Some of these points applied to other treaty-making rounds. But not all of them at once. The whole point of this treaty exercise - which is using an inconvenient intergovernmental track because of the UK - is political. Germany needs some sort of pact that makes it look like it will be almost impossible for member states to be big and careless spenders in the future. A fiscal straitjacket. The document could then be served up when Germans are feeling unenthusiastic about mutualising eurozone debt, or greater involvement of the European Central Bank, for example.

The problem is most of what is in the slim draft (now 16 articles) could simply be done using the normal EU law-making procedures. The six-pack of economic governance legislation - in place since mid-December - already represents a ground-breaking shift in Brussels' relations with member states when it comes to budget matters. New legislation, announced in November, consolidates these budgetary powers still further, giving the commission even greater discretionary powers over national spending.

So what is left? Not much but still two things to which Berlin remains very attached - a constitutional debt brake and automatic sanctions for excessive deficit countries. These cannot be done via the current treaties. But the "fiscal compact" is having difficulty delivering on just these two points. Language requiring a debt brake to be written into national constitutions has been softened when compared to earlier versions, to head off any referendums.

Meanwhile the very (German-esque) essence of the treaty - namely language getting fiscal miscreants to cut their deficits - has also been softened. Under the latest draft, member states may ignore the tough budget deficit limits in case of an "unusual event" or a "severe economic downturn." Echoes of the not very forceful Stability and Growth Pact. Language allowing the European Commission to take member states to court for not implementing the debt brake has also gone. Instead member states should take one another to court. An unlikely proposition.

Mario Draghi, head of the European Central Bank, and inventor of term fiscal compact had this to say of it on Thursday: "THE WORDING OF SUCH RULES NEEDS TO BE UNAMBIGUOUS AND EFFECTIVE." Hardly a ringing endorsement.

The European Commission will not accept any conflict with EU treaties or establishment of parallel structures. France, quite happy to have parallel structures, does not want the EU institutions having too many powers. Meanwhile, no one wants to set off a national referendum if at all possible. It is hard to imagine what will emerge by end of January when EU leaders are supposed to give the nod to the first draft.

But it appeared last night that one arm of the EU was having to take legal action against the other. Martin Callanan, leader of the Tories in the European Parliament, said: "It's clear the pantomime season is still in full swing. Now the EU is using our money to sue itself. The only certain winners will be lawyers and the only certain losers the taxpayers."

The latest costly European case came after Britain and other EU nations refused to approve the pay hike proposed by the Commission. PM David Cameron and other leaders insisted that pay should be frozen to reflect the climate of austerity across Europe. But the Commission yesterday insisted the bureaucrats were entitled to the money under EU regulations guaranteeing annual pay rises in line with the cost of living. It launched legal action against the EU Council, the body that represents the governments of Britain and other member states in Brussels.

According to Barclays Capital, the investment banking division of Barclays PLC, more British retailers are paying in yuan to achieve cost savings of up to 8 percent. With the yuan having appreciated at least 7 percent against the dollar since June 2010, Chinese suppliers commonly embed a "buffer" into dollar-denominated contracts to guard against further yuan appreciation.

"There was a growing number of companies switching to yuan for trade settlements in the third quarter of 2011, showing that businesses are now more comfortable with this payment method," Michael Vrontamitis, regional head of product management of Northeast Asia at Standard Chartered Bank PLC, noted. It makes more sense for businesses that have subsidiaries in China to carry out yuan-denominated cross-border trade transactions, particularly if they have two-way trade flows, so they can net off their transactions and significantly cut their foreign-exchange costs, Vrontamitis added.

This is especially so for the garment industry, which typically signs contracts six to eight months ahead of product delivery, during which time exchange rates can change dramatically. With currency risks eliminated for Chinese suppliers, they would be more willing to give UK customers better deals. Even marginal profit gains achieved in this way could prove life-saving for some UK clothing retailers. The industry experienced its largest year-on-year fall in sales last autumn since August 2009, according to a British Retail Consortium report.

Fashion retailer H&M is considering yuan payments. The company buys one-third of its products from China, its most important source. Nils Vinge, head of investor relations at the Sweden-based retailer H&M Hennes & Mauritz AB, said: "At present, H&M pays all its Asian suppliers in US dollars. The deregulation of the yuan creates opportunities for us to pay our Chinese suppliers directly in their local currency. We are now investigating this opportunity."

Naming Israel specifically, the Rajah News website said that Israel wasn't the only country that could undertake long-distance proxy wars. "We too can send our agents to kill people in their sleep," the site quoted the unnamed official as saying.

"None of those responsible will escape, none of them should feel safe," the official told the website. "We will take the war beyond the borders of Iran, and beyond the borders of the region." Israeli commentators said that the statement was an implied threat that Iran could target American Jews in response to what it perceives is a covert war by Israel to halt Iran's nuclear program. Several months ago, the FBI announced the arrest of a terror gang connected to Iran that had planned to attack synagogues in the US, and to blow up the Saudi embassy in Washington.

