more than 11 percent for the year.


(Reporting by Ryan Vlastelica; Editing by Kenneth Barry)



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AP Source: Browns fire coach, GM


BEREA, Ohio (AP) — The Browns are changing again.


A person familiar with the decision says the Cleveland Browns have fired coach Pat Shurmur and general manager Tom Heckert.


Shurmur and Heckert were informed Monday at the team's facility, said the person who spoke on condition of anonymity because the team has not yet announced the moves. The expected dismissals come one day after the Browns lost their finale 24-10 in Pittsburgh, completing a 5-11 season.


Shurmur went 9-23 in his two seasons with the Browns, who will embark on yet another offseason of change — the only constant in more than a decade of futility. Cleveland has lost at least 11 games in each of the past five seasons and made the playoffs just once since returning to the NFL as an expansion team in 1999.


The Browns just can't seem to get it right.


The firings of Shurmur and Heckert signal the start of an expected overhaul by new owner Jimmy Haslam and CEO Joe Banner, who have spent the past two months identifying possible replacements for their top two football positions.


Already, the list of possible coaches to take over for Shurmur includes some of college football's top names. Haslam may want to make a big splash and land either Alabama's Nick Saban or Oregon's Chip Kelly, who both still have bowl games ahead. Penn State's Bill O'Brien is also believed to be on the Browns' short list.


There is also reported interest in several NFL assistants including Indianapolis' Bruce Arians, New England's Josh McDaniels, Denver's Mike McCoy, Washington's Kyle Shanahan and Cincinnati's Jay Gruden.


Among the general manager candidates are: Atlanta player personnel director David Caldwell, San Francisco director of player personnel Tom Gamble, Baltimore assistant GM Eric DeCosta and NFL Network analyst and Mike Lombardi, who worked with Banner in Philadelphia and for the Browns when Bill Belichick was Cleveland's coach.


Banner promised in a recent interview with The Associated Press not to put any limits on his search for a new coach.


"It doesn't have to be a college coach," said Banner, who hired Andy Reid during his 19 seasons with the Eagles. "It doesn't have to be a pro coach. It doesn't have to be an offensive guy. It doesn't have to be a defensive guy. I'm more looking for qualities of a person consistent with the most successful coaches."


Shurmur's replacement will be the Browns' sixth coach since 1999.


The Browns were competitive this season under Shurmur. They just didn't win enough.


Cleveland was still in the playoff mix earlier this month, but a three-game losing streak to close the season — they were blown out by Washington and Denver in consecutive weeks — ended any chance of Shurmur saving his job.


Shurmur was emotional when he addressed the Browns following Sunday's loss.


"He was trying to hold back the tears," said linebacker D'Qwell Jackson. "He put everything into it. He was just emotional about it. He was passionate about it. The players, we appreciate him, we'd run through a brick wall for him."


Shurmur's fate may have been sealed on the first day of training camp in July when Haslam's intent to buy the Browns from Randy Lerner for $1 billion was announced. It may not have mattered how Shurmur did this season because Haslam, a former minority owner with the Pittsburgh Steelers who built his fortune with Flying Pilot J travel centers, was intent on bringing in his own people.


Banner's arrival forced out president Mike Holmgren, who hired both Shurmur and Heckert but left before the end of his third year with Cleveland.


Shumrur, who has two years remaining on his contract, was dealt a difficult hand from the start.


His first season with the Browns was complicated by the labor lockout, depriving him a chance to work with his players in the offseason or installing his offensive and defensive systems. He chose not to hire an offensive coordinator, holding down both positions in his first year, a decision he later said was a mistake.


Shurmur made his share of mistakes. He had some game-management issues and his play calling was often questioned. However, the 47-year-old seemed to be getting better in his second season, and he deserves credit for developing one of the league's youngest teams. The Browns had 17 rookies and 26 players with two years or less of experience on their roster.


Heckert, who came to Cleveland from Philadelphia, succeeded in upgrading the Browns' talent. He overhauled an aging team, infusing the Browns with solid young players through the draft. In April, he selected running back Trent Richardson, quarterback Brandon Weeden and offensive tackle Mitchell Schwartz, all of whom had solid first pro seasons.


Heckert also gambled and nabbed wide receiver Josh Gordon in the supplemental draft, a choice that seemed risky but paid off as the 21-year-old blossomed.


But it may have been a move Heckert couldn't pull off that doomed him.


The Browns were beaten out by Washington in the sweepstakes to get prized rookie quarterback Robert Griffin III. Cleveland tried to package picks to swap with the Rams, who eventually made a blockbuster deal with the Redskins who then drafted RGIII with the second overall choice.


Heckert, who was Holmgren's first hire with Cleveland, thought he would have five years to build the Browns but wound up getting just three. It's expected Heckert will quickly be scooped up as more than one dozen teams are expected to have front-office openings.


