Sarkozy said on Saturday Paris was consulting with Arab and European countries to create a Syrian contact group to find a solution to the crisis after Russia and China vetoed a resolution at the U.N. Security Council.

“France and Germany will not abandon the Syrian people,” Sarkozy said after a Franco-German summit in Paris with German Chancellor Angela Merkel.

“What’s happening is a scandal. We will not accept that the international community remains blocked,” he said, adding that Prime Minister Francois Fillon would also speak to Russian Prime Minister Vladmir Putin.

CT

The bill makes it a crime to deny that the killings of some 1.5 Armenians by Ottoman Turks in 1915 constituted genocide. Turkey, which says there was no systematic campaign against Armenians, is strongly opposed to the bill and says relations with France will suffer as a result.

Both houses of French parliament passed the bill in recent weeks. On Tuesday, the Constitutional Council said legislators have submitted a formal request that the body rule on its constitutionality.

Turkish officials welcomed the move. President Abdullah Gul said, “I hope the French court makes the right decision.”

HP

This deployment defied explicit Iranian threats to close the waterway. It coincided with an escalation in the West’s confrontation with Iran over the country’s nuclear ambitions.

European Union foreign ministers are today expected to announce an embargo on Iranian oil exports, amounting to the most significant package of sanctions yet agreed. They are also likely to impose a partial freeze on assets held by the Iranian Central Bank in the EU.

Tehran has threatened to block the Strait of Hormuz in retaliation. Tankers carrying 17 million barrels of oil pass through this waterway every day, accounting for 35 per cent of the world’s seaborne crude shipments. At its narrowest point, located between Iran and Oman, the Strait is only 21 miles wide.

Last month, Admiral Habibollah Sayyari, commander of the Iranian navy, claimed that closing the Strait would be “easy,” adding: “As Iranians say, it will be easier than drinking a glass of water.”

But USS Abraham Lincoln, a nuclear-powered carrier capable of embarking 90 aircraft, passed through this channel and entered the Gulf without incident yesterday. HMS Argyll, a Type 23 frigate from the Royal Navy, was one of the escort vessels making up the carrier battle-group. A guided missile cruiser and two destroyers from the US Navy completed the flotilla, along with one warship from the French navy.

All three countries retain a permanent military presence in the Gulf, but a joint passage through the Strait of Hormuz by all of their respective navies is highly unusual. The flotilla will have passed within a few miles of the Iranian coastline.

A western official denied this was a provocative move intended to increase the pressure on Iran. The goal was simply to “illustrate international resolve” to guarantee free movement of shipping through a vital artery of the world economy, he said.

A Ministry of Defence spokesman confirmed that “HMS Argyll and a French vessel joined a US carrier group transiting through the Strait of Hormuz to underline the unwavering international commitment to maintaining rights of passage under international law.”

The spokesman added that Britain maintains a “constant presence in the region as part of our enduring contribution to Gulf security”. Royal Navy warships have been patrolling the region continuously since 1980.

Abraham Lincoln’s entry into the Gulf came in defiance of an explicit warning from Iran. Earlier this month, General Ataollah Salehi, commander of the country’s armed forces, threatened to respond with “full force” if any US carrier ventured into the region’s waters. “We don’t have the intention of repeating our warning, and we warn only once,” he said.

The Islamic Republic then held a naval exercise in the Strait of Hormuz. More Iranian military manoeuvres, code-named Exercise Noble Prophet, are expected in the waterway later this week.

Another carrier, USS Carl Vinson, has been in the Gulf and the surrounding region for several months. Abraham Lincoln’s arrival means a return to the two-carrier deployment that America has retained in the area for many years.

Each of these Nimitz class vessels carries a complement of fighter aircraft with more striking power than the entire Iranian air force. Their presence widens the options open to Western governments should Tehran attempt to retaliate for tighter sanctions by harassing international shipping lanes.

Iran could do so by laying launching attacks using warships or land-based anti-shipping missiles. Each of these threats could be countered using carrier-based aircraft.

