Mr Steinbrück, the candidate for the Social Democratic Party, made the comments at an event in Potsdam on Tuesday that was part of a nationwide tour for his own campaign, said his spokesman, Michael Donnermeyer. During the event, Mr Steinbrück described former Prime Minister Silvio Berlusconi as “a clown with a special shot of testosterone.” At another point, he extended his remarks to include Beppe Grillo — a former comedian whose Five Star Movement won more votes than any other party in the Italian elections that ended Monday — saying that “to a certain extent, I am upset that two clowns have won.”

German leaders have not sought to hide their dislike for Mr Berlusconi, who they say dragged Italy into the euro zone debt crisis. Before the Italian vote, several allies of Ms Merkel made clear in public remarks that they supported Prime Minister Mario Monti and his program in Italy. But Mr Steinbrück’s comments appeared to hit a nerve with President Giorgio Napolitano, who is overseeing the delicate negotiations to form a new government after the Italian vote failed to produce a clear governing majority in both houses of Parliament.

“We deeply respect Germany for its successes,” Mr Napolitano said Wednesday in a speech to the Italian community in Munich. “Germany was capable of resurrecting from its own ruins and rebuilding a new Europe together with Italy. We respect, but naturally we demand respect for our own country.”

His comments continued what has become a running dispute between Woodward, perhaps the country's best-known print journalist, and the Democratic White House over who is responsible for the across-the-board cuts scheduled to begin on Friday. Last week, Woodward [who first gained fame in the 1970s from exposing the Watergate scandal during the administration of President Richard Nixon] published an opinion piece in the Washington Post - where he is an associate editor - saying the administration was "wrong" to blame the cuts on Republicans.

On Wednesday he attacked Obama for drawing national security into the budget debate. "So we now have the president going out (saying) 'Because of this piece of paper and this agreement, I can't do what I need to do to protect the country.' That's a kind of madness that I haven't seen in a long time," Woodward told MSNBC on Wednesday.

Looking resigned to the $85-billion in "sequestration" cuts starting on Friday, government agencies began reducing costs and spelling out to employees how furloughs will work. Expectations were low that a White House meeting on Friday between Obama and congressional leaders, including Republican foes, would produce any deal to avoid the cuts.

Put into law in 2011 as part of an earlier fiscal crisis, sequestration is unloved by both parties because of the economic pain it will cause, but the politicians cannot agree how to stop it. A deal in Congress on less drastic spending cuts, perhaps with tax increases too, is needed by Friday to halt the sequestration reductions which are split between social programs cherished by Democrats and defense spending championed by Republicans.

The truth is that even if the sequester goes into effect, the US government will still take in more money than ever before in 2013 and it will still spend more money than ever before in 2013. So it is a bit disingenuous to call what is about to happen “a spending cut”, but for the sake of argument let’s concede that point. Even if the budget really was being “cut” by 85 billion dollars, that only would only amount to a “cut” of 2.4 percent to federal spending. It would barely make a dent in the federal budget deficit for 2013.

The US government would still accumulate about as much new debt in fiscal year 2013 as it did in all the years from the inauguration of George Washington to the inauguration of Ronald Reagan combined. Our debt to GDP ratio would continue to soar. The sequester cuts would essentially only be a minor bump on the road to financial oblivion. But if you listen to Barack Obama and his allies, they would have you believe that we are facing a great national crisis because of these impending cuts.

They would have you believe that hundreds of thousands of people will lose their jobs and that many government agencies will no longer be able to operate effectively. They would have you believe that “granny won’t get her lunch” and “roofs blown off by Hurricane Sandy won’t get repaired”. Well, if all of that is true, then what in the world would our country look like if we actually cut a trillion dollars from the federal budget this year and started living within our means?