___


Online: http://pro32.ap.org/poll and http://twitter.com/AP_NFL


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Stories for 2013: Syria to 'post-Gangnam'




Among the few virtual certainties of 2013 is the ongoing anguish of Syria and the decline of its president, Bashar al-Assad.




STORY HIGHLIGHTS


  • Look for more unrest amid power transitions in the Middle East

  • Disputes and economic worries will keep China, Japan, North Korea in the news

  • Europe's economy will stay on a rough road, but the outlook for it is brighter

  • Events are likely to draw attention to cyber warfare and climate change




(CNN) -- Forecasting the major international stories for the year ahead is a time-honored pastime, but the world has a habit of springing surprises. In late 1988, no one was predicting Tiananmen Square or the fall of the Berlin Wall. On the eve of 2001, the 9/11 attacks and the subsequent invasion of Afghanistan were unimaginable. So with that substantial disclaimer, let's peer into the misty looking glass for 2013.


More turmoil for Syria and its neighbors


If anything can be guaranteed, it is that Syria's gradual and brutal disintegration will continue, sending aftershocks far beyond its borders. Most analysts do not believe that President Bashar al-Assad can hang on for another year. The more capable units of the Syrian armed forces are overstretched; large tracts of north and eastern Syria are beyond the regime's control; the economy is in dire straits; and the war is getting closer to the heart of the capital with every passing week. Russian support for al-Assad, once insistent, is now lukewarm.


Amid the battle, a refugee crisis of epic proportions threatens to become a catastrophe as winter sets in. The United Nations refugee agency says more than 4 million Syrians are in desperate need, most of them in squalid camps on Syria's borders, where tents are no match for the cold and torrential rain. Inside Syria, diseases like tuberculosis are spreading, according to aid agencies, and there is a danger that hunger will become malnutrition in places like Aleppo.


The question is whether the conflict will culminate Tripoli-style, with Damascus overrun by rebel units; or whether a political solution can be found that involves al-Assad's departure and a broadly based transitional government taking his place. U.N. envoy Lakhdar Brahimi has not been explicit about al-Assad's exit as part of the transition, but during his most recent visit to Damascus, he hinted that it has to be.









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"Syria and the Syrian people need, want and look forward to real change. And the meaning of this is clear to all," he said.


The international community still seems as far as ever from meaningful military intervention, even as limited as a no fly-zone. Nor is there any sign of concerted diplomacy to push all sides in Syria toward the sort of deal that ended the war in Bosnia. In those days, the United States and Russia were able to find common ground. In Syria, they have yet to do so, and regional actors such as Turkey, Qatar, Saudi Arabia and Iran also have irons in the fire.


Failing an unlikely breakthrough that would bring the regime and its opponents to a Syrian version of the Dayton Accords that ended the Bosnian war, the greatest risk is that a desperate regime may turn to its chemical weapons, troublesome friends (Hezbollah in Lebanon and the Kurdish PKK in Turkey) and seek to export unrest to Lebanon, Iraq and Jordan.


The Syrian regime has already hinted that it can retaliate against Turkey's support for the rebels -- not by lobbing Scud missiles into Turkey, but by playing the "Kurdish" card. That might involve direct support for the PKK or space for its Syrian ally, the Democratic Union Party. By some estimates, Syrians make up one-third of the PKK's fighting strength.


To the Turkish government, the idea that Syria's Kurds might carve out an autonomous zone and get cozy with Iraq's Kurds is a nightmare in the making. Nearly 800 people have been killed in Turkey since the PKK stepped up its attacks in mid-2011, but with three different sets of elections in Turkey in 2013, a historic bargain between Ankara and the Kurds that make up 18% of Turkey's population looks far from likely.


Many commentators expect Lebanon to become more volatile in 2013 because it duplicates so many of the dynamics at work in Syria. The assassination in October of Lebanese intelligence chief Brig. Gen. Wissam al-Hassan -- as he investigated a pro-Syrian politician accused of obtaining explosives from the Syrian regime -- was an ominous portent.


Victory for the overwhelmingly Sunni rebels in Syria would tilt the fragile sectarian balance next door, threatening confrontation between Lebanon's Sunnis and Hezbollah. The emergence of militant Salafist groups like al-Nusra in Syria is already playing into the hands of militants in Lebanon.


Iraq, too, is not immune from Syria's turmoil. Sunni tribes in Anbar and Ramadi provinces would be heartened should Assad be replaced by their brethren across the border. It would give them leverage in an ever more tense relationship with the Shia-dominated government in Baghdad. The poor health of one of the few conciliators in Iraqi politics, President Jalal Talabani, and renewed disputes between Iraq's Kurds and the government over boundaries in the oil-rich north, augur for a troublesome 2013 in Iraq.


More worries about Iran's nuclear program


Syria's predicament will probably feature throughout 2013, as will the behavior of its only friend in the region: Iran. Intelligence sources say Iran continues to supply the Assad regime with money, weapons and expertise; and military officers who defected from the Syrian army say Iranian technicians work in Syria's chemical weapons program. Al-Assad's continued viability is important for Iran, as his only Arab ally. They also share sponsorship of Hezbollah in Lebanon, which, with its vast supply of rockets and even some ballistic missiles, might be a valuable proxy in the event of an Israeli strike against Iran's nuclear program.