An Israeli official quoted in the New York Times, while not confirming that Israel was behind the recent string of assassinations of Iranian scientists - including Mostafa Ahmadi Roshan, killed Wednesday in Tehran - said that the assassinations were likely part of a "cold war" against Iran. "I think the cocktail of diplomacy, of sanctions, of covert activity might bring us something. I think it's the right policy while we still have time," the official said.

The US, meanwhile, successfully convinced Japan to cut its oil imports from Iran, as part of the mounting worldwide boycott of Iranian oil. After a meeting with visiting US Treasury Secretary Timothy Geithner, Japanese officials promised to cut imports of Iranian oil. Japan is one of Iran's biggest customers.

It's good news for financial markets. Despite the European debt crisis, new figures released on Wednesday show solid growth for Germany in 2011. The price-adjusted gross domestic product (GDP) increased by 3 percent year-on-year, the German Federal Statistical Office reported. For the second year in a row, the German economy showed steady recovery from the economic crisis in 2009, when the country had its worst recession since World War II and GDP shrunk by 5.1 percent. But the latest figures show Germany's GDP exceeding its pre-crisis level for the second year in a row, Destatis reported.

Consumers happy to part with their cash were the main driver of the growth last year, with private consumer spending up by 1.5 percent - an increase higher than any seen in the last five years. But by year's end, the worldwide economic downturn still negatively impacted the German economy. In the final quarter of 2011, GDP declined by approximately 0.25 percent compared to the previous quarter, Destatis estimated.

The German economy is expected to continue weakening this year due to the ongoing debt crisis in Europe, with economists predicting growth for the year to top out at just 0.5 percent. Some experts have even forecast a recession in Germany, Europe's largest economy, beginning in the final quarter of 2011 and lasting into the first half of 2012.

Though new statistics released on Wednesday showed strong economic growth in Germany for 2011, a slight contraction at the end of the year has prompted fears that Europe's largest economy could experience a recession this year. Averaged throughout the year, growth of gross domestic product (GDP) was a "very robust" 3 percent. But the Federal Statistical Office's preliminary estimate for the final quarter registered a foreboding 0.25 percent contraction. Economists have warned that the shrinkage was likely to continue into the first quarter of 2012, but many are still optimistic that Germany will recover in the second half of the year.

President of the Federal Statistical Office Roderich Egeler said that much of the growth in 2011 had been driven by domestic investment and private consumption, which rose by 1.5 percent, the highest jump in five years. Indeed, domestic consumption will continue to sustain the German economy for the rest of the year, Kai Carstensen of the Munich-based Ifo Institute told tabloid Bild on Thursday. "It will protect us from bigger problems," he said.

Other recent economic indicators suggest that 2012 will be rough for Europe as a whole, which will also prove challenging for Germany. On Thursday the Ifo Institute predicted that a short recession would hit the euro zone. GDP for the 17 member states shrank by an estimated 0.3 percent in the fourth quarter of 2011, and will likely contract again by 0.2 percent in the first quarter of 2012, it said.

The downturn is likely to cause problems for Germany's strong export industry, with some 40 percent of exports going to other EU countries. "Germany's strongly export-driven economy will not be able to elude the slowdown of the global economy," Junker said (Simon Junker is an expert with the German Institute for Economic Research).

The sanctions, broadly aimed at forcing Tehran to shift course on its nuclear program, targeted Iran's crucial oil sector and required foreign firms to make a choice between doing business with Iran or the United States. Foreign central banks that deal with the Iranian central bank on oil transactions could also face similar restrictions under the new law, which has sparked fears of damage to US ties with nations like Russia and China.

"If a correspondent bank of a US bank wants to do business with us and they're doing business with CBI or other designated Iranian banks... then they're going to get in trouble with us," the US official said. The measures were contained in a mammoth $662 billion defense bill, which President Barak Obama signed on December 31 at a time of rising tension with Tehran, which has threatened to block the Strait of Hormuz - through which more than a third of the world's tanker-borne oil passes.

The United States has warned it will "not tolerate" such an interruption.

There are fears that increased sanctions on Iran's central bank could force the global price of oil to suddenly soar, and actually give Tehran a financial windfall on its existing oil sales. Rising oil prices could also crimp the fragile economic recovery in the United States and inflict pain on American voters in gas stations - at a time when Obama is running for reelection next year.

Iran's nuclear confrontation with the West had already been escalating in the weeks before the killing, with the US tightening sanctions against Tehran, and Iranian officials warning that they would shut a waterway vital to global oil shipping in response. The Wednesday assassination of Mostafa Ahmadi Roshan - at least the fourth targeted hit against a member of Iran's nuclear brain trust in two years - has heightened tensions even further.

