Bankruptcy, the Best Way to Deal with Public Unions; Bold New Tactics Long Overdue; Gov. Rick Snyder's Move on Detroit; $1.26 Trillion Pension Gap

Distressed cities are finally doing what they should have been doing long ago, declaring bankruptcy to force concessions from public unions. Numbers are still a trickle, but at soon as a major city such as Oakland or LA selects that option, we will likely see a torrent of municipal bankruptcies.

At a packed, two-day conference on municipal woes sponsored by Michael Stanton, the publisher of The Bond Buyer Distressed Cities Discuss Bold Tactics in a New Fiscal Era.

The conference was devoted to a discussion of the strengths and weaknesses of the more powerful tools being used in many cities these days, including receiverships, emergency declarations and even bankruptcy.

Attempts to plug budget holes with one-time transactions are giving way to other approaches, “This is truly a new era for dealing with troubled municipalities,” said Stanton.

New woes were unfolding elsewhere even as a capacity crowd of government officials, investors, lawyers and credit analysts were gathering here to discuss the trend.

In Jefferson County, Ala. — which filed the biggest Chapter 9 municipal bankruptcy in American history this fall after its sewer-construction financing fell apart and a court threw out one of its taxes — county commissioners were voting to default on a general obligation bond payment.

In Detroit, city and state officials were sparring over how much emergency aid the city might be able to get, and how much state oversight and control would accompany it.

Stockton, Calif., was in negotiations in a last-ditch effort to avoid becoming the biggest American city yet to declare bankruptcy. And just two hours west of Philadelphia, Harrisburg, the state capital, recently announced that it would default on a payment coming due to general obligation bondholders.

Robert G. Flanders Jr., the state-appointed receiver for Central Falls, R.I., said his city’s declaration of bankruptcy had proved invaluable in helping it cut costs. Before the city declared bankruptcy, he said, he had found it impossible to wring meaningful concessions out of the city’s unions and retirees — who were being asked to give up roughly half of the pensions they had earned as the city ran out of cash.

“The municipality is on bended knee asking the retirees and unions to come to the table and give up their contract rights,” he recalled. “All of that leverage shifts once you have the gumption to pull the Chapter 9 trigger. And guess what? That produces agreements quicker and more effectively than otherwise.”

Naomi Richman, a managing director at Moody’s Investors Service, wondered aloud whether it might become more acceptable for cities to declare bankruptcy.

“Back in the ’80s, the stigma against corporate bankruptcy fell away, and it became viewed as a strategy a corporation might pursue for various reasons,” Ms. Richman said. “Recently, with the residential housing collapse, individual bankruptcy has less of stigma in society — it’s a strategy that a person might be advised to follow if they have a debt that they can’t afford. Could the same thing happen for municipal bankruptcy?”

Rhode Island City Offers Gloomy Lesson

The Huffington Post reports As Detroit Bankruptcy Looms, Rhode Island City Offers Gloomy Lesson

PHILADELPHIA -- Bankers, consultants and elected officials gathered at a conference here on Wednesday to discuss a hot political question for the formerly sleepy municipal bond industry: how to sell the need to protect the rights of bondholders -- the often large, distant financial institutions who extend the credit that keeps towns humming -- when cities enter financial crisis. The issue has most recently been thrown into relief as a Monday deadline for the city of Detroit to accept a consent order to fix the city's budget looms.

"While the economists have declared the recession to have been over for almost three years now, the problems of state and local governments continue to mount," said Bob Kurtter, the managing director for U.S. state and regional ratings at Moody's Investors Service. "Default continues to be rare," he said, but "our ratio of downgrades to upgrades has been negative for the past 12 quarters."

As more cities and states struggle to fill the $1.26 trillion gap between what they have actually set aside for pensions and retirement benefits and what they have promised, municipal accountants will grapple with questions that will increasingly resemble those faced by Detroit or former Rhode Island Supreme Court Justice Robert Flanders when he was appointed last year as receiver for Central Falls, a struggling former factory town in the Ocean State.

From the comments of Flanders and others at the municipal bonds conference, it seems like the industry is in agreement about one thing going forward: someone is going to have to suffer, and it shouldn't be bondholders.

Bondholders and Unions Should Both Share the Pain

This idea that bondholders should not take losses is ludicrous. Anyone stupid enough to buy Detroit bonds should pay a hefty price. Moreover, since untenable promises made to public unions are generally a leading cause of bankruptcy, public unions should suffer as well.