Speaking of which, there are likely to be several more episodes in the behind-closed-doors drama of negotiations on Iran's nuclear sites. Russia is trying to arrange the next round for January. But in public, at least, Iran maintains it has every right to continue enriching uranium for civilian purposes, such as helping in the treatment of more than 1 million Iranians with cancer.


Iran "will not suspend 20% uranium enrichment because of the demands of others," Fereydoun Abbasi-Davani, head of Iran's Atomic Energy Organization, said this month.


International experts say the amount of 20% enriched uranium (estimated by the International Atomic Energy Agency in November at 297 pounds) is more than needed for civilian purposes, and the installation of hundreds more centrifuges could cut the time needed to enrich uranium to weapons-grade. The question is whether Iran will agree to intrusive inspections that would reassure the international community -- and Israel specifically -- that it can't and won't develop a nuclear weapon.


This raises another question: Will it take bilateral U.S.-Iranian talks -- and the prospect of an end to the crippling sanctions regime -- to find a breakthrough? And will Iran's own presidential election in June change the equation?


For now, Israel appears to be prepared to give negotiation (and sanctions) time to bring Iran to the table. For now.


Egypt to deal with new power, economic troubles


Given the turmoil swirling through the Middle East, Israel could probably do without trying to bomb Iran's nuclear program into submission. Besides Syria and Lebanon, it is already grappling with a very different Egypt, where a once-jailed Islamist leader is now president and Salafist/jihadi groups, especially in undergoverned areas like Sinai, have a lease on life unimaginable in the Mubarak era.



The U.S. has an awkward relationship with President Mohamed Morsy, needing his help in mediating with Hamas in Gaza but concerned that his accumulation of power is fast weakening democracy and by his bouts of anti-Western rhetoric. (He has demanded the release from a U.S. jail of Sheikh Omar Abdel Rahman, convicted of involvement in the first bombing of the World Trade Center in 1993.)


The approval of the constitution removes one uncertainty, even if the opposition National Salvation Front says it cements Islamist power. But as much as the result, the turnout -- about one-third of eligible voters -- indicates that Egyptians are tired of turmoil, and more concerned about a deepening economic crisis.


Morsy imposed and then scrapped new taxes, and the long-expected $4.8 billion loan from the International Monetary Fund is still not agreed on. Egypt's foreign reserves were down to $15 billion by the end of the year, enough to cover less than three months of imports. Tourism revenues are one-third of what they were before street protests erupted early in 2011. Egypt's crisis in 2013 may be more about its economy than its politics.


Libya threatens to spawn more unrest in North Africa


Libya's revolution, if not as seismic as anything Syria may produce, is still reverberating far and wide. As Moammar Gadhafi's rule crumbled, his regime's weapons found their way into an arms bazaar, turning up in Mali and Sinai, even being intercepted off the Lebanese coast.


The Libyan government, such as it is, seems no closer to stamping its authority on the country, with Islamist brigades holding sway in the east, tribal unrest in the Sahara and militias engaged in turf wars. The danger is that Libya, a vast country where civic institutions were stifled for four decades, will become the incubator for a new generation of jihadists, able to spread their influence throughout the Sahel. They will have plenty of room and very little in the way of opposition from security forces.


The emergence of the Islamist group Ansar Dine in Mali is just one example. In this traditionally moderate Muslim country, Ansar's fighters and Tuareg rebels have ejected government forces from an area of northern Mali the size of Spain and begun implementing Sharia law, amputations and floggings included. Foreign fighters have begun arriving to join the latest front in global jihad; and terrorism analysts are seeing signs that al Qaeda in the Islamic Maghreb (AQIM) and groups like Boko Haram in Nigeria are beginning to work together.


There are plans for an international force to help Mali's depleted military take back the north, but one European envoy said it was unlikely to materialize before (wait for it) ... September 2013. Some terrorism analysts see North Africa as becoming the next destination of choice for international jihad, as brigades and camps sprout across a vast area of desert.


A bumpy troop transition for Afghanistan


The U.S. and its allies want to prevent Afghanistan from becoming another haven for terror groups. As the troop drawdown gathers pace, 2013 will be a critical year in standing up Afghan security forces (the numbers are there, their competence unproven), improving civil institutions and working toward a post-Karzai succession.



In November, the International Crisis Group said the outlook was far from assuring.


"Demonstrating at least will to ensure clean elections (in Afghanistan in 2014) could forge a degree of national consensus and boost popular confidence, but steps toward a stable transition must begin now to prevent a precipitous slide toward state collapse. Time is running out," the group said.


Critics have also voiced concerns that the publicly announced date of 2014 for withdrawing combat forces only lets the Taliban know how long they must hold out before taking on the Kabul government.


