"No one knows the full ramifications of a government shutdown," said Paterson. "It would create unimaginable chaos around the state and the greater metropolitan areas." Such chaos includes closing all state parks, motor vehicles offices, courts, and even the lottery. Public assistance payments would not be made and unemployment payments might also be held up.

The governor is in this pickle, in part, because wild cards like Senator Ruben Diaz Senior (Democrat for Bronx) and possibly scandal-scarred Senator Pedro Espada (Democrat for Bronx) might not go along. Sources said the next emergency bill from Paterson will have up to $350 million in cuts to human services and mental health. But Republicans, who could become Paterson's new allies in the budget battle, aren't satisfied with that. They want $750 million in new cuts like:

Delaying the 10 percent welfare grant increases

Withholding welfare from those who don't comply with employment requirements

Reducing the personal needs allowance of people in drug and alcohol programs

Diaz will not go along with that. "I am not voting for any more cuts. I understand that it is painful," said Diaz. "But the governor is leaving me no choice." The other renegade, Espada, thinks there might be a budget deal in the offing, but, he said, "I would vote no if such a massive cut were included because the state needs a fiscal plan."

Paterson called both men "thugs."

"The collapse of the financial system as we know it is real, and the crisis is far from over," Soros said today at a conference in Vienna. "Indeed, we have just entered Act II of the drama." Soros, 79, said the current situation in the world economy is "eerily" reminiscent of the 1930s with governments under pressure to narrow their budget deficits at a time when the economic recovery is weak.

Concern that Europe's sovereign-debt crisis may spread sent the euro to a four-year low against the dollar on June 7 and has wiped out more than $4 trillion from global stock markets this year. Europe's debt-ridden nations have to raise almost 2 trillion euros ($2.4 trillion) within the next three years to refinance, according to Bank of America Corp.

"When the financial markets started losing confidence in the credibility of sovereign debt, Greece and the euro have taken center stage, but the effects are liable to be felt worldwide," Soros said.

Scraping to afford the next meal is still a grim daily reality in the developing world even though the global food crisis that dominated headlines in 2008 quickly faded in the US and other rich countries.

With food costing up to 70 percent of family income in the poorest countries, rising prices are squeezing household budgets and threatening to worsen malnutrition, while inflation stays moderate in the United States and Europe. Compounding the problem in many countries: prices hardly fell from their peaks in 2008, when global food prices jumped in part due to a smaller US wheat harvest and demand for crops to use in biofuels.

The UN Food and Agriculture Organization's food price index - which includes grains, meat, dairy and other items in 90 countries - was up 22 percent in March from a year earlier though still below 2008 levels. In some Asian markets, rice and wheat prices are 20 to 70 percent above 2008 levels, it says. Many governments blame dry weather and high fuel costs but critics in countries such as India, Argentina and Egypt say misguided policies are making shortages worse and collusion by suppliers might be pushing up prices.

The election saw the centre-right Liberal Party (VVD) emerging as the largest party, one seat ahead of the centre-left Labour Party.

The Christian Democrat party of outgoing Prime Minister Jan Peter Balkenende suffered a big defeat. Weeks of coalition negotiations are expected to follow the election.

With more than 99% of votes counted, the VVD had 31 of 150 seats, while Labour had 30. As the party with the most seats, VVD leader Mark Rutte could now become the first prime minister from his political camp since World War I. The unexpected big winner was the anti-Islam Freedom Party, the PVV, which took its number of seats from nine in the last parliament to 24 - its best-ever finish. The campaign had been dominated by a debate over the economy, which was thought to have eclipsed immigration as an election issue.

Mr Wilders has campaigned to stop the "Islamisation of the Netherlands". He wants the Koran banned, and has suggested a tax on headscarves worn by Muslim women. "Nobody in The Hague can bypass the PVV anymore," he said on Thursday, AFP news agency reported. "We want to be part of the new government."

"Our country's outstanding public debt is huge... our public finances have become the worst of any developed country," he said. After years of borrowing, Japan's debt is twice its gross domestic product. "It is difficult to continue our fiscal policies by heavily relying on the issuance of government bonds," said Mr Kan, Japan's former finance minister.

"Like the confusion in the eurozone triggered by Greece, there is a risk of collapse if we leave the increase of the public debt untouched and then lose the trust of the bond markets," he said. Mr Kan did not detail the fiscal changes he may impose to revive Japan's economy after years to stagnation. But in the past he has advocated increasing Japan's sales tax, a move that would be unpopular.

"It's been 20 years since the collapse of the bubble economy in the early 1990s. Because the Japanese economy had been in the doldrums, people have lost the trust they had and fear the uncertainty of the future," he said.