Gov. Rick Snyder Move on Detroit

The Christian Science Monitor reports Detroit nears deal to avert bankruptcy, but is it a state takeover?

March 27, 2012

With Detroit now formally in a state of "severe financial emergency," city and state officials are grappling with the terms of an agreement to resolve the crisis, which both sides say they expect to be signed by week's end.

So far, Michigan state officials are avoiding talk of a takeover – a toxic term in a majority black city whose elected officials are opposing the appointment of an emergency manager. Detroit officials are calling for more financial support from the state.

While Michigan Gov. Rick Snyder (R) says he wants to avoid assigning an emergency manager to control the city's finances, the agreement being worked out between the city council and the state treasurer's office is expected to force the most extensive financial restructuring ever experienced by Detroit, or any other US city its size.

Governor Snyder now has 10 days to deliver a "consent agreement," according to a new law that allows the state to take financial control of any municipality facing bankruptcy. Since the law passed in March 2011, Michigan has placed four cities and two school districts under emergency management.

The law allows the state to break collective bargaining agreements, privatize city assets, fire local officials, and force a restructuring to keep basic city services flowing.

“It’s a big experiment,” says Vincent Hutchings, a political scientist at the University of Michigan in Ann Arbor. “Detroit is a high-profile city with a lot of issues.”

City officials oppose referring to the final deal as a "consent agreement," which can lead to an emergency manager. The city wants to retain power to approve budgets but will hire a chief financial officer who will report to the mayor, said Deputy Mayor Lewis on Tuesday. The city also wants the state to lend Detroit money – a move that Snyder has refused in the past.

Meanwhile, many Detroit residents are protesting the possibility of the state playing a larger role in management of their city. An open meeting of the state commission was nearly shut down Monday by protesters who shouted, sang, and angrily denounced the state officials for what they see as trying to intervene with the democratic process. One activist filed a request with the Michigan Supreme Court for an emergency injunction to stop Snyder’s team from moving forward.

Adding to the drama is the weekend hospitalization of Detroit Mayor Dave Bing, who remains bedridden.

$1.26 Trillion Pension Gap

The only way to fill a pension gap of that size is to reduce benefits. Tax hikes are out of the question. And the fastest, easiest, and best way to get pension concessions from public unions is to reduce benefits and tell the unions what they get.

There is no need to negotiate. Central Falls did not negotiate, they said take 50% or you may end up getting even less.

Ultimately, the only way to deal with public unions is to strip them of all power including collective bargaining rights, then claw back ridiculous benefits in bankruptcy court.

Fearing Syria war, Gantz holds surprise drills

IDF chief of staff, other senior officers, arrive at two key military bases in northern Israel to review operations.

Fearing a future war with Syria, IDF Chief of Staff Lt.-Gen. Benny Gantz held a surprise drill inspection of two key military bases in northern Israel on Sunday to ensure that they will be able to continue operating in the event of significant missile attacks.

Commanders at the bases - one a critical ammunition depot and the other a key maintenance base for IDF armored vehicles - were surprised when Gantz and other senior officers arrived at the' gates of their bases to review operations there.

A senior IDF officer who participated in the inspections said that they were aimed at ensuring the military's readiness for a wide range of scenarios including possible war with Syria as well as additional border demonstrations like those held over the weekend.

"Our assumption is that both of these bases will come under major missile fire in a future war and nevertheless, soldiers there will need to know how to continue to operate," the officer said.

The officer said that commanders and soldiers at both bases had invested in digging trenches as well as the construction of various reinforced structures throughout the bases that could be used to protect soldiers.

Surprise inspections like those conducted on Sunday have become Gantz's trademark since he took up the post as chief of staff in February 2011. In October, for example, on the eve of your Yom Kippur, Gantz held a drill in the North during which he scrambled various units to ensure that they could be quickly mobilized if a war erupted.

Another example was a few months ago when at the end of a visit to the Ramon Air Force Base in the South, Gantz announced that the Syrian Air Force had infiltrated Israeli airspace and was on its way to bomb targets in the South.

Gantz stood by, watching the clock as fighter jets were scrambled and pilots suited up and jumped into their cockpits. He called off the surprise drill only after the jets were already on the runway and about to take off.

