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Alliance retreats on creation of attack force
By Judy Dempsey


Dollar pays price for Fed’s rate cut
Attitudes shift as it hits $1.40 to euro and parity with Canadian currency
Swooning dollar
Percentage change in the value of the dollar over the past 12 months.
0 –2.0 –4.0 –6.0 –8.0 –10.0 % ’06
Source: Bloomberg

Decision is a blow to NATO’s hopes for f lexible military wing

By Carter Dougherty
FRANKFURT: The world dumped the dollar Thursday, pushing the currency to an all-time low of $1.40 against the euro and to parity with the Canadian dollar for the first time in three decades as currency traders around the world digested the full implications of the U.S. Federal Reserve’s new course for interest rates. The sell-off began in earnest early in the day in Europe and never let up as it reached across the Atlantic. Traders concluded that the lower borrowing costs the Fed introduced Tuesday would dampen the appeal of dollar-denominated assets like stocks, bonds and real estate in the wake of tightening by other central banks that has created the opposite effect elsewhere. With the Fed’s action layered atop a weakening U.S. economy, the dollar’s traditional role as a refuge in times of crisis — one evident as recently as early August — appeared all but forgotten. ‘‘It’s pretty ugly right now for the dollar,’’ said Jim McCormick, chief of currency strategy for Lehman Brothers International in London. ‘‘But the markets are having a very rational response to what the Fed did on Tuesday.’’ The Federal Reserve chairman, Ben Bernanke, acknowledged the gravity of concerns about the U.S. economy in testimony Thursday to Congress. He portrayed the rate cut as part of the careful balance the Fed has to strike between combating inflation and promoting growth. (Page 15) The dollar dipped as low as $1.4094 to the euro in midday trading in New York, having cracked the $1.40 level in London, the world’s currency trading hub. The dollar also lost ground against the pound, with sterling now worth roughly double the U.S. dollar. The yen and the Swiss franc also rallied strongly against the dollar, a highly unusual development since interest rates are still comparatively low in both those countries. The dollar registered its biggest daily drop against the yen in two weeks. Against the Canadian dollar, the currency of the largest U.S. trading partner, the dollar tumbled to parity, a level not seen since 1976, when another currency crisis eventually sent shock waves through the global economy. Few if any currency experts were prepared to declare a ‘‘dollar crisis.’’ They preferred to see the events Thursday as the logical outcome of the Fed’s surprise decision to lower its benchmark rate by a half percentage point, to 4.75 percent — a step intended to quarantine the wider economy from the effects of a housing market collapse and to soothe jittery credit markets. But the day left little doubt that attitudes toward the dollar were evolving faster than most analysts had expected. ‘‘What is changing here is that people have been living with this notion that the dollar might get weaker briefly and then recover,’’ said Thomas Stolper, a currency strategist with Goldman Sachs in New York. ‘‘But that view is evolving.’’ Treasury Secretary Henry Paulson Jr., testifying alongside Bernanke, said the Bush administration was considering allowing the federally backed
DOLLAR, Continued on Page 17

Dollar index Value against 6 major currencies

BERLIN: NATO is backing away from establishing a combat force that would be capable of moving rapidly into conflict areas because it lacks the money, the troops and the equipment, officials said Thursday. NATO’s decision to rethink the Response Force is a blow for the 26-member alliance, which was seeking a way to alter a cumbersome and reactive organization of the Cold War era to field flexible units capable of being deployed within days to carry out a range of operations, including counter-terrorism. While NATO has changed significantly in recent years — seen in its involvement in combat in Afghanistan, for example — the way missions are financed and military equipment is procured has lagged. Moreover, analysts said, the future of the Response Force could send a signal to the European Union, which is establishing its own ‘‘battle groups’’ — units of about 1,500 troops that could be sent to a conflict zone within 10 days. ‘‘We are having trouble generating forces for all the missions that NATO, the EU, the UN and others need for missions around the world,’’ said James Appathurai, the alliance’s spokesman. The scope and size of the NATO response force would be reassessed, he said. First proposed by Donald Rumsfeld in 2002, when he was the U.S. defense secretary, the NATO Response Force was to consist of 25,000 soldiers serving on six-month rotations. Groups of countries would commit land, air, naval or special forces for this duration. But some member states began to complain that the burden was too heavy and too costly because their own forces were assigned to the NATO missions in Afghanistan and Kosovo; the U.S-led coalition in Iraq; and the UN peacekeeping mission in Lebanon. Tomas Valasek, a defense expert at the Center for European Reform, a research institute in London, said: ‘‘NATO has a problem that affects the EU as well. There are simply not enough troops. NATO is asking member states to sign up to the Response Force at a time when more troops are needed for Afghanistan. NATO has hit a ceiling. The Response Force is a luxury member states cannot afford.’’ The North Atlantic Treaty Organization has sent 40,000 soldiers to Afghanistan and 17,000 are still in Kosovo, nine years after the alliance deployed troops to the Serbian province. (NATO air forces bombed Serbia to stop Slobodan Milosevic’s ethnic cleansing of Albanians in Kosovo.) Alliance officials said the Response Force lacked attack helicopters and heavy air transport. ‘‘A mission needs logistics, transport, field hospitals and at least treble the number of forces because the soldiers have to be rotated,’’ a NATO official said. The shortcomings are almost identical in the NATO-led International Security Assistance Force in Afghanistan. That remains the case despite repeated calls by the NATO secretary general, Jaap de Hoop Scheffer, for alliance nations to send more troops and equipment, particularly to the south of the country, where NATO is engaged in heavy fighting with Taliban and Al Qaeda insurgents. The alliance also has had problems financing the Response Force and other missions. A NATO country that sends troops into an international
NATO, Continued on Page 3