However, officials believe that the balance of forces against Iran makes any such move against the Strait of Hormuz highly unlikely. Iran has an interest in talking up the possibility because this can raise oil prices and increase its own revenue at a time when its economy is in severe difficulties.

One official added that no government should dismiss these threats, pointing to Iran’s actual disruption of shipping in the Gulf in the late 1980s. Another option that would fall short of launching classic military strikes would be for Iran to lay mines in shipping lanes.

All US warships deployed in the Gulf, the Red Sea and the western half of the Indian Ocean are controlled by US Fifth Fleet headquarters in Bahrain. The Royal Navy also has a small permanent staff based in the Gulf kingdom.

telegraph.uk

In October, Russia and China vetoed a Western draft resolution that would have condemned Bashar al-Assad’s regime. Russia later circulated an alternative that would have pointed the finger at both sides.

UN chief Ban Ki-moon on Sunday issued a call to Assad to stop killing his people.

The United Nations estimates more than 5,000 people have been killed in Syria as Assad’s forces crack down on anti-regime protests now in their 10th month.

The government says far fewer have been killed while accusing “armed terrorist gangs” backed by foreign powers of being responsible for the violence.

“The repression has not ceased. The violence is still at work. The Arab League has given itself until January 19 to assess the situation. I strongly hope that it will make a report that is as objective as possible that it can communicate to the Security Council,” Juppe said.

“I hope like others that the Arab League does not get bogged down in its observation mission,” added the minister, whose country is a permanent member of the Security Council.

A team of Arab League monitors has been in Syria since December 26 trying to assess the regime’s implementation of the peace agreement signed by both sides aimed at ending violence in the country.

According to a UN official, 400 people have been killed since the beginning of the Arab League mission.

expatica.com

A military statement, quoted by state news agency SPA, said: “During a joint exercise on air engagement a French Mirage aircraft belonging to the French armed forces collided with a Saudi armed forces’ F-15.

“The Saudi pilot and the two French pilots ejected safely, and were taken to the Northern Sector Command.

“Investigations are under way to determine the circumstances that led to the incident.”

“Today’s rating actions are primarily driven by our assessment that the policy initiatives that have been taken by European policy makers in recent weeks may be insufficient to fully address ongoing systemic stresses in the euro zone,” S&P said in a press release announcing the downgrade.

In a potentially more ominous setback, talks broke down between Greece and its creditors over a debt swap seen as crucial to avert a Greek default, although officials said more talks are likely next week.

If Greece cannot persuade banks and insurers to accept voluntary losses on their bond holdings, a second international rescue package for the euro zone’s most heavily indebted state will unravel, raising the prospect of bankruptcy in late March, when it has to redeem 14.4 billion euros in maturing debt.

S&P lowered its long-term rating on Cyprus, Italy, Portugal and Spain by two notches, and cut its rating on Austria, France, Malta, Slovakia and Slovenia by one notch.

The move puts highly indebted Italy on the same BBB+ level as Kazakhstan and pushes Portugal into junk status.

The credit-rating agency affirmed the current long-term ratings for Belgium, Estonia, Finland, Germany, Ireland, Luxembourg and the Netherlands.

U.S. stocks slumped earlier amid buzz about the possible downgrades, though finished well off their lows. The euro fell by more than a cent to $1.2650 on the news. European shares closed lower. Safe-haven German 10-year bond futures rose to a new record high while the risk premium investors charge on French, Spanish, Italian and Belgian debt widened.

The credit-rating agency put all 14 euro-zone nations — Austria, Belgium, Cyprus, Estonia, Finland, France, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovenia, and Spain — on “negative” outlook for a possible further downgrade.

Germany was the only country to emerge totally unscathed with its triple-A rating and a stable outlook.

A negative outlook indicates that S&P believes there is at least a one-in-three chance that a country’s rating will be lowered in 2012 or 2013.