Speaking at a press conference next to President Karzai, Mr Cameron said that this was 'the vital year' and the British public expected to see progress. A huge US-led military offensive is expected in the autumn, amid faltering attempts to get members of the Taleban to lay down their arms.

"This is the vital year. This is the year when we have to make progress - progress for the sake of the Afghan people, but progress also on behalf of people back at home who want this to work," Mr Cameron said. "Nobody wants British troops to be in Afghanistan for a moment longer than is necessary," he added.

BP said in a statement on Thursday that it was "not aware of any reason" for the sharp fall in its ADRs. It said that its "strong and valuable" asset base, and its strong cash inflows and outflows, "gives us significant capacity and flexibility in dealing with the cost of responding to the incident, the environmental remediation and the payment of legitimate claims."

The severe market reaction came as UK industry expressed alarm at the "inappropriate" and increasingly aggressive rhetoric being deployed against BP by Barack Obama, US president, and warned that the attacks on the oil company could damage transatlantic relations.

The concerns come amid mounting political unease in Britain that attacks on BP for its handling of the Gulf of Mexico oil spill are being dictated by the politics of November's midterm Congressional elections rather than normal regulatory considerations.

Repeated references by senior US politicians to "British Petroleum" - which has not been the company's name since 1998 - have fuelled fears of a wider backlash against UK companies.

Richard Lambert, director-general of the CBI, the UK employers' group, said the presidential attack was "obviously a matter of concern - politicians getting heavily involved in business in this way always is". Mr Lambert suggested the White House strategy was misplaced. He said: "Apart from anything else, BP is a vital part of the US energy infrastructure. So the US has an interest in the welfare of BP, as much as the rest of the world does".

The latest drop comes amid fears of damage to the UK's reputation in the US. The oil company has come under increasingly sharp attack by US politicians, as congressional mid-term elections loom in November. US interior secretary Ken Salazar said that BP should compensate other oil companies that have had to lay off workers because of a moratorium on deep sea drilling announced by President Obama in response to the Gulf of Mexico spill.

Meanwhile, associate attorney general Thomas Perelli told a congressional hearing that the Justice Department was planning to take action to force BP to withhold its next dividend payment. The drop in BP's share price is already bad news for UK pension funds, which invest heavily in the firm. The oil company has said that it pays 1 pound in every 7 pounds of dividends that pension funds receive from FTSE 100 companies.

London mayor Boris Johnson said, "I do think there's something slightly worrying about the anti-British rhetoric that seems to be permeating from America. I do think that it starts to become a matter of national concern if a great British company is being continually beaten up on the international airwaves. I would like to see a bit of cool heads and a bit of calm reflection about how to deal with this problem rather than endlessly buck passing and name calling."

Sir Christopher Meyer, former ambassador to the US, told the BBC that the bashing of the company had reached an unacceptable level. He added that the British government should be urging the US to back off, in the British national interest.

In today's crazed environment, it seems like just about anything can set off a major panic. In fact, these days politicians have to be extremely careful about what they say about their national finances, because saying the wrong thing can literally send world markets into violent convulsions. For instance, when a senior Hungarian official said that the Hungarian economy was in a "very grave situation" last week it sent world financial markets into a tailspin.

Panic was everywhere and everyone was talking about how Hungary could be the "next Greece". Of course on Monday Hungarian officials backed away from that comment and tried to reassure world markets that everything was fine, but the damage had been done. It was a perfect example of the spirit of irrational fear that has gripped the financial world. After all, even if Hungary did fall apart financially, it wouldn't plunge the rest of the world into a depression.

And the truth is that Hungary is not really in that bad shape financially. Hungary's budget deficit is about half the size of the Greek budget deficit and Hungary doesn't even use the euro. But now investors all over the world are constantly scanning the news for the latest piece of information that will send waves of panic through the markets.

In the current environment, fear is what moves the markets.

He added, "Any treaty, even one that only applies to the euro area would have to be agreed by 27 countries, and Britain there has a veto, it is very important to make that clear." Speaking to the BBC Today programme a few days later, David Cameron then declined to specify whether a new eurozone Treaty, which did not affect the UK, would be put to a referendum, saying: "I think we're all getting slightly ahead of ourselves here. I mean, even the eurozone doesn't have any unanimity about whether there should be a treaty."

Although Germany has been calling for a Treaty change to bolster the eurozone and win back German confidence in its stability, its calls have been rebuffed by other countries.

Commission President Jose Manuel Barroso also engaged in a piece of rare public criticism of an EU leader, calling Angela Merkel "naive" for wanting to change the EU Treaties: "It would be naive to think one can reform the treaty only in areas Germany considers important. Then of course the British and others will come with their wishes. We will not propose treaty modifications even though we are open to good ideas."