Gantz has explained that the objective of the drills is to help create a new mindset within the IDF according to which Israel needs to be prepared for the possibility that war could erupt without warning, particularly in light of the ongoing upheaval sweeping throughout the Middle East.

U.S. Complicit with Palestinian Authority Budgeting Mischief

The Palestinian Authority is crying poverty again, complaining about a decrease in expected levels of foreign aid that will force Palestinians into penury or — heaven forbid — tax increases. The Palestinian public is in no mood for that, according to the Palestinian Center for Policy and Survey Research.

In a recent poll, 48% of the respondents rejected solving Palestinian fiscal problems by increasing taxes or by forcing the early retirement of public sector employees. Asked what they would do, 27% would dissolve the PA itself and 52% would enter negotiations with Israel “in order to obtain greater international financial support.” The poll notes, however, that half of those choosing negotiations would do so only if Israel agreed first to a settlement freeze and the 1967 borders.

The PA is unlikely to dissolve itself and Israel is unlikely to acquiesce. So a look at the phantasmagorical system of Palestinian budget building — and American complicity — is in order.

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Last summer, the U.S. Congress withheld nearly $147 million of the planned $513 million in aid due to the Palestinian Authority’s unilateral UN statehood bid. (Another $113 million in U.S. funds for the PA security forces and $232 million for the UN Relief and Works Agency were unaffected.) Under pressure from the State Department — which enlisted the Israeli government’s help — Chairman of the House Foreign Affairs Committee Ileana Ros-Lehtinen announced that $88.5 million will be released. She retained her hold on the other $58.6 million:

I am disappointed that the administration would employ hardball tactics against Congress and threaten to send, over congressional objections, U.S. taxpayer dollars to the Palestinian Authority.

How important is U.S. aid? It amounts to about 15% of the total announced Palestinian budget and nearly 50% of all expected aid. But consider the overall state of Palestinian finances: the 2012 PA budget — produced by PM Salam Fayyad, the West’s “go-to man” for economic decision making — called for $3.5 billion in spending, $1.1 billion in aid, and showed a deficit of between $750 million and $1.1 billion (the latter figure is now the accepted one). That means the Palestinian economy is expected to generate only about $1.3 billion[1], and the PA is planning to spend three times what it produces. In real money terms then, with $1.3B in generated income and $1.1B in aid ($2.4B to spend), U.S. aid ($513 million) is almost 20% of actual spending.

Despite the U.S. designation of Hamas as a terrorist organization, some of that money goes to Hamas in Gaza. How? Hamas employs 32,000 people — about two-thirds of whom are security officers, paid out of the PA budget and not counted in Hamas’ own official spending. The United States gives the PA $200 million in “direct budgetary support”, meaning money that goes into the PA treasury unattached to contracts or other control mechanisms and that can be spent on whatever the PA thinks important – like Hamas security forces. (Or the Palestinian Broadcasting Service — which is not permitted to receive direct U.S. funding because it preaches hate and violence — but which receives money from the PA budget).

Hamas spending in Gaza is not accounted for when looking at the PA budget, but at least for 2011, there were some Hamas-provided numbers to consider. The Hamas parliament approved its own spending bill of $540 million in December 2010, of which Parliamentarian Jamal Nasser said no more than $60 million would come from taxes and fees. “The rest would come from gifts and foreign aid,” he said. (PA President Mahmoud Abbas claimed in 2011 that Iran was giving Hamas $250-500 million annually, which if true would make up the balance of Hamas’ budget, or at least make a dent in the $480 million not accounted for in the official numbers.)

Included in Hamas government revenues are the taxes and fees from tunnel smuggling, which is said to employ about 30,000 people.

This helps to explain the uproar in Gaza last week. About a year ago, Hamas announced it was cutting off fuel supplies from Israel in a burst of what may have appeared to be self-sufficiency, but which was really irritation over the fact that Israeli gas supplies are carefully monitored and can’t be siphoned off for resale in the black market. Hamas decided it was better both politically and economically to obtain its fuel by smuggling it in from Egypt through the southern tunnels. In what appears to be an effort to force Hamas’s hand in the Hamas-Fatah “unity talks,” Egypt turned off the fuel supply, sparking a crisis that has included 18-hour-a-day blackouts.