French Finance Minister Francois Baroin, speaking after an emergency meeting with President Nicolas Sarkozy, played down the impact of Europe’s second biggest economy being downgraded to AA+ for the first time since 1975.

“This is not a catastrophe. It’s an excellent rating. But it’s not good news,” Baroin told France 2 television, saying the government would not respond with further austerity measures.

In December, S&P placed the ratings of 15 euro zone countries on credit watch negative — including those of top-rated Germany and France, the region’s two biggest economies — and said “systemic stresses” were building up as credit conditions tighten in the 17-nation bloc.

Since then, the European Central Bank has flooded the banking system with cheap three-year money to avert a credit crunch. At the time, the U.S.-based ratings agency said it could also downgrade the euro zone’s current bailout fund, the European Financial Stability Facility

Euro zone finance ministers responded jointly by saying in a statement they had taken “far-reaching measures” in response to the sovereign debt crisis and were accelerating reforms towards stronger economic union.

Greek negotiators who have repeatedly voiced confidence in a deal in which private creditors would accept writedowns of 50 percent of the face value of their bond holdings said they were now less hopeful, warning of “catastrophic consequences” for Greece and Europe if they failed.

“Yesterday we were cautious and confident. Today we are less optimistic,” a source close to the Greek task force in charge of the negotiations said.

The Institute for International Finance, negotiating on behalf of banks, said: “Under the circumstances, discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach.”

The two sides are divided principally over the interest rate Greece will end up paying, which determines how much of a hit banks take. While both appear to be engaged in brinkmanship, there are also doubts about the take-up rate of any voluntary deal, since some hedge funds have bought up Greek debt and want to be paid out in full or trigger default insurance.

The double blow of the S&P news and the stalling of the Greek debt talks came after a brighter start to the year with Spain and Italy beginning their marathon debt rollover at lower borrowing costs this week.

The European Central Bank’s move last month to flood banks with cheap three-year liquidity helped ease a worsening credit crunch and provided funds which governments hope some will use to buy sovereign bonds.

Rescue Fund Weakened

S&P said the euro zone faced stresses including tightening credit conditions, rising risk premiums for a growing number of sovereigns, simultaneous deleveraging by governments and households and weakening economic growth prospects.

It also cited political obstacles to a solution to the crisis due to “an open and prolonged dispute among European policy makers over the proper approach to address challenges.”

Austerity and budget discipline alone were not sufficient to fight the debt crisis and risked becoming self-defeating, the ratings agency said.

German Finance Minister Wolfgang Schaeuble played down the news, saying: “In the past months, we’ve come to agree that the ratings agencies’ judgments should not be overvalued.”

France and Austria were at risk because of their banks’ exposure to the debt of peripheral euro zone countries and Hungary respectively, as well as the weakening economic outlook for Europe. Italy and Spain face historically high borrowing costs.

The cut in France’s rating is a serious setback for the center-right Sarkozy’s chances of re-election in May and could weaken the euro zone’s rescue fund, reducing its ability to help countries in difficulty.

France is the second largest guarantor of the EFSF, which has a triple-A rating. Preserving that status would require members to increase their guarantees, which could prove politically unpopular.

In their statement, the euro zone finance ministers said they would do all they could to ensure the rescue fund keeps its top rating.

After vowing for months to do everything to preserve Paris’ top-notch standing, Sarkozy appeared to prepare voters last month for the loss of the prized status before the election.

His political opponents pounced on the S&P decision as a verdict on the failure of his policies.

“This is in reality a double downgrade. It is a downgrade of our sovereign rating that will affect the country’s reputation, with heavy consequences, and it is also a downgrade compared to our main neighbor, Germany, with which we had equal status up to now,” centrist candidate Francois Bayrou said.

Socialist party leader Martine Aubry said: “Mr. Sarkozy will be remembered as the president who downgraded France.”

It is not clear how far the downgrade will increase France’s borrowing costs, since markets have already anticipated the prospect by raising the French risk premium over German Bunds.