Dollar vs. euro

The U.S. Federal Reserve chief, Ben Bernanke, right, and Treasury Secretary Henry Paulson Jr. during a break in a congressional hearing Thursday in Washington. Bernanke called for tougher rules on what borrowers and lenders could do.

Stefan Zaklin/European Pressphoto Agency


Purchases include stakes in 3 bourses
By Julia Werdigier

Mideast states seize an opportunity
Stock Market, which is based in New York. It would become the first government-controlled stock exchange to hold a significant stake in an American rival, prompting calls in Washington for a national security review of the Nasdaq deal. Separately, Qatar, which competes with Dubai as a financial center in the region, bought 20 percent of London Stock Exchange and 9.98 percent of OMX, the stock market operator based in Stockholm. And finally, the government of Abu Dhabi agreed to buy a 7.5 percent stake in Carlyle Group, a U.S. buyout firm, for $1.35 billion. Neither Dubai nor Qatar — which are competing to be not only the Gulf’s leading financial center but also for footholds in Europe — signaled any intention to attempt a full takeover, though Qatar cautioned that it could do so if someone else moved against the London exchange. Perhaps in anticipation, LSE shares soared 16 percent to close at £16.87. Abu Dhabi is buying its stake in Carlyle just as the private equity firm is considering an initial public offering of
EXCHANGE, Continued on Page 17

2 central banks find virtues in f lexibility
Six weeks ago, the Federal Reserve thought the U.S. economy would weather problems in the credit market. One week ago, the Bank of England warned against bailing out risky loans. But that was then. Floyd Norris, Page 16

LONDON: While American and European companies have been shelving acquisitions after jitters in the credit market dried up potential financing, oilproducing countries in the Middle East showed Thursday that they do not share the same limitations. In a series of multibillion-dollar deals, Dubai, Qatar and Abu Dhabi reached out to acquire significant stakes in three stock markets and a U.S. private equity firm, illustrating an increasing appetite for investing their growing wealth in high-quality assets abroad as oil prices hit records. But one of the deals could run into political resistance in the United States — as happened last year when DP World of Dubai was pressured to sell the U.S. port operations it had acquired as part of a larger deal. On Thursday, Dubai — the fastestgrowing financial center in the Gulf — agreed to take a stake in the Nasdaq

BOE defends delay in bailing out bank
Mervyn King, governor of the Bank of England, told a parliamentary committee that the bank had needed to walk a fine line between preserving financial stability and encouraging recklessness in rescuing Northern Rock. Page 15

Bittersweet summer for Wall Street firms
Turbulence in the debt market proved costly to Bear Stearns, rocked by the collapse of two hedge funds in the subprime mortgage crisis, but its rival Goldman Sachs reported a 79 percent jump in earnings. Page 15

The dollar was marked down Thursday at a foreign exchange office in Paris as currency traders around the world digested the full implications of the U.S. Federal Reserve’s interest rate reductions.