Italy currently has a debt to GDP ratio of more than 120 percent, and Italy has a bigger national debt than anyone else in Europe does. That is why it is such a big deal that Italian voters have just overwhelmingly rejected austerity. The political parties led by anti-austerity candidates Silvio Berlusconi and Beppe Grillo did far better than anticipated. When you combine their totals, they got more than 50 percent of the vote.

Italian voters have seen what austerity has done to Greece and Spain and they want no part of it. Unfortunately for Italian voters, it has been the promise of austerity that has kept the Italian financial system stable in recent months. Now that Italian voters have clearly rejected austerity, investors are fearing that austerity programs all over Europe may start falling apart. This is creating quite a bit of panic in European financial markets right now.

On Tuesday, Italian stocks had their worst day in 10 months, Italian bond yields rose by the most that we have seen in 19 months, and the stocks of the two largest banks in Italy both fell by more than 8 percent. Italy is already experiencing its fourth recession since 2001, and unemployment has been steadily rising. If Italy is now "ungovernable", as many are saying, then what does that mean for the future of Italy? Will Italy be the spark that sets off financial Armageddon in Europe?

“The result touches us all,” said Spain’s foreign minister, Jose Manuel Garcia-Margallo. “It is a jump into the void that bodes well for nobody, neither for Italy, nor for the rest of Europe.” Almost 57 percent of the Italian vote went to parties that have vowed to tear up the EU austerity script. Together they control a majority of senate seats.

Even if the centre-left leader, Pier Luigi Bersani, can put together a “grand coalition” with Mr Berlusconi, there is no going back to the hairshirt regime imposed by Mario Monti’s technocrat government at the EU’s behest over the past 15 months. “A deal with Monti is impossible,” said Mr Berlusconi on Tuesday. “His austerity policies have put the country into a dangerous recessionary spiral, with rising debt and unemployment, and the closure of a thousand firms a day.”

The great fear is that the European Central Bank (ECB) will find it impossible to prop up the Italian bond market under its Outright Monetary Transactions (OMT) scheme if there is no coalition in Rome willing or able to comply with the tough conditions imposed by the EU at Berlin’s behest. Europe’s rescue strategy could start to unravel.

Andrew Roberts, credit chief at RBS, said: “What has happened in these elections is of seismic importance. The ECB rescue depends on countries doing what they are told. That has now been torn asunder by domestic politics in Italy. The big risk is that markets will start to doubt the credibility of the ECB’s pledge.” It is a widely shared view. Luigi Speranza, from BNP Paribas, said: “We fear the markets could lose faith in the OMT’s effectiveness.”

The troika mission has returned to Greece, but this time things are different. No front page headlines are warning about new painful demands made by Greece's international creditors, no government officials are pleading for unity in the three-party coalition in support of unpopular measures. And there is no overhanging fear of a long drawn-out process of evaluation, full of innuendos about a catastrophic default or euro-zone exit.

On the contrary, the government in Athens is going on the offensive this time, presenting its own list of demands. The Greek government is determined to push lenders to agree on a list of concessions it hopes will help to alleviate the crisis. They include a lower VAT, or sales tax, for restaurants, the allocation of EU funds to combat unemployment and a new law aimed at making life easier for indebted households.

Thousands of pilgrims gathered in St Peter's Square in the Vatican for Pope Benedict's final general audience. His successor will be chosen in a conclave to take place in March. Pope Benedict told the crowd his papacy had been "a heavy burden" but he accepted it because he was sure that God would guide him.

At times he "felt like St Peter with his apostles on the Lake of Galilee", he said, making reference to the Biblical story when the disciples were battling against heavy waves and Jesus Christ appeared to them. The Church has been beset by scandals over sexual abuse by priests and leaked confidential documents revealing corruption and infighting in the Vatican.

No other pope has ever asked over a billion Catholics throughout the world to pray for him "and for the new Pope", as Benedict XVI did here in Vatican City. Was this the message of a man moving with the times? A Pope accepting with serenity that the Church at a time of crisis needs a younger, fitter man?