“One notch is priced in but not more. The Franco-German spread can widen. It is about 130 basis points for the 10-year bond. The maximum level reached was 180 to 190 basis points and it can go back to this level,” said Alessandro Giansanti, senior rates strategist at ING in Amsterdam.

‘Triple-A Is a Dying Species’

The consequence of the downgrade is that the EFSF can’t keep its triple-A rating, said Commerzbank chief economist Joerg Kraemer.

“That may irritate markets in the short term but wouldn’t be a big problem in a world where the U.S. and Japan also don’t have a triple-A rating anymore. Triple-A is a dying species,” he said.

John Wraith, Fixed Income Strategist at Bank of America Merrill Lynch told CNBC the mass downgrade is another serious step in the crisis and would lead to a serious worsening of sentiment.

“To a large degree, it’s widely anticipated,” Wraith said. “However, we think the reality of it is going to have a knock-on, ongoing impact on these markets.”

“It clearly deteriorates still further the credit worthiness of a lot of the European banks and just keeps that negative feedback loop between struggling banks and the sovereigns that may have to support them if things go from bad to worse in full force,” Wraith added.

The downgrade could automatically require some investment funds to sell bonds of affected states, making those countries’ borrowing costs rise still further.

“It’s been priced in for several weeks, but the market had been lulled into complacency over the holidays, and the new year began with a bounce in risk appetite, thanks partly to a good Spanish auction,” said Samarjit Shankar, Director Of Global Fx Strategy at BNY Mellon in Boston.

“But the Italian auction brought us back to earth,” he said.

Italy’s three-year debt costs fell below 5 percent on Friday, but its first bond sale of the year failed to match the success of a Spanish auction the previous day, reflecting the heavy refinancing load Rome faces over the next three months.

CNBC

Germany and the Netherlands aren’t among those facing a downgrade, a senior euro zone government source told Reuters. Another source confirmed “several” countries would be hit.

“Remain alert tonight when U.S. markets close,” said another euro zone source.

US stocks slumped in reaction to the report that S&P had downgraded France. European shares also extended their decline.

In December, S&P placed the ratings of 15 euro zone countries on credit watch negative— including those of top-rated Germany and France, the region’s two biggest economies—and said “systemic stresses” were building up as credit conditions tighten in the 17-nation bloc.

Since then, the European Central Bank has flooded the banking system with cheap three-year money to avert a credit crunch. At the time, the U.S.-based ratings agency said it could also downgrade the euro zone’s current bailout fund, the EFSF.

“The consequence (if France is downgraded) is that the EFSF cannot keep its triple-A rating,” said Commerzbank chief economist Joerg Kraemer.

“That may irritate markets in the short term but wouldn’t be a big problem in a world where the U.S. and Japan also don’t have a triple-A rating anymore. Triple-A is a dying species,” he said.

S&P has said that if a downgrade did materialize, countries such as Germany, Austria, Belgium, Finland, the Netherlands and Luxembourg would likely see ratings cuts of only one notch.

The other nine countries—most notably triple A-rated France—could suffer downgrades of up to two notches.

A spokesperson for S&P in Paris declined to comment on the reports. A French financy ministry spokesperson was not immediately available for comment.

John Wraith, Fixed Income Strategist at Bank of America Merrill Lynch told CNBC the confirmation of a mass downgrade would be another serious step in the crisis and would lead to a serious worsening of sentiment.

“To a large degree it’s widely anticipated,” Wraith said. “However, we think the reality of it is going to have a knock-on, ongoing impact on these markets.”

“It clearly deteriorates still further the credit worthiness of a lot of the European banks and just keeps that negative feedback loop between struggling banks and the sovereigns that may have to support them if things go from bad to worse in full force,” Wraith added.

A downgrade could automatically require some investment funds to sell bonds of affected states, making those countries’ borrowing costs rise still further.

“It’s been priced in for several weeks, but the market had been lulled into complacency over the holidays, and the new year began with a bounce in risk appetite, thanks partly to a good Spanish auction,” said Samarjit Shankar, Director Of Global Fx Strategy at BNY Mellon in Boston.