Terje Riis-Johansen, Norway's oil minister said: "What is happening in the Gulf of Mexico is so unique, it's gone on for such a long time, the blow-out is so big, we must gather enough information from it before we move on."

The move will pile pressure on the British Government to put the North Sea oil industry under more scrutiny. Charles Hendry, Britain's new energy minister, said he wanted deep drilling due to start off the Shetland Islands to go ahead, despite concerns about industry safety standards.

He said yesterday that it was sufficient to increase inspections of rigs and set up a new industry body to probe safety, as new deepwater exploration gets underway. Shares tumbled across the oil and energy services sector yesterday, amid unconfirmed reports of another Gulf of Mexico leak at a rig operated by Diamond Offshore and a fresh onslaught on BP by Mr Obama.

The dramatic expansion in the use of special forces, which in their global span go far beyond the covert missions authorized by George W Bush, reflects how aggressively the President is pursuing al-Qaeda behind his public rhetoric of global engagement and diplomacy.

When Mr Obama took office US special forces were operating in fewer than 60 countries. In the past 18 months he has ordered a big expansion in Yemen and the Horn of Africa - known areas of strong al-Qaeda activity - and elsewhere in the Middle East, central Asia and Africa. According to The Washington Post, Mr Obama has also approved pre-emptive special forces strikes to disrupt terror plots, and has given the units powers and authority that was not granted by Mr Bush when he occupied the White House.

People like Brian Coulton aren't exactly the most popular figures in the financial industry these days. Politicians, in particular, aren't particularly keen on him and his ilk. Coulton, the European chief analyst for the ratings agency Fitch, was largely responsible for the downgrading of Spain's credit rating late last month. It was a move that once again sent stocks tumbling in New York and the euro down against the dollar.

Coulton doesn't accept any of the blame. "We performed our assessment, and that's it," he said tersely. The reason for the downgrade, he added, is concern that the austerity program announced by Spanish Prime Minister Jose Luis Rodriguez Zapatero on the previous Thursday would throttle economic growth. He declined to comment further.

In the midst of the euro crisis, the highly indebted countries are embroiled in a grotesque dilemma. The rating agencies will punish them if they don't get their gigantic mountains of debt under control. But the same agencies will also downgrade them if the governments impose austerity programs to reduce their debts.

The effect means that governments have to pay more to borrow money. Spain, for example, will be facing much higher interest rates now when it seeks to refinance 16 billion euros worth of bonds which mature in July. The higher interest rates, in turn, makes borrowing riskier and makes the country more vulnerable to further downgrades, which in turn leads to even higher yields - the beginning of a vicious cycle.

The scientists are now referring to the site as "Ground Zero." They have spotted oddly shaped "pancakes of oil" floating on the surface there - Samantha Joye, a professor of marine sciences at the University of Georgia reports - as well as "bizarre orange and black stringers, as deep in the water column as you could see."

The discoveries have added a new dimension to the fight to contain the oil spill. While thousands of workers and volunteers are currently defending the coastlines of Louisiana, Mississippi, Alabama and Florida against the reddish-brown scourge, what could be a far greater ecological catastrophe is taking shape out in the ocean.

The oil is suspended in the water in tiny, barely visible droplets, which the scientists call "rosebuds." The emulsion develops directly at the well head, deep beneath the surface, says Griffitt. When the hot oil shoots out of the ocean floor and comes into contact with very cold water under high pressure, methane gas is released, which then atomizes the oil.

James Cowan, an oceanographer at Louisiana State University, recently got a first-hand look at the underwater oil spill when he lowered a robot with an attached camera to a depth of 150 meters, about 120 kilometers west of the accident site. "First we saw droplets of oil, but then we couldn't see anything at all," Cowan reports. The underwater oil soup was so thick that it clogged the camera lens and the robot's headlights.

Gold also hit an intraday record, surging to $1,252.10. In euro terms, the metal also hit a record of 1,042.94 euros ($1,242.87) in the London market, a gain of 2.5%. The metal has surged over worries about Europe's debt woes and the slumping value of the euro. Investors in metals and currency markets have been on alert for any sign that the world's central banks, and China in particular, are shifting reserves out of the euro and into gold.

Though central banks typically are coy about investment decisions, there have been signs lately that they might be shifting out of euros and into gold. Russia's central bank, one of the world's largest holders of foreign-currency reserves, trimmed its currency reserves by $6.6 billion in May, according to data on the bank's website, but increased its gold reserves by $1.8 billion.

"You won't see major players be blatant about increasing their gold exposure and reducing their euro exposure, but it is a trend we've been witnessing in the past few months," said Kathy Lien, director of currency research at GFT Forex in New York. "For the most part, whether they openly admit it or not, central banks are increasingly worried about their exposure to euros."