Mayor Nir Barkat said that construction in East Jerusalem will continue, despite the "slap in the face" Israel received from the United States over the matter, Army Radio reported on Wednesday.

While meeting with reporters in Washington, Barkat also denied reports that a de facto building freeze is in effect, after two Jerusalem officials said on Monday that Israel has ceased new construction in the city's disputed eastern sector - despite Prime Minister Benjamin Netanyahu's declarations to the contrary.

Barkat also told the reporters it is impossible to prevent a vibrant city such as Jerusalem from growing.
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Construction in East Jerusalem has been a major sticking point between Israel and the U.S. since Israel infuriated Washington last month by announcing a major new East Jerusalem housing development during a visit by U.S. Vice President Joe Biden.

Israel annexed East Jerusalem, the site of sacred shrines holy to Jews, Muslims and Christians, after capturing it in the 1967 Six-Day War.
Some 180,000 Israelis now live in Jewish neighborhoods built there in the past four decades, and about 2,000 more live in the heart of traditionally Arab neighborhoods.

The Palestinians, the U.S. and the rest of the international community do not recognize the annexation.

Netanyahu, however, has said repeatedly that East Jerusalem will remain under Israeli sovereignty in any peace deal, a position the Palestinians reject.
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LONDON (MarketWatch) -- British American Tobacco /quotes/comstock/23s!a:bats (UK:BATS 2,147, +2.00, +0.09%) said Wednesday that cigarette volumes in the first three months of 2010 slipped 1% to 168 billion from 170 billion a year earlier as declines in Europe, Africa and the Middle East were partially offset by growth in the Asia-Pacific region. "Our consumers are clearly finding economic conditions difficult and volumes suffered as a result of market size declines," said CEO Paul Adams. "However, there was continued pricing momentum and good growth in market shares, leading to solid revenue growth. We remain on track for the year," he added.

As Greece inches closer to the brink of financial collapse, fear that the debt crisis will spread is engulfing Europe.
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A protest of austerity measures in Athens on Tuesday. Transportation workers have left train stations deserted because of strikes.
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Unemployed schoolteachers chanted slogans at an anti-government demonstration in Athens on Tuesday.
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Increasingly, investors wonder if Portugal, Spain and even Ireland may not be able to borrow the billions of dollars they need to finance their government spending.

“It’s like Lehman Brothers and Bear Stearns,” said Philip Lane, a professor of international economics at Trinity College in Ireland, referring to the Wall Street failures that propelled the financial crisis of 2008. “It is not so much the fundamentals as it is the unwillingness of the market to fund you.”

A major ratings agency cut Greece’s debt to junk level on Tuesday, warning that bondholders could face losses of up to 50 percent of their holdings in a restructuring. The agency also downgraded Portugal’s debt by two notches.

Leading stock indexes across Europe plunged by 2.5 to 6 percent, and the euro fell to a recent low, for a 13 percent decline against the dollar since December. The Dow Jones industrial average slumped 213.04 points, to 10,991.99, a fall of 1.9 percent, and markets continued dropping into Wednesday, with Japan’s Nikkei index falling more than 2 percent.

The downgrades, by Standard & Poor’s, pushed up the interest rates that Portugal must pay on its 10-year bonds to a high, and Spain’s costs rose, too. Investors are already demanding nearly 10 percent in returns on Greek’s 10-year bonds. The cost of insuring all three countries’ debt against a default are also at record levels — a clear sign that investors are shunning them.

“The situation is deteriorating rapidly, and it’s not clear who’s in a position to stop the Greeks from going into a default situation,” said Edward Yardeni, president of Yardeni Research. “That creates a spillover effect.”

The problem is that it is not just Greece, which expects to receive international aid, but Portugal, Spain and other countries that must issue more debt soon.

“Spain has to issue new debt plus roll over existing debt,” said Jonathan Tepper of Variant Perception, a research group based in London and known for its bearish views on Spain. “So they are dependent on the kindness of strangers.”