Iran's Supreme Leader Ayatollah Ali Khamenei blamed both Israel and the US. In a message read on Iranian state TV, he said the killing was carried out "with design or coordination of the CIA and the Mossad," Israel's spy agency. He pledged that Iran would punish those responsible. A column in the Kayhan newspaper by chief editor Hossein Shariatmadari asked why Iran did not avenge Roshan, a chemistry expert and a director of the Natanz uranium enrichment facility, by striking Israel.

"Israeli military chief Lieutenant General Benny Gantz in his recent remarks spoke about damaging Iran's nuclear program," he wrote. "Assassinations of Israeli military and officials are easily possible." The day before the attack, Gantz was quoted as telling a parliamentary panel that 2012 would be a "critical year" for Iran - in part because of "things that happen to it unnaturally."

He told diplomats from nearly 180 countries that the education of children needed proper "settings" and that "pride of place goes to the family, based on the marriage of a man and a woman. This is not a simple social convention, but rather the fundamental cell of every society. Consequently, policies which undermine the family threaten human dignity and the future of humanity itself," he said.

The Vatican and Catholic officials around the world have protested against moves to legalize gay marriage in Europe and other developed parts of the world. One leading opponent of gay marriage in the United States is New York Archbishop Timothy Dolan, whom the pope will elevate to cardinal next month. Dolan fought against gay marriage before it became legal in New York state last June, and in September he sent a letter to President Barack Obama criticizing his administration's decision not to support a federal ban on gay marriage.

In that letter Dolan, who holds the powerful post of president of the US Bishops Conference, said such a policy could "precipitate a national conflict between church and state of enormous proportions." The Roman Catholic Church, which has some 1.3 billion members worldwide, teaches that while homosexual tendencies are not sinful, homosexual acts are, and that children should grow up in a traditional family with a mother and a father.

"The family unit is fundamental for the educational process and for the development both of individuals and states; hence there is a need for policies which promote the family and aid social cohesion and dialogue," Benedict told the diplomats.

The proposed increase would push the debt ceiling to $16.394 trillion. The move by the Democratic president, who is seeking re-election in November, gives Congress 15 days to vote on a resolution of disapproval under terms of budget control legislation passed last year. Lawmakers are unlikely to muster the votes needed to block the boost in US borrowing capacity, so a replay of last summer's debt limit drama that brought the federal government to the brink of default and cost the United States its top-tier credit rating is not expected.

But the increase notification does give Republicans an opportunity to paint Obama as a spendthrift during an election year in which taxes and spending are key issues. They quickly blamed him for a lack of progress in reducing deficits after congressional deficit reduction talks collapsed late last year. "The President's runaway borrowing threatens the foundation of our economy and the financial future of every hardworking American," said Senator Jeff Sessions, the top Republican on the Senate Budget Committee. "It brings our nation closer to what the chairs of his own fiscal commission called 'the most predictable economic crisis in its history.'"

Obama originally intended to exercise his authority to raise the debt limit on December 30 but House and Senate leaders asked him to delay the move to allow lawmakers to consider it while they are back in session. House members reconvene in Washington next week. To allow for the delay, the Treasury Department has had to turn to one of the measures it employed to keep the government afloat last summer - dipping into the Exchange Stabilization Fund, which has a dollar balance of about $22.7 billion. A Treasury official said other measures, such as suspending the daily reinvestment of assets in a government pension fund, may also be needed until the debt-limit increase is secured.

All the sanctions imposed so far for halting Iran's progress toward a nuclear weapon have had the reverse effect, stimulating rather than cooling its eagerness to acquire a bomb. Yet, according to a scenario prepared by the Institute for National Security Studies (INSS) at Tel Aviv University for the day after an Iranian nuclear weapons test, Israel was resigned to a nuclear Iran and the US would offer Israel a defense pact while urging Israel not to retaliate.

As quoted by the London Times Monday, January 1, INSS experts, headed by General (retired) Giora Eiland, a former head of Israel's National Security Council, deduced from a simulation study they staged last week - their conclusion is that neither the US nor Israel will use force to stop Iran's first nuclear test which they predicted would take place in January 2013.

Our Iranian sources stress, however, that Tehran does not intend to wait for the next swearing-in of a US president in January 2013, whether Barack Obama is returned for a second term or replaced by a Republican figure, before moving on to a nuclear test. Iran's Islamist rulers have come to the conclusion from the Bush and Obama presidencies that America is a paper tiger and sure to shrink from attacking their nuclear program - especially while the West is sunk in profound economic distress.