Israel has permitted fuel to be trucked in to alleviate some of the shortages, but Israel itself has been short of natural gas since the Egyptian revolution. Gas pipelines in the Sinai have been blown up several times and the Egyptian government has announced that it will stop selling natural gas to Israel, or at least will jack up the price. Under a 2005 deal, Egypt agreed to supply Israel with 60 million cubic feet (mcf) of gas per year; in 2009, that increased to 74.13 mcf. By 2010, Egypt was supplying 40 percent of Israel’s natural gas requirements. New natural gas finds off the Israeli coast will enable Israel to replace the gas sometime in 2013, but for now there are shortages that Israel has to make up. That gas Israel gave to the Hamas government in Gaza — while Palestinians rocket Israelis from the same place — is doubly costly.

Egypt is itself dependent on foreign aid. The country imports 40% of its food and 60% of its wheat, and has to pay in real money. Egyptian foreign currency reserves have dwindled, as tourism — the chief hard currency earner — has all but dried up since the revolution. According to Bloomberg, Egypt’s net official reserves stand at about $15.7 billion: somewhat more than had been predicted, but $640 million less than last month. Still, the relatively good news may help Egypt engineer a $3.2 billion IMF loan. The Obama administration is planning to turn over $1.5 billion in military aid and $250 million in economic assistance over the objection of Congress. Secretary of State Clinton has ordered a waiver ofCongressional restrictions on the aid, most of which will go to U.S. defense contractors to meet military contract payments.

There are two patterns here: one ours, one theirs.

The U.S. gives American tax dollars to the Palestinian Authority over the objection of Congress, and the PA sends some of the money to Hamas security forces in Gaza, violating U.S. restrictions on aid. And the U.S. gives Egypt aid weighted heavily toward military assistance over the objection of Congress. In both cases, the U.S. goal is to maintain diplomatic leverage with important but difficult governments.

The objects of our interest, however, have interests of their own.

For the Palestinians and the Egyptians — more so the Palestinians, who have always “relied on the kindness of strangers” and have never had a functional economy — the goal of government is to find as much money as possible with as few strings attached as possible to remain in power. As long as possible.

The possibilities for mischief are endless.

---

[1] By way of comparison, Vermont — last on the list of U.S. states — generated about $26 billion.

Shoshana Bryen has more than 30 years experience as a defense policy analyst and has been taking American military officers and defense professionals to the Middle East since 1982. She is the former Senior Director for Security Policy at JINSA and was author of JINSA Reports from 1995-2011.

Israel, Greece conduct joint naval drill amid ongoing tension with Turkey

U.S. Sixth Fleet also participating in the exercise, which includes simulation of attack on offshore natural gas platforms.

Israel, the United States and Greece are in the midst of a naval exercise in the Mediterranean Sea, in what Greek media outlets are saying is a message to Turkey following frayed ties with both Israel and Greece.

The exercise, called "Noble Dina," involves simulations of combat against submarines, air battles and protection of offshore natural gas platforms. The U.S. Sixth Fleet is also participating in the exercise, which the Greek media, which first reported on it, has described as being meant to send a message to Turkey.

	IAF and Greek planes conducting a joint exercise in December 2011.
	Photo by: Greek air force

Until 2009, Israel's Navy and the U.S. Sixth Fleet conducted a large yearly exercise with the Turkish navy called "Reliant Mermaid." Following the deterioration in Israel-Turkey relations in recent years and Turkish Prime Minister Recep Tayyip Erdogan's decisionto freeze military cooperation with Israel, the exercise was cancelled.

Last April, Israel and the U.S. decided to renew the exercise, but changed its name to Noble Dina. Greece, which was invited to participate instead of Turkey, jumped at the offer, which it saw as a political achievement vis-à-vis Turkey. Relations between the two countries are currently tense due to Turkish threats to act against Cyprus' natural gas platforms, in which Greece has interests.

IDF sources confirmed that the exercise was taking place, but refused to convey additional details.

The exercise began on March 26 and is scheduled to end on April 5. According to reports in the Greek media, the exercise began at an American military base in Crete. Reportedly participating in the exercise are a Greek navy destroyer and submarine, an Israeli Navy sailing vessel and several U.S. Sixth Fleet battleships, along with Israeli, Greek and American fighter jets and helicopters.

According to a report published on the Greek website Defencenet.gr, part of the exercise will take place off the coast of Turkey, near the Greek island Mais. The exercise will continue off the southern coast of Cyprus before concluding in Haifa port.