U.S. officials insist the word is "transitioning" rather than "withdrawal," but the shape and role of any military presence in 2014 and beyond are yet to be settled. Let's just say the United States continues to build up and integrate its special operations forces.


The other part of the puzzle is whether the 'good' Taliban can be coaxed into negotiations, and whether Pakistan, which has considerable influence over the Taliban leadership, will play honest broker.


Private meetings in Paris before Christmas that involved Taliban envoys and Afghan officials ended with positive vibes, with the Taliban suggesting they were open to working with other political groups and would not resist girls' education. There was also renewed discussion about opening a Taliban office in Qatar, but we've been here before. The Taliban are riven by internal dissent and may be talking the talk while allowing facts on the ground to work to their advantage.


Where will North Korea turn its focus?


On the subject of nuclear states that the U.S.-wishes-were-not, the succession in North Korea has provided no sign that the regime is ready to restrain its ambitious program to test nuclear devices and the means to deliver them.



Back in May 2012, Peter Brookes of the American Foreign Policy Council said that "North Korea is a wild card -- and a dangerous one at that." He predicted that the inexperienced Kim Jong Un would want to appear "large and in charge," for internal and external consumption. In December, Pyongyang launched a long-range ballistic missile -- one that South Korean scientists later said had the range to reach the U.S. West Coast. Unlike the failure of the previous missile launch in 2009, it managed to put a satellite into orbit.


The last two such launches have been followed by nuclear weapons tests -- in 2006 and 2009. Recent satellite images of the weapons test site analyzed by the group 38 North show continued activity there.


So the decision becomes a political one. Does Kim continue to appear "large and in charge" by ordering another test? Or have the extensive reshuffles and demotions of the past year already consolidated his position, allowing him to focus on the country's dire economic situation?


China-Japan island dispute to simmer


It's been a while since East Asia has thrown up multiple security challenges, but suddenly North Korea's missile and nuclear programs are not the only concern in the region. There's growing rancor between China and Japan over disputed islands in the East China Sea, which may be aggravated by the return to power in Japan of Shinzo Abe as prime minister.


Abe has long been concerned that Japan is vulnerable to China's growing power and its willingness to project that power. Throughout 2012, Japan and China were locked in a war of words over the Senkaku or Diaoyu islands, with fishing and Coast Guard boats deployed to support claims of sovereignty.


In the days before Japanese went to the polls, Beijing also sent a surveillance plane over the area, marking the first time since 1958, according to Japanese officials, that Bejing had intruded into "Japanese airspace." Japan scrambled F-15 jets in response.


The islands are uninhabited, but the seas around them may be rich in oil and gas. There is also a Falklands factor at play here. Not giving in to the other side is a matter of national pride. There's plenty of history between China and Japan -- not much of it good.


As China has built up its ability to project military power, Japan's navy has also expanded. Even a low-level incident could lead to an escalation. And as the islands are currently administered by Japan, the U.S. would have an obligation to help the Japanese defend them.


Few analysts expect conflict to erupt, and both sides have plenty to lose. For Japan, China is a critical market, but Japanese investment there has fallen sharply in the past year. Just one in a raft of problems for Abe. His prescription for dragging Japan out of its fourth recession since 2000 is a vast stimulus program to fund construction and other public works and a looser monetary policy.


The trouble is that Japan's debt is already about 240% of its GDP, a much higher ratio than even Greece. And Japan's banks hold a huge amount of that debt. Add a shrinking and aging population, and at some point the markets might decide that the yield on Japan's 10-year sovereign bond ought to be higher than the current 0.77%.


Economic uncertainty in U.S., growth in China


So the world's third-largest economy may not help much in reviving global growth, which in 2012 was an anemic 2.2%, according to United Nations data. The parts of Europe not mired in recession hover close to it, and growth in India and Brazil has weakened. Which leaves the U.S. and China.


At the time of writing, the White House and congressional leadership are still peering over the fiscal cliff. Should they lose their footing, the Congressional Budget Office expects the arbitrary spending cuts and tax increases to be triggered will push the economy into recession and send unemployment above 9%.



A stopgap measure, rather than a long-term foundation for reducing the federal deficit, looks politically more likely. But to companies looking for predictable economic policy, it may not be enough to unlock billions in investment. Why spend heavily if there's a recession around the corner, or if another fight looms over raising the federal debt ceiling?


In September, Moody's said it would downgrade the U.S. sovereign rating from its "AAA" rating without "specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium term." In other words, it wants action beyond kicking the proverbial can.


Should the cliff be dodged, most forecasts see the U.S. economy expanding by about 2% in 2013. That's not enough to make up for stagnation elsewhere, so a great deal depends on China avoiding the proverbial hard landing.


Until now, Chinese growth has been powered by exports and infrastructure spending, but there are signs that China's maturing middle class is also becoming an economic force to be reckoned with. Consultants PwC expect retail sales in China to increase by 10.5% next year -- with China overtaking the U.S. as the world's largest retail market by 2016.