Countries the world over sell bonds, which help cover the costs of things like social services and government workers’ pay. In developed countries, this debt is considered relatively safe because governments can raise taxes or fees to pay their debts. But government revenue has dropped sharply during the recession, and levying higher taxes risks further slowing the economy.

With European budget deficits worsening, investors are now worried that — like American homeowners who borrowed too much in the last decade — some countries may have a hard time paying off their debts.

As economic growth picks up, the financial pressure should ease. Officials from the Greek finance ministry and staff from the International Monetary Fund are racing to conclude aid for Greece by May 19, a crucial date for its refinancing efforts.

To some extent, Europe’s paralysis in dealing with Greece is driving the unease and highlighting political divisions within Europe. Each step toward additional support for Greece has appeared to be too little too late.

The latest proposal, a 45 billion euro package by Europe and the I.M.F., has done little to calm the markets, and Germany’s statement this week that it must first see more deficit reduction from Greece before fulfilling its pledge has only increased concerns that Europe is not united behind Greece.

Kenneth Rogoff, a former economist for the I.M.F. who has studied sovereign defaults, calls the latest assistance package puzzling. “They put their wad on the table, but they could have gone further,” he said of the international plan. “I never thought Europe could take the lead on this.”

As the European Union and the I.M.F. debate the politics of Greece’s laying off civil servants or persuading its doctors to pay income tax, it is becoming apparent that the international community may need to come up with a much larger sum to backstop not just Greece, but also Portugal and Spain.

“The number would be huge,” said Piero Ghezzi, an economist at Barclays Capital. “Ninety billion euros for Greece, 40 billion for Portugal and 350 billion for Spain — now we are talking real money.”

Mr. Rogoff says that the I.M.F. could commit as much as $200 billion to aid Greece, Portugal and Spain, but acknowledges that sum alone would not be enough.

In fact, analysts at Goldman Sachs suggest that Greece will need 150 billion euros over a three-year period.
What a growing number of investors suggest is really needed is a “shock and awe” figure, enough to convince the markets that peripheral European economies will not be left to fail.

On Tuesday, a vice president of the European Central Bank said that the euro zone was facing its biggest challenge since the adoption of the Maastricht Treaty in 1997. Austerity measures in Greece and Portugal are already causing unrest there. Transportation workers in both countries protested on Tuesday, leaving train stations deserted because of strikes.

WASHINGTON - Arizona's tough new immigration law has spawned calls for boycotts, a travel warning from Mexico to its citizens and a possible federal lawsuit, but a key Republican senator said Tuesday that it is not likely to result in comprehensive immigration reform this year.

South Carolina Sen. Lindsey Graham had been the lone GOP senator supporting reform, but he said it appears a reform bill must wait until 2012 to gain enough public and political support to pass. A reform bill could not pass without bipartisan support.

"Good people in Arizona are so afraid of an uncontrolled border that they passed a law that I think is unconstitutional," Graham said at a hearing of the Senate Judiciary Committee. "We've got a long way to go to prove we can secure the border."

Arizona's law is under review by the U.S. Justice Department to determine whether it violates the Constitution, and Attorney General Eric Holder said Tuesday that he may challenge the law in court.

Dennis Burke, U.S. attorney for Arizona, said his office is working closely with the Justice Department to review the immigration law, which makes it a state crime to be in Arizona illegally and requires police and other law-enforcement agents to check documents of people they reasonably suspect to be illegal.

"The president clearly has concerns," Burke told The Arizona Republic. "The Justice Department has been in discussions with us about the bill and its impact on federal law."

Also Tuesday:

• Because of the new law, the Mexican government warned its citizens to use extreme caution if visiting Arizona.

• The Arizona Hotel & Lodging Association said six groups have canceled meeting or convention plans in the state. Member hotels and resorts said the groups' reservations ranged from 20 to 120 rooms.

• Calls for boycotts of Arizona and the state's businesses continued to pour in from neighboring states and countries.

U.S. Homeland Security Secretary Janet Napolitano, testifying before the Judiciary Committee, said Tuesday that the government has made huge progress in securing the border but argued that reform is needed.

Arizona's action, and violence along the southwestern border, should not be used as an excuse for Congress to avoid taking up comprehensive immigration reform, she said.