“But the Italian auction brought us back to earth and now we face the spectre of further downgrades.”

Italy’s three-year debt costs fell below 5 percent on Friday but its first bond sale of the year failed to match the success of a Spanish auction the previous day, reflecting the heavy refinancing load Rome faces over the next three months.

Reuters

Gilles Jacquier was on a rare Western reporting trip authorized by Syria’s embattled government amid a 10-month uprising against the regime of President Bashar Assad. Another France-2 reporter was uninjured.

News director Thierry Thullier of France Televisions, the parent station of France-2, told French TV BFM that Jacquier appeared to have been killed by a mortar or rocket as part of a series of attacks.

It was the first known instance of a Western journalist dying in Syria amid the unrest. Syrian authorities have denied many efforts by Western journalists to enter the country since the uprising began.

French Foreign Minister Alain Juppe, in a statement, said Jacquier had been killed “in an attack” in Homs, calling it an “odious act” and demanding an investigation into the killing.

“It’s up to Syrian authorities to ensure the security of international journalists on their territory, and to protect this fundamental liberty which is the freedom of information.”

The U.N. estimates more than 5,000 people have been killed in the uprising.

The British-based Syrian Observatory for Human Rights on Wednesday reported fresh violence in Syria. The group said soldiers and army defectors were fighting in central Hama province. The full casualty count was unclear.

ABC/ AP

The bill — applauded by Armenians — must now be voted on by the country’s Senate. But it has been roundly deplored by Turkey.

Turkish State TV is reporting that Ankara is recalling its ambassador to Paris after the vote took place, and the Turkish government has threatened other steps, such as sanctions.

Turkish Prime Minister Recep Tayyip Erdogan has deplored “these unbelievable steps,” and said such a law will “seriously damage” relations between the two countries.

Armenian groups and many scholars argue that starting in 1915, Turks committed genocide, when more than a million ethnic Armenians were massacred in the waning days of the Ottoman Empire.

But modern-day Turkey officially denies that a genocide took place, arguing instead that hundreds of thousands of Armenian Christians and Muslim Turks died in intercommunal violence around the bloody battlefields of World War I.

The genocide debate is an annual source of tension between Turkey and the United States, two NATO military allies.

The White House annually beats back efforts in Congress to pass a resolution which would formally recognize the 1915 massacre of Armenians as genocide.

Erdogan said he hopes the French Senate will vote down the bill.

“The issue should be researched not by politicians, but by historians,” Turkish Parliament Speaker Cemil Cicek said.

CNN

Russian Ambassador Vitaly Churkin, who holds the council presidency for the month of December, did not disclose the exact contents of the text but said it will be discussed by the 15 council members in the coming days.

Russia and China in October vetoed a resolution by Germany, France, Portugal and Britain, which sought to condemn Syria’s President Bashir al-Assad for the thousands of deaths of anti-government protestors in his country over the past eight months. Russia and China opposed singling out Damascus for human rights violations.

‘The draft seeks to end the violence in Syria and help that country proceed in the path of political reform,’ Churkin told reporters.

But European diplomats on the council pointed out that the Russian-Chinese draft failed to condemn human rights abuses in Syria. They intend to amend the text to include specific demands on Damascus to end the crisis and implement a plan of action proposed by the Arab League, which includes the deployment of international monitors to protect civilians.

‘We are engaging with the Russian-Chinese draft,’ German Ambassador Peter Wittig told reporters. ‘It is an opportunity to bridge the gaps and break the council’s silence over the situation in Syria.’

The UN High Commissioner for Human Rights, Navi Pillay, told the council Monday that a fresh eruption of violence was expected as Damascus plans a harsher crackdown on protesters. She cited news reports of Syrian military preparations to assault the city of Homs.

The death toll in Syria ‘probably exceeded 5,000,’ she said, including 300 children, based on what she called credible sources.

m&c, DPA