Europe's economic outlook a little better


No one expects Europe to become an economic powerhouse in 2013, but at least the horizon looks a little less dark than it did a year ago. The "PIGS' " (Portugal, Ireland/Italy, Greece, Spain) borrowing costs have eased; there is at least rhetorical progress toward a new economic and fiscal union; and the European Central Bank has talked tough on defending the Eurozone.


Mario Draghi, president of the European Central Bank, fended off the dragons with the declaration in July that "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough."



Draghi has promised the bank has unlimited liquidity to buy sovereign debt, as long as governments (most likely Spain) submit to reforms designed to balance their budgets. But in 2013, the markets will want more than brave talk, including real progress toward banking and fiscal union that will leave behind what Draghi likes to call Europe's "fairy world" of unsustainable debt and collapsing banks. Nothing can be done without the say-so of German Chancellor Angela Merkel, renowned for a step-by-step approach that's likely to be even more cautious in a year when she faces re-election.


Elections in Italy in February may be more important -- pitching technocrat Prime Minister Mario Monti against the maverick he replaced, 76-year old Silvio Berlusconi. After the collapse of Berlusconi's coalition 13 months ago, Monti reined in spending, raised the retirement age and raised taxes to bring Italy back from the brink of insolvency. Now he will lead a coalition of centrist parties into the election. But polls suggest that Italians are tired of Monti's austerity program, and Berlusconi plans a populist campaign against the man he calls "Germano-centric."


The other tripwire in Europe may be Greece. More cuts in spending -- required to qualify for an EU/IMF bailout -- are likely to deepen an already savage recession, threatening more social unrest and the future of a fragile coalition. A 'Grexit' from the eurozone is still possible, and that's according to the Greek finance minister, Yannis Stournaras.


Expect to see more evidence of climate change


Hurricane Sandy, which struck the U.S. East Coast in November, was the latest indicator of changing and more severe weather patterns. Even if not repeated in 2013, extreme weather is beginning to have an effect -- on where people live, on politicians and on the insurance industry.


After Sandy, New York Gov. Andrew Cuomo said that after "the last few years, I don't think anyone can sit back anymore and say, 'Well, I'm shocked at that weather pattern.' " The storm of the century has become the storm of every decade or so, said Michael Oppenheimer, professor of geosciences at Princeton.


"Climate change will probably increase storm intensity and size simultaneously, resulting in a significant intensification of storm surges," he and colleagues wrote in Nature.


In the U.S., government exposure to storm-related losses in coastal states has risen more than 15-fold since 1990, to $885 billion in 2011, according to the Insurance Information Institute. The Munich RE insurance group says North America has seen higher losses from extreme weather than any other part of the world in recent decades.


"A main loss driver is the concentration of people and assets on the coast combined with high and possibly growing vulnerabilities," it says.


Risk Management Solutions, which models catastrophic risks, recently updated its scenarios, anticipating an increase of 40% in insurance losses on the Gulf Coast, Florida and the Southeast over the next five years, and 25% to 30% for the mid-Atlantic and Northeastern states. Those calculations were done before Sandy.



Inland, eyes will be trained on the heavens for signs of rain -- after the worst drought in 50 years across the Midwest. Climatologists say that extended periods of drought -- from the U.S. Midwest to Ukraine -- may be "the new normal." Jennifer Francis at the Institute of Marine and Coastal Sciences at Rutgers University has shown that a warmer Arctic tends to slow the jet stream, causing it to meander and, in turn, prolong weather patterns. It's called Arctic amplification, and it is probably aggravating drought in the Northwest United States and leading to warmer summers in the Northern Hemisphere, where 2012 was the hottest year on record.


It is a double-edged sword: Warmer temperatures may make it possible to begin cultivating in places like Siberia, but drier weather in traditional breadbaskets would be very disruptive. The U.N. Food and Agriculture Organization reports that stocks of key cereals have tightened, contributing to volatile world markets. Poor weather in Argentina, the world's second-largest exporter of corn, may compound the problem.


More cyber warfare


What will be the 2013 equivalents of Flame, Gauss and Shamoon? They were some of the most damaging computer viruses of 2012. The size and versatility of Flame was unlike nothing seen before, according to anti-virus firm Kaspersky Lab.



Gauss stole online banking information in the Middle East. Then came Shamoon, a virus that wiped the hard drives of about 30,000 computers at the Saudi oil company Aramco, making them useless. The Saudi government declared it an attack on the country's economy; debate continues on whether it was state-sponsored.


Kaspersky predicts that in 2013, we will see "new examples of cyber-warfare operations, increasing targeted attacks on businesses and new, sophisticated mobile threats."


Computer security firm McAfee also expects more malware to be developed to attack mobile devices and apps in 2013.


U.S. Defense Secretary Leon Panetta is more concerned about highly sophisticated attacks on infrastructure that "could be as destructive as the terrorist attack on 9/11."