The site reported that enemy forces in the simulation will have characteristics similar to those of the Turkish air force. The site also noted that the exercise would address scenarios involving defense of offshore gas platforms in the Mediterranean from enemy attack, anti-submarine fighting and air battles.

Over last two years, Israel and Greece have intensified their military and intelligence cooperation. A large portion of the Israel Air Force exercises which previously took place in Turkey have moved to Greece as a result of the crisis in relations between Israel and Turkey.

Several weeks ago, incoming Israel Air Force chief Amir Eshel visited Greece, where he met with top Greek officials, including the country's defense minister, chief of staff and air force commander. Eshel currently serves as head of the IDF's Planning Directorate.

Resistance to Austerity Stirs in Southern Europe

Most of the people of southern Europe have stayed surprisingly stoical up to now in the face of some of the most painful budget cuts in living memory, but signs are stirring that patience may soon run out.

Josep Lago | AFP | Getty Images Europeans' patience with austerity is running thin.

An unexpectedly broad general strike in Spain on Thursday and mounting opposition to Prime Minister Mario Monti in Italy are among indicators that resistance is growing in a region at the center of concerns about a resurgence of the euro zone debt crisis.

Portugal remains very subdued for the moment and even Greece, scene of repeated violent street protests, has quieted recently.

But there are signals that political leaders will soon be directly in the firing line across Europe, especially if more cuts are required to reduce sovereign debt.

The atmosphere seems a combination of two opposite tendencies - acceptance of the message that deep cuts are the only way to save their countries from economic catastrophe, and a mounting feeling that greater pain cannot be borne by populations suffering deprivation and misery.

The problem for politicians like Monti and Spain's Mariano Rajoy is that the veryausterity measures imposed to cut debt under pressure from euro zone leaders could deepen recession and create a need for even more severe cuts.

There may only be a few more months left for reforms to start producing benefits before populations either retaliate in electoral tests or take to the streets in increasing numbers.

Investors are starting to show concern again about both economic difficulties and political uncertainties in Spain and Italy, with bond yields starting to climb after being brought under control earlier this year.

"There is a kind of resigned acceptance, but this resigned acceptance is not a stable equilibrium position.

People do get fed up with being made to feel guilty for their horrible situation," said Professor Erik Jones of Bologna's Johns Hopkins University.

He said populations were prepared to suspend judgement on their politicians and accept sacrifice if they believed there would be long term gain, but not indefinitely.

Only Months Left for Benefits

"We have only got about six months to run before voters start looking at their politicians and taking off the rose-tinted glasses.

"Once that happens, we are going to find not just a rapid turnover in incumbent governments that happen to go to the polls, but also an increase in the general level of disquiet that will be expressed in the form of strikes and other forms of social disobedience," Jones told Reuters.

Jean-Paul Fitoussi, an economics professor at the Sciences Po institute in Paris, told reporters at a business conference in northern Italy on Friday that austerity measures were "a dangerous approach that could trigger social unrest." Many Spaniards seem resigned to fierce belt tightening from Rajoy, whose conservative government was elected in a landslide last November in the full knowledge that he planned austerity.

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• Roubini: Euro Must Be Equal to Dollar
• Spain Test 'Has Failed'
• Slideshow: Protests Against Austerity in Europe

On Friday the government announced savings of 27 billion euros ($36 billion) from the central government budget, equivalent to 2.5 percent of gross domestic product.

A recent poll showed half of Spanish adults would accept cuts in treasured healthcare and education services if that was what it would take to put the economy back on track. Unions represent only a fifth of workers and many people crossed picket lines on Thursday in fear of losing their jobs.

However, the strike had a much bigger impact than a previous stoppage 18 months ago in a sign that patience may be wearing thin in a country with the European Union's worst unemployment.

Hundreds of thousands attended protest marches and factories and ports ground to a halt. There were brief outbreaks of violence on the streets.

"A lot of people accept austerity and economic reforms like some kind of divine punishment. But when the high unemployment drags on, I am convinced the social protests will take off," said Jose Antonio Garcia Rubio, economic secretary for the United Left, a minority leftist party that did well in the November general election.

Rajoy also suffered an unexpected setback in a regional poll in Andalucia on March 25, another sign that his room for maneuver is not as big as previously thought.

Monti's Honeymoon Ends

In Italy, former European Commissioner Monti has won wide plaudits from Europe, America and elsewhere for his economic expertise and swift action to head off the debt crisis.