Certainly Pope Benedict looked and sounded frail - worn out, even - as he delivered his opening prayer, flanked by the Swiss Guards who will be withdrawn from his side on Thursday evening at the moment he relinquishes the papacy. But his decision to quit leaves behind a Papal in-tray piled high with challenges over sex abuse and financial scandals his supporters insist he has done so much to confront while conceding there is far more still to be done.

Name and title - He will be known as Pope emeritus, or Roman pontiff emeritus, the Vatican announced on Tuesday. He will also continue to be known by his papal title of Benedict XVI, rather than reverting to Joseph Ratzinger.

New home - Benedict XVI will leave the Vatican by helicopter before he resigns at 20:00 (19:00 GMT) on Thursday, but he will return in about three months to a new residence - a former convent known as Mater Ecclesiae - in the south-west corner of Vatican City.

His clothing - The Pope emeritus will continue to wear papal white - rather than the black of an ordinary priest, or the red of a cardinal. However it will be a simple cassock, with none of the flamboyant hats and vestments he revived during his papacy.

His ring - The papal gold ring, known as the fisherman's ring, will be smashed with a specially designed silver hammer when the Pope leaves office. No change here from normal practice. "Objects strictly tied to the ministry of St Peter must be destroyed," the Vatican says. His personal seal will also be defaced.

His duties - Benedict XVI will have no further administrative or official duties. He will not participate in the conclave to elect his successor, though, since he appointed 67 of the 115 men who will take part in the conclave, his influence will be felt.

Life in retirement - Announcing his resignation, the Pope said he would spend his time praying for the Church. His elder brother, Monsignor Georg Ratzinger, has also said Benedict would be happy to advise his successor, if required.

Social media - The Pope's Twitter account will go into hibernation when Benedict XVI steps down. He is expected to utter his final tweets along with his final general audience on Wednesday and before he departs the Vatican on Thursday - saying goodbye to the 2.5 million followers he has gained since opening his account late last year.

Golden parachute - Modest as Benedict XVI's retirement plans may be, as a bishop he will retain the Vatican's generous private healthcare policy and is likely to have recourse to the doctors who currently manage his medical treatment. It's possible he will continue to be cared for by the small group of German nuns who have looked after him during his papacy. As a pope has not retired for 600 years, there's no precedent for a papal pension plan, but Canon law requires each diocese to look after the welfare of retiring clerics. Rome will doubtless take good care of its Pope emeritus.

Georg Ganswein - Benedict XVI's personal secretary, Archbishop Georg Ganswein - the photogenic face seen in the background of a million photographs - will stay in this post. However, he will also keep up his role as head of the papal household for Benedict's successor. He will be the servant of two masters.

Infallibility - It's a widely held misconception the Pope is infallible in everything he says and does. In fact, the First Vatican Council of 1870 ruled a Pope's rulings are infallible only when they are made "ex-cathedra" - as part of a doctrinal statement about the Church. Benedict XVI never invoked this privilege (and in fact only one infallible statement has been made since 1870). When he resigns as Pope he will no longer be able to make ex-cathedra statements.

The images, taken earlier this month, show that Iran has activated the Arak heavy-water production plant. Heavy water is needed to operate a nuclear reactor that can produce plutonium, which could then be used to make a bomb. The images show signs of activity at the Arak plant, including a cloud of steam that indicates heavy-water production.

The Telegraph’s images were analysed by Stuart Ray of McKenzie Intelligence Services, a consultancy firm. He said: “The steam indicates that the heavy-water plant is operational and the extent of the air defence emplacements around the site make it suspicious.”

Based on its own analysis of satellite images, the IAEA has reached a similar conclusion. In a report distributed to its board last week, the agency reported “ongoing construction” at the Arak site and active heavy water production. According to the Institute for Science and International Security, a US think tank, if the heavy-water plant reaches full capacity, it would produce about 20lb of plutonium a year.