"We know that foreign cyber actors are probing America's critical infrastructure networks. They are targeting the computer control systems that operate chemical, electricity and water plants and those that guide transportation throughout this country," he said in October.


Intellectual property can be stolen, bought or demanded as a quid pro quo for market access. The U.S. intelligence community believes China or Chinese interests are employing all three methods in an effort to close the technology gap.


In the waning days of 2012, the interagency Committee on Foreign Investment in the United States said "there is likely a coordinated strategy among one or more foreign governments or companies to acquire U.S. companies involved in research, development, or production of critical technologies."


It did not name the country in its unclassified report but separately noted a growing number of attempts by Chinese entities to buy U.S. companies.


Who will be soccer's next 'perfect machine'?



There's room for two less serious challenges in 2013. One is whether any football team, in Spain or beyond, can beat Barcelona and its inspirational goal machine Lionel Messi, who demolished a record that had stood since 1972 for the number of goals scored in a calendar year. (Before Glasgow Celtic fans start complaining, let's acknowledge their famous win against the Spanish champions in November.)


Despite the ill health of club coach Tito Vilanova, "Barca" sits imperiously at the top of La Liga in Spain and is the favorite to win the world's most prestigious club trophy, the European Champions League, in 2013. AC Milan is its next opponent in a match-up that pits two of Europe's most storied clubs against each other. But as Milan sporting director Umberto Gandini acknowledges, "We face a perfect machine."


Will Gangnam give it up to something sillier?



Finally, can something -- anything -- displace Gangnam Style as the most watched video in YouTube's short history? As of 2:16 p.m. ET on December 26, it had garnered 1,054,969,395 views and an even more alarming 6,351,871 "likes."


Perhaps in 2013 the YouTube audience will be entranced by squirrels playing table tennis, an octopus that spins plates or Cistercian nuns dancing the Macarena. Or maybe Gangnam will get to 2 billion with a duet with Justin Bieber.







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Hot spots draw believers, but not doomsday






As the sun rose from time zone to time zone across the world on Friday, there was still no sign of the world’s end — but that didn’t stop those convinced that a 5,125-year Mayan calendar predicts the apocalypse from gathering at some of the world’s purported survival hot spots.


Many of the esoterically inclined expected a new age of consciousness — others wanted a party. But, in some places said to offer salvation from the end, fewer people showed up than officials had predicted — much to the disappointment of vendors hoping to sell souvenirs.






Here are some key places being marked by the fascination over doomsday rumors:


MEXICO


In an area of Mexico that was once the ancient Mayan heartland, spiritualists gathered in the darkness before dawn on Friday to prepare white clothes, drums, conch shells and incense. They believed the sunrise would herald the birth of a new and better age as a vast cycle in the Mayan calendar comes to an end.


Many people who came to Yucatan for the occasion were already calling it “a new sun” and “a new era.”


FRANCE


According to one rumor, a rocky mountain in the French Pyrenees will be the sole place on Earth to escape destruction. A giant UFO and aliens are said to be waiting under the mountain, ready to burst through and spirit those nearby to safety. But there is bad news for those seeking salvation: French gendarmes, some on horseback, blocked outsiders from reaching the Bugarach peak and its village of some 200 people.


Eric Freysselinard, head of local government, said the security forces had “partially stopped the new age enthusiasts as well as curious people from coming to the area.”


Meanwhile, some Bugarach residents dressed up like aliens, with tinfoil costumes and funnels and fake antenna on their heads, strolling around their village Friday to make light of the rumored UFO prophecy.


RUSSIA


Doomsday rumors have prompted some people across Russia to stock up on candles, water, canned foods and other non-perishable foods. The apocalypse has proven a good business, with some shops selling survival aid packages that include soap and vodka.


In Moscow, salvation has also been promised in the underground bunker for the former Soviet dictator Josef Stalin — with a 50 percent refund if nothing happens. An underground stay was originally priced at 50,000 rubles ($ 1,625) but dropped to 15,000 ($ 490) a week ahead of the feared end.


The bunker, located 65 meters (210 feet) below ground, was designed to withstand a nuclear attack. Now home to a small museum, it has an independent electricity supply, water and food — but no more room, because the museum has already sold out all 1,000 tickets.


BRITAIN


Hundreds of people have converged on Stonehenge for an “End of the World” party that coincides with the Winter Solstice.


Arthur Uther Pendragon, Britain’s best-known druid, said he was anticipating a much larger crowd than usual at Stonehenge this year. But he doesn’t agree that the world is ending, noting that he and fellow druids believe that things happen in cycles.


“We’re looking at it more as a new beginning than an end,” he said. “We’re looking at new hope.”


Meanwhile, end-of-days parties will be held across London on Friday. One event billed as a “last supper club” is offering a three-course meal served inside an “ark.”


SERBIA


Some Serbs are saying to forget that sacred mountain in the French Pyrenees. The place to be Friday is Mount Rtanj, a pyramid-shaped peak in Serbia already drawing cultists.