But he too has recently run into trouble over a labor reform that is at the center of his program to jump start Italy's chronically stagnant growth.

Trade unions are planning protests and a general strike, his approval ratings have dropped and he has got involved in a messy row with the political parties he depends on to pass laws.

The political problems are partly a function of local polls in May; politicians are anxious to move out of the shadow of technocrat Monti and improve their woeful public esteem levels ahead of a general election next spring.

Politicians are also likely to be punished in Greece, where a general election is expected on May 6 after the country was obliged to swallow even bigger cuts in pensions, wages and services in exchange for a second international bailout.

Apart from a violent protest in February when shops and banks were set on fire, Greece has been comparatively quiet recently in contrast to almost daily demonstrations last summer by tens of thousands of people outside parliament.

Greeks appear to be waiting to punish the thoroughly discredited political class in the election, with nearly a third planning to abstain or cast blank ballots, according to polls.

"Last year, I spent the whole summer protesting outside parliament but nothing changed. No one is listening," 58-year old Angeliki Koutsioumba told Reuters. "Damn them all. We must punish them with our vote in the elections," she said, adding that she suffered a heart attack last year after a bank refused to give her a loan.

The Portuguese have been the most resigned to the pain of austerity following an international bailout, and a general protest strike on March 22 had little impact on the economy.

"This kind of strike does not help anyone, they are not the solution. It is all about hard work, only that will take us out of this hole," designer Filipa Almeida told Reuters in Lisbon.

But Antonio Costa Pinto, research professor at Lisbon's Institute of Social Sciences, said the mood of resignation would not last forever.

"Discontent is there, so if there are no signs of a turnaround, if the European slowdown prevents the Portuguese economy from starting to recover towards the end of the year, this acceptance will be hard to sustain, especially if more austerity measures are needed," he said.

That is the picture across Europe.

"Socially and politically, people are accepting austerity but you need to have light at the end of the tunnel," said American economist Nouriel Roubini--nicknamed Dr Doom after predicting the subprime crisis.

"Growth, jobs, income, otherwise the political and social backlash; that is demonstrations, strikes, weak governments failing," he told reporters at a business conference at Cernobbio on the shores of Lake Como.

Copyright 2012 Thomson Reuters. Click for restrictions.

TOPICS:Austerity | Portugal | Banking | Euro | Spain | Italy | European Union | Germany |France | Britain

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Rochester, New York: Wegmans supermarket directs customers not to use Muslim's checkout line if they have pork or alcohol

This is yet another example of the cultural and societal initiatives I wrote about at length in my 2008 book Stealth Jihad: Muslims demand special accommodation for Islamic law and practice, and reinforce the principle that wherever Islamic law and practice and American law and practice conflict, American law and practice has to give way. It also establishes special privileges for Muslims, in accord with their status in Islamic law.

"Sign at Wegmans draws attention," by Ray Levato for WHEC.com, March 30 (thanks to Pamela Geller):

It’s a first for Wegmans in this area. They’ve put up a sign asking customers buying pork or alcohol not to use a particular checkout line when a Muslim teenager is on duty as the cashier.

The sign went up a week ago at their Lyell Avenue store.

Wegmans says they haven’t gotten any in store complaints and Wegmans was very upfront about the cashier. They just wouldn’t allow us in the store to talk with her or customers.

Spokeswoman Jo Natale says the cashier is a teenaged girl who wears a head covering. She told her supervisor she was uncomfortable handling those items because of religious reasons. So the store manager who had experience with this type of situation outside of Rochester decided to put up a small sign whenever the girl was at the checkout counter.

It says, “If your order contains pork or alcohol product, we respectfully ask that you choose another lane.”

Wegmans also says the girl has been coached what to say if customers ask why. People News10NBC spoke with outside the Lyell Avenue Wegmans store said they were okay with it and one even knows Christians who don’t like the idea of serving alcohol.

But Christians who don’t like the idea of serving alcohol just get another job. They don't demand that their workplace change the way it does business in order to accommodate them.

Bernard Thomas said, “I feel like if they’re going to hire her and she’s got to have the job, why shouldn’t we respect her. Just go to another cashier.”

Why hire her if she won't do the job the way everyone else does it? There are no jobs in Rochester that wouldn't involve handling pork and alcohol?