"The border is as secure now as it has ever been," Napolitano told the Senate panel.

Napolitano, who served as Arizona's governor before joining President Barack Obama's administration in January 2009, said the number of Border Patrol agents has doubled to more than 20,000 people in the past five years. That's the highest level of staffing in the Border Patrol's 85-year history, she said.

At the same time, Homeland Security has increased the amount of technology deployed at the border, Napolitano said.

For example, she said, Customs and Border Protection now has 30 Z-Backscatter mobile X-ray units that screen passenger vehicles crossing the border. That's up from nine units in 2009.

But Arizona Gov. Jan Brewer, who has been at the center of the immigration firestorm since signing Senate Bill 1070 into law on Friday, made it clear Tuesday night that she doesn't think the federal government has upheld its responsibilities when it comes to border security.

"Why don't they do their job and uphold their laws?" said Brewer, who lashed out at the Obama administration and Napolitano in particular.

The issue "just falls on deaf ears," Brewer said.

Napolitano, Brewer added, probably knows the border issue better than anyone. But, the governor said, "now that's she's on the other side of the fence . . . she's just ignoring us."

Federal officials say that increased security has resulted in fewer immigrants trying to enter the country illegally and an increase in the seizures of illegal drugs.

Mark Qualia, a spokesman for the CBP, said the number of illegal immigrants caught trying to cross the southwestern border has been steadily declining since 2005, when about 1.2 million illegal immigrants were apprehended. In 2009, he said, the number dropped to about 541,000.

At the same time, seizures of illegal drugs continue to rise.

Since March 2009, federal agents have seized 1.65 million kilograms of drugs along the border, an increase of 15 percent, Napolitano said.

She said she fears that Arizona's new law will divert time and money from catching drug smugglers and other felons to go after people who have committed misdemeanor immigration violations.

"We believe it will detract from and siphon resources away from those committing the most serious crimes," she told the senators.

Meanwhile, the Mexican state of Sonora announced that it will not attend a meeting it and Arizona has held every year for the past four decades.

The meeting of the Sonora-Arizona Commission, scheduled to take place June 3-4 in Phoenix, was canceled as part of a protest of the state's immigration laws, officials said in a letter to the state.

California officials are taking action, too. The San Francisco Board of Supervisors on Tuesday introduced a resolution calling for a boycott of Arizona because of its new anti-immigration law.

Los Angeles Councilwoman Janice Hahn said she planned to introduce a similar resolution for the City Council, according to the Los Angeles Times. California Senate President pro tem Darrell Steinberg, D-Sacramento, sent a letter to Republican Gov. Arnold Schwarzenegger, asking for a list of Arizona businesses and agencies that do business for California.

Steinberg proposes that "California do everything legally possible to sever its economic ties with the state of Arizona until that state's newly enacted racial-profiling law is repealed," according to a statement posted on his website.

Brewer called such boycotts and actions "unfortunate."

"I am really disappointed that people would try to resolve their problems with the legislation by boycotting the state," Brewer said Tuesday. "They are only depriving the legal residents of Arizona when they do that. I think it's both unfortunate and unnecessary."

Brewer, who is reaching out to her gubernatorial counterparts in other border states, said she has not specifically addressed the boycott issue but is trying to explain Arizona's position on the immigration issue.

She spoke with New Mexico Gov. Bill Richardson a few days ago and hopes to talk to Schwarzenegger and Texas Gov. Rick Perry soon.

The Arizona Hotel & Lodging Association said the estimated economic value of the cancellations ranges from $5,000 for the smaller groups to $45,000 for the larger.

Kristen Jarnagin, vice president of communications for the association, said the properties did not report the types of groups, other than a meeting of immigration attorneys. Also, a number of tourists have been calling or writing hotels to cancel plans.
"What the biggest unknown is and what our biggest concern is," Jarnagin said, "is that a lot of groups who are currently in the process of planning and would have considered Arizona won't even consider us. They will just mark us off their list.

"So it's almost like the silent boycott. We likely won't ever know the real economic impact because we will just never hear from those people."