According to legend, the mountain once swallowed an evil sorcerer who will be released on doomsday in a ball of fire that will hit the mountain top. The inside of the mountain will then open up, becoming a safe place to hide as the sorcerer goes on to destroy the rest of the world. In the meantime, some old coal mine shafts have been opened up as safe rooms.


On Friday a New Age group called “The Spirit of Rtanj” was holding a conference there. Participants, however, said they expect not the end of time but the start of a new time cycle. Locals turned out to sell brandy and herbs.


“There will be no tragedy, no doomsday,” said resident Dalibor Jovic. “It was supposed to happen at 12:12 and I think that time has passed. So, we can now go on with our lives and be happy to be alive.”


TURKEY


A small Turkish village known for its wines, Sirince, has also been touted as the only place after Bugarach that would escape the world’s end. But on Friday journalists and security officials outnumbered cultists. This outcome disappointed local business people who had prepared a range of doomsday products to sell, including a specially labeled Doomsday wine and Turkish delight candy whose “best before” date was Dec. 21, 2012. One restaurant prepared a special “last meal” menu that included a “heaven kebab” and “forbidden fruit dessert.”


ITALY


Another spot said to be spared: Cisternino, a beautiful small town in southern Italy in an area of trulli, traditional dry stone huts with conical roofs. The notion that Cisternino could be a safe haven at world’s end derives from an Indian guru, Babaji, who said “Cisternino will become an island” at world’s end. His followers built a community in Cisternino centered on an ashram built in 1979. Hotel bookings are up this weekend.


Mayor Donato Baccaro told the AP that the beauty of the place has inspired many foreigners to live there. “This confirms that this place has a special energy,” he said.


CHINA


A fringe Christian group has been spreading rumors about the world’s impending end, prompting Chinese authorities to detain more than 500 people this week and seize leaflets, video discs, books and other material.


Those detained are reported to be members of the group Almighty God, also called Eastern Lightning, which preaches that Jesus has reappeared as a woman in central China. Authorities in the province of Qinghai say they are waging a “severe crackdown” on the group, accusing it of attacking the Communist Party and the government.


U.S.


Dozens of Michigan schools canceled classes for thousands of students to cool off rumored threats of violence and problems related to doomsday. The fears were exacerbated by the recent shooting at a Connecticut elementary school, which “changed all of us,” the school system in Genesee County said. “Canceling school is the right thing to do.”


___


Associated Press writers Florent Bajrami in Bugarach, France; Mansur Mirovalev in Moscow; Peppino Ciraci in Cisternino, Italy; Suzan Fraser in Ankara, Turkey; Paisley Dodds in London; and Dejan Mladenovic in Mount Rtanj, Serbia, contributed to this report.


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Crucial day for US budget talks









US President Barack Obama: “Agreement is being discussed as we speak”



US politicians are facing a crucial day of talks aimed at preventing the economy falling over a “fiscal cliff”.


Congress must reach a deal by the end of the year to avert steep spending cuts and tax rises due to take effect.


President Barack Obama has said he is “modestly optimistic” that Senate leaders can craft a bill that could win approval in both chambers of Congress.


If they fail, taxes will significantly rise for most Americans, raising fears of a US economic slowdown.


Republicans and Democrats tried to resolve the looming crisis in 2011 but failed, instead signing temporary agreements which postponed the deadlock until the end of 2012.


Democrat Senate leader Harry Reid and his Republican counterpart Mitch McConnell have been locked in negotiations over the weekend, in an otherwise closed-down Capitol.


According to the Washington Post, they have set themselves a deadline of 15:00 local time (20:00 GMT) to reach a compromise agreement, after which they will convene caucus meetings of their members and decide whether the measure has enough support to be put to a vote.


The Senate could then vote on the measure and allow the House of Representatives enough time on Monday to consider it, said the paper.


Continue reading the main story

Start Quote



America’s reckless politicians may still take the country over the cliff into an uncertain land where recession looms”



End Quote



But Republican and Democratic leaders remain divided over core ideological issues about tax and government funding.


There is also debate over where to set the threshold for tax rises. Democrats say tax cuts introduced by former President George W Bush and now due to expire should be extended for all Americans except the richest, those with annual earnings of more than $ 250,000 (£155,000), who should pay more.


Republicans want the tax threshold set higher, at around $ 400,000, and for revenue to be raised by economic growth and cuts in social security and mandatory spending programmes.


President Obama is scheduled to make a rare appearance on NBC’s Meet the Press on Sunday.


He has urged negotiators to reach a deal, even if the resulting legislation is an unhappy compromise for both sides which defers resolution of some elements under discussion.


The country “just can’t afford a politically self-inflicted wound to our economy,” he said, warning that if they fail, “every American’s paycheck will get a lot smaller”.


“Congress can prevent it from happening, if they act now,” he said.


Some Republicans have pledged never to vote for increased taxes. There are some indications they could oppose any deal which included higher taxes.