Debkafile's sources stress that both Tehran and the INSS are wrong: The Tel Aviv scenario is the work of a faction of retired Israeli security and intelligence bigwigs who, anxious to pull the Netanyahu government back from direct action against the Islamic Republic, have been lobbying for the proposition that Israel can live with a nuclear-armed Iran. Our Washington sources confirm, however, that President Obama considers the risk of permitting a nuclear-armed Iran to be greater than the risks of military action.

This is a luxury that the US president cannot afford in an election year. Iran's acquisition of a nuclear bomb and conduct of a nuclear test would hurt his chances of a second term. The race is therefore on for an American strike to beat Iran's nuclear end game before the November 2012 presidential vote.

An estimated 5 to 10 per cent of internet users are thought to be addicted - meaning they are unable to control their use. The majority are games players who become so absorbed in the activity they go without food or drink for long periods and their education, work and relationships suffer. Henrietta Bowden Jones, consultant psychiatrist at Imperial College, London, who runs Britain's only NHS clinic for internet addicts and problem gamblers, said: "The majority of people we see with serious internet addiction are gamers - people who spend long hours in roles in various games that cause them to disregard their obligations. I have seen people who stopped attending university lectures, failed their degrees or their marriages broke down because they were unable to emotionally connect with anything outside the game."

Although most of the population was spending longer online, that was not evidence of addiction, she said. "It is different. We are doing it because modern life requires us to link up over the net in regard to jobs, professional and social connections - but not in an obsessive way. When someone comes to you and says they did not sleep last night because they spent 14 hours playing games, and it was the same the previous night, and they tried to stop but they couldn't - you know they have a problem. It does tend to be the gaming that catches people out."

Researchers in China scanned the brains of 17 adolescents diagnosed with "internet addiction disorder" who had been referred to the Shanghai Mental Health Centre, and compared the results with scans from 16 of their peers. The results showed impairment of white matter fibres in the brain connecting regions involved in emotional processing, attention, decision making and cognitive control. Similar changes to the white matter have been observed in other forms of addiction to substances such as alcohol and cocaine.

The shift in the powerful US naval assets comes at a moment of heightened tensions with Iran, which has threatened to close the Strait of Hormuz - the world's most important oil shipping lane - if US and EU sanctions over its nuclear program cut off its oil exports. The US military has said it will halt any blockade of the strategic strait and the top US naval officer acknowledged on Tuesday that preparing for a potential conflict there was something that "keeps me awake at night."

Still, the Pentagon denied any direct link between recent tensions and the movement of aircraft carriers. "I don't want to leave anybody with the impression that we're somehow (speeding) two carriers over there because we're concerned about what happened, you know, today in Iran. It's just not the case," said Captain John Kirby, a Pentagon spokesman. Military officials said the USS Carl Vinson arrived in the Arabian Sea on Monday to replace the outgoing USS John C Stennis carrier strike group, which Iran last week warned not to return to the Gulf after departing in late December.

Another carrier strike group, led by the aircraft carrier USS Abraham Lincoln, concluded a port visit to Thailand on Tuesday and was now in the Indian Ocean. It is on track to join the Vinson in the Central Command area of operations, which begins in the neighboring Arabian Sea. It is "not unusual to have two carriers in the CENTCOM theater at the same time," a second US military official said. Iran had warned the Stennis not to re-enter the Gulf and it is unclear when another US carrier will enter Gulf waters. The Pentagon has suggested only that, sooner or later, a carrier will pass through the Strait of Hormuz into the Gulf. "We routinely operate our ships - all of our ships, all of our types of ships - inside the Arabian Gulf and that will continue," Kirby said.

Monti, who arrived in Berlin to meet with German chancellor Angela Merkel said that his country's reforms did not receive the recognition that they deserved. He told German newspaper Die Welt: "Despite our sacrifices we do not experience any kind of concession by the EU, for example in the form of a cut in interest rates."

He warned Italians could turn hostile toward Europe and Germany if they do not see that the austerity measures they have accepted lead to any progress in the country's financial situation. Although Monti's government has adopted debt-cutting reforms, Italy's borrowing rates remain dangerously high. He added: "If the Italians do not see concrete rewards for their willingness to save and reform, there will be protests in Italy against Europe and also against Germany which is seen as ringleader of EU intolerance and against the European Central Bank,"

Italy is viewed as the most important country in the eurozone at the moment, in that if it falls there will be no recovery for Europe and it will bring down all other countries. The ECB will hold its monthly monetary policy meeting on Thursday, but analysts do not expect it to cut interest rates - which would help a weak economy like Italy's - nor signal a more aggressive stance in its bond purchases.

Hungary is currently facing the threat of legal action from the EU over its finances. The unprecedented warning by the European Commission, the EU's executive arm, came in response to the passage of a new constitution and a number of laws at the end of last year by the Hungarian PM Viktor Orban. The PM removed checks and balances on the government in areas like central banking, the judiciary and the media and has also failed to act to control the country's deficit.