Jacques Brinon/AP

Calls for a split grow louder in Belgium
By Elaine Sciolino
BRUSSELS: Belgium has given the world Audrey Hepburn, René Magritte, the saxophone and deep-fried potato slices that somehow are called French. But the back story of this flat country of 10.4 million is of a bad marriage writ large — two nationalities living together that cannot stand each other. Now, more than three months after a
general election, Belgium has failed to create a government, producing a crisis so profound that it has led to a flood of warnings, predictions, even promises that the country is about to disappear. “We are two different nations, an artificial state created as a buffer between big powers, and we have nothing in common except a king, chocolate and beer,” said Filip Dewinter, the leader of Vlaams Belang, or Flemish Bloc, the extremeright, xenophobic Flemish party, in an interview. “It’s ‘bye-bye Belgium’ time.” Radical Flemish separatists like Dewinter want to slice the country horizontally along ethnic and economic lines: to the north, their beloved Flanders — where Dutch (known locally as Flemish) is spoken and money is increasingly made — and to the south, Francophone Wallonia where a kind of provincial snobbery was once polished to a fine sheen and where today old factories dominate the gray landscape. “There are two extremes, some screaming that Belgium will last forever and others saying that we are standing at the edge of a ravine,” said Caroline Sägesser, a Belgian political analyst at Crisp, a socio-political research organization in Brussels. “I don’t believe Belgium is about to split up right now. But in my lifetime? I’d be surprised if I were to die in Belgium.” Since the kingdom of Belgium was created as an obstacle to French expansionism in 1830, it has struggled for cohesion. Anyone who has spoken French in a Flemish city quickly gets a sense of the mutual hostility that is a part of daily life here. The current crisis dates to June 10, when the Flemish Christian Democrats, who demand greater autonomy for Flanders, came in first with one-fifth of the seats in Parliament. Yves Leterme, the party leader,
BELGIUM, Continued on Page 3

Thursday 4 p.m. Previous

¤1 = £1 = $1 = $1 =

$1.4066 $2.0098 ¥114.425 SF1.1724

$1.3960 $2.0012 ¥116.045 SF1.1841

Full currency rates | Page 19

OIL | New York
Thursday 4 p.m.

Light sweet crude $81.78



The Dow 4 p.m. 13,766.70 FTSE 100 close 6,429.00 Nikkei 225 close 16,413.79

0.35% 0.48% 0.20%


Gerolf Annemans, left, and Filip Dewinter, right, of the extreme-right party Vlaams Belang, in Brussels on Thursday. The cake is to mark 100 days without a government.

Benoit Doppagne/Agence France-Presse

In this issue

No. 38,735
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Books 6 Film Business 15 Opinion Crossword 7 Residential Properties Culture & More 10 Sports Marketplace by Bloomberg 18-21

Cholera outbreak spreads to Baghdad The un-Qaddafi waits
Iraqi health officials confirmed the first cases of cholera in Baghdad on Thursday, in a sign that an epidemic that has infected approximately 7,000 people in northern Iraq was spreading south through the country’s decrepit and unsanitary water system. The World Health Organization and the Iraqi Red Crescent Society said they had confirmed at least one case of cholera in Baghdad, though the Iraqi Ministry of Health did not confirm it. Hospital sources said there could be at least two other confirmed infections, connected to a death in Kut and one in Tikrit. Officials said there were further possible outbreaks in Diyala, north of Baghdad, and in Kut, southeast of Baghdad. Page 7

in the Libyan wings

Newsstand prices
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Algeria.............. Din 135 Ivory Coast.... CFA 1.900 Andorra ............. ¤ 2.20 Reunion...............¤ 3.50 Antilles ...............¤ 2.30 Cameroon.... CFA 1.900 Senegal ....... CFA 1.900 Gabon .......... CFA 1.900 Tunisia.......... Din 2.700

Saif al-Islam el-Qaddafi, the powerful 33-year-old son of Libya’s extroverted and impulsive president, Muammar elQaddafi, is an upand-coming force in Libyan poliJehad Nga for IHT tics. Page 2

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As European leaders argue about whether to tighten sanctions against Iran, it is not just a diplomatic debate. German exporters are complaining that ‘‘market opportunities’’ drying up. Germany has long been one of Iran’s largest trading partners, but its exports to Iran are plunging. Page 3

Monks lead protests

Hundreds of Buddhist monks marched for the third day in Myanmar’s main city Thursday, taking the lead in monthlong protests that the military junta has been powerless to contain. After winding through the streets of Yangon, they announced they would march again. Page 6

Floyd Landis lost his doping case Thursday when arbitrators upheld the results of a test showing that the 2006 Tour de France champion had used synthetic testosterone to fuel his victory. The decision means Landis, who has just one final avenue of appeal, must forfeit the title. Page 22

Landis loses drug case