If Mr Reid and Mr McConnell cannot reach a deal by the end of the year, Mr Obama has said he will seek a vote to prevent tax rises on incomes up to $ 250,000 and ensure unemployment insurance is continued.


That, he says, is the “bare minimum” Congress should get done before 1 January.


End to benefits


The term fiscal cliff refers to the combination of almost $ 600bn (£370bn) of tax rises and spending cuts due to come into force on 1 January if Congress fails to pass new legislation.


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What is the fiscal cliff?


  • On 1 January 2013, tax increases and huge spending cuts are due to come into force – the so-called fiscal cliff

  • Deadline was put in place in 2011 to force president and Congress to agree ways to save money over the next 10 years

  • Fear is that raising taxes while massively cutting spending will have a huge impact on households and businesses

  • Experts believe it could push the US into recession, and have a global impact on growth


Sweeping Bush-era tax cuts will expire, eventually affecting people of all income levels, and many businesses.


While some of the impact would be felt almost immediately, other effects would take longer to filter through. This could damage America’s recent fragile economic recovery and alarm global markets.


In addition, the US Treasury will hit its legal borrowing limit on 31 December of $ 16.4tn.


Last week, Treasury Secretary Timothy Geithner won a reprieve of about two months of time, but the debate on the borrowing ceiling will also need to be properly addressed in the new year.


The tax cuts and benefits set to expire include:


• A 2010 payroll tax cut, the expiration of which would prompt immediate wage-packet cuts


• Benefits for the long-term unemployed, which could mean more than two million Americans immediately stopped receiving payments


• Compensation for doctors treating patients on federal healthcare programmes


• Inheritance taxes are also likely to be affected if no deal is reached.


In addition, spending cuts mandated by a law passed to break a previous fiscal impasse in Congress will come into force, affecting both military and domestic budgets.


The cuts are expected to affect federal government departments and the defence sector, as well as hitting unemployment insurance and veterans’ support.


BBC News – Business





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Egypt says to resume talks with IMF in January






CAIRO (AP) — Egypt’s prime minister said Sunday his country will resume talks in January with the International Monetary Fund, after Cairo suspended its request for a $ 4.8 billion loan during this month’s political turmoil over the now-adopted constitution.


Hesham Kandil didn’t specify when the talks will resume. But he stressed that the loan is important to Egypt’s efforts to regain investor confidence as his country grapples with a crippling budget deficit and dwindling foreign reserves.






“We need the vote of confidence from the IMF,” he told reporters at the launch of a government initiative that appears aimed at calming worries about imminent austerity measures and the health of the economy.


“We hope to have more consensus on the government program. We hope there are no core changes to our plan with the fund,” he said.


Talks with the IMF were derailed during large protests against the country’s new constitution, passed in a referendum earlier this week. The protests turned violent, leaving at least 10 dead, while disagreement over the charter deeply polarized the country.


As the political turmoil unfolded, the government suspended its loan request, which had been awaiting final approval by the IMF, just after it suspended the spending cutbacks and tax hikes which had been part of the economic program it presented to secure the loan. The measures were likely to fuel more public discontent.


Now, with the constitution adopted, talk of the economic reform program is resurfacing. But the government needs to rally public support for measures that are likely to increase prices for a number of goods and cut back on a huge government subsidy program to ensure aid goes only to those in need.


President Mohammed Morsi has asked Kandil to carry out a limited government reshuffle, which has been highly criticized for failing to tackle Egypt’s political and economic crises.


In a speech Saturday to the newly convened legislature, Morsi warned against any further unrest that could harm the already battered economy.


Meanwhile, the central bank said that foreign currency reserves, which have been hemorrhaging for nearly two years, are at a “critical” level — the minimum needed to cover foreign debt payments and buy strategic imports. Reserves now stand at some $ 15 billion, down from $ 36 billion in 2010.


Over the past week, fears of an imminent currency devaluation led to a rush to buy dollars, putting further pressure on the Egyptian pound. The worries were fuelled in part by the government’s move to cap the amount of foreign currency people can take with them as they leave the country.


On Sunday, the central bank introduced a new auction system for banks buying and selling U.S. dollars. It had urged citizens to “ration usage” of foreign currency in favor of the Egyptian pound.


On Sunday, Kandil said the economic situation was “difficult and critical” but that there was no truth to talking about Egypt going bankrupt, echoing a point made by Morsi a day earlier.


“There is bright light at the end of this tunnel,” he said. “There is a plan and a vision for sure to get out of this tunnel. The length of this tunnel depends on us as Egyptians and on the government for sure.”


Kandil urged all political players to put aside their differences to work together. His news conference Sunday sought to underline government efforts to revitalize the economy and include stakeholders and the public in a discussion of its economic plan.


He provided little details of the plan, however. Ashraf el-Arabi, planning and international cooperation minister, said discussions will begin as early as Sunday, to ensure “ownership” of the government program so measures can be adopted quickly.


International News and Information on Yahoo! Finance





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