Darlene Hucko said, “I would respect her beliefs and go to the next line if I had alcohol. Levato said, “You think that’s okay.” Hucko said, “I think it is okay.”...

I don't. This amounts to discrimination against non-Muslim customers -- they have one less checkout line, longer waits, etc. The civil rights movement was fought to establish equality of access to services for all Americans. This is a perversion of it.

In Sinai, militant Islam flourishes - quietly

Egyptian gov't authority has collapsed in much of Sinai, posing a security risk to Egypt, Israel, and the Suez Canal.

By Reuters

NORTH SINAI, Egypt - The group of 50 young men who had blocked off access to a small international military base in the Sinai desert would say nothing of who they were but their appearance held a few clues.

Dressed in army fatigues and armed with AK-47s, they wore the long beards of the hardline Islamists who are increasingly a law unto themselves in this part of Egypt.

Related:

• Hamas sets up rocket production line in Sinai
• Lawlessness and terror: The Beduin kingdom of Sinai

Quietly, barely noticed by outsiders fascinated by upheavals in Cairo and other Arab capitals, they are building a presence in Sinai that might offer a new haven for anti-Western militancy at the strategic junction of the Mediterranean, Africa and Asia.

When finally one of the men broke a silence that hung heavy on the barren plain, it was to explain to a reporter their demands: for the government to release five comrades jailed for bombings of tourist resorts in Sinai more than six years ago.

"We are ready to die under tanks for this," he said, refusing to give his name and saying little else beyond muttering Islamic mottos as he toured the positions the militants had established to surround the base, inconveniencing dozens of troops from the Multinational Observer Force, a unit set up in 1979 to monitor Egypt's US-brokered peace treaty with Israel.

Under a rare rainy sky on a Thursday night in March, the men would only speak with the permission of a man they simply referred to as "sheikh". A wolf's cry pierced the otherwise tranquil scene outside the remote base that is home to foreign peace observers including Fijians, Americans and Spaniards.

Not a shot was fired in anger, however, and the next day, the group lifted their eight-day siege. It was not because they feared arrest or attack by the authorities. But instead they had secured their demands. The government agreed to free the men accused of being part of a group which carried out the 2004 and 2005 attacks that killed some 125 people at the Red Sea beach resorts of Sharm el-Sheikh, Dahab and Taba.

It was a scenario unthinkable a year or so ago.

But with Hosni Mubarak's removal from power after three decades, government authority has collapsed in much of Sinai, leaving a vacuum where Islamist militant groups are flourishing, posing a security risk to Egypt, neighbors including Israel, and the Suez Canal, the busy waterway linking Asia and Europe.

In Sinai, an arid peninsula the size of Ireland but home to fewer than a million people, groups at the extreme fringe of the Islamist spectrum are expanding, even as Islamists long outlawed by the state enter the political mainstream in Cairo, where they now dominate parliament and are poised to enter government.

In towns where police stations have stood deserted since Mubarak was swept from office after a popular revolt, hardline Islamists are imposing their own authority. They are preaching a strict interpretation of Islam that has brought with it religious intolerance of a kind that shocks even some of the more conservative forces in the Muslim world.

Hardliners were blamed for bomb attack last year on a shrine revered by Sufi Muslim mystics - the kind of attack more familiar in restive Pakistan than in Egypt.

Though some of the militants here appear to be inspired by al-Qaida, experts do not yet believe the network is operating in the peninsula that separates Africa and Asia. But as time passes and the Egyptian state in far-off Cairo struggles to assert itself, there seems a growing risk they may align more closely with the global movement now led by Ayman al-Zawahiri, himself an Egyptian, though long assumed to be based abroad.

Egypt has already paid an economic price for lawlessness in Sinai - a pipeline exporting natural gas eastwards to Jordan and Israel has been blown up 13 times in the last year.

There are fears the economic impact could run deeper still. With its Red Sea resorts, Sinai's southern province is one of the main assets of a tourist industry that employs one in eight Egyptians and would be hit hard by more insecurity.

"I'd say there is genuine potential for this threat to grow and become a much bigger issue than it is now," said Henri Wilkinson, head of intelligence and analysis at the Risk Advisory group.

"I suspect al-Qaida ... sees great opportunity in Sinai."

'Sometimes violence is the way'

For now, militant Islamist influence has been restricted to mostly impoverished towns in northern Sinai. Some are drawing on the example of groups that made Egypt a pioneer in the world of extremism as they seek to impose their vision of Islamic law.

One group calls itself Al-Tawhid wal Jihad, the name first taken by al-Qaida's affiliate in Iraq. Blamed for the Sinai bomb attacks in 2004 and 2005, the group was accused last year of launching an attack on a police station in the town of el-Arish in which five members of the Egyptian security forces were killed.

Another is Takfir wal Higra, a name first heard in Egypt in the 1960s when the country emerged as a breeding ground for militant Islamist ideas that spread beyond its borders and supplied ideological fuel for al-Qaida and others.

Takfir wal Higra believes that even Muslims, if they do not share its beliefs, are infidels. The group's influence has grown in northern Sinai in the last year, locals say. "Sometimes violence is the way to achieve your objectives," said a man in his 30s who joined the group a year ago.

He comes from a mountain village outside el-Arish, the main town in northern Sinai where residents have long complained of neglect by the Egyptian state.

Wearing a short beard, jeans and a black jacket, the Takfir wal Higra recruit declined to be named as he recounted stories of how members of the group from one family had forced their parents to separate after declaring their father an infidel.

"I am ready to participate in blowing up the pipelines ... attacking police stations," he said. But when pressed about his goals, he appeared uncertain, blending vague talk of freeing Jerusalem from Israeli control with the idea of establishing an "Islamic emirate" in the Sinai Peninsula.

In Sheikh Zuweid, a few kilometres (miles) from the border with the Gaza Strip, that idea appears to have become a partial reality.

A newly renovated but empty police station in the town's central square is a powerful symbol of the collapse of state control. Slogans daubed on walls declare Sinai an independent Islamic state.

'The police left and never came back'

"The police left the city on Jan. 29, 2011 at 4 p.m. heading to Cairo and never came back," said Saeed Eteg, a liberal political activist from Sheikh Zuweid, recalling the day the state disappeared at the height of the uprising against Mubarak.

Sheikh Zuweid is a collection of mud brick buildings connected by a network of predominantly dirt roads. Locals say both state neglect and the collapse of traditional structures of tribal authority have allowed the spread of hardline influence.

Here, clerics apply their own interpretation of Islamic law at sharia courts independent of the state. "Decisions are for Allah alone," declares a banner outside one of the courts.

"People need someone to solve their disputes and they found the answer in religious courts," said Hamden Abu Faisal, a Salafi cleric who doubles as a judge in Sheikh Zuweid.

The Salafis are Muslims with a puritanical approach to their faith inspired by the official Wahhabi ideology of Saudi Arabia. Their brand of political Islam is a step removed from the more pragmatic, modernist Muslim Brotherhood, the biggest party in the Egyptian parliament, which is more moderate in its approach.

A Salafi group, the Nour Party, is the second largest party in the parliament following Egypt's historic free elections late last year. It eschews violence in pursuit of its goal of tighter application of sharia religious law in the country of 80 million.

But even the Nour Party is beyond the pale for some in Sheikh Zuweid. Mohsen Abu Hassan, a member of the party, says he was declared an infidel by one young man, a member of Takfir wal Higra, during an election campaign rally in the town last year.

"There is a phenomenon we must confront," Abu Hassan, now a member of parliament in Cairo, told Reuters.

"We shouldn't turn a blind eye."

A pile of rubble at a local shrine bears witness to the lengths to which zealots will go to impose their vision on how religion should be practiced here. On May 15 last year, five men blew up the shrine revered by Sufi mystics, whose beliefs are viewed as heretical by the puritanical Islamists.

A white flag raised by the Sufis flutters over what is left of the shrine of Sheikh Zuweid, viewed as one of the earliest Muslims in Egypt and after whom the town is named.

'We don't feel like Egyptian citizens'

Abdel Wahab Mabrouk, governor of North Sinai province, says religious groups are behind the trouble but denies the presence of al-Qaida or what he described as other "terrorist elements".

But Israel is worried. It is building a barrier along its 266 km (165 mile) border with the peninsula. One Israeli officer described the frontier today as "a hot border." Last August, Israel blamed Islamist terrorists from Sinai for attacks which killed eight Israelis. An Israeli counterstrike which left five Egyptian border guards dead did nothing to ease tense relations.

Israeli authority held sway in Sinai after it captured the region in the 1967 Middle East war. A theater for more tank battles in 1973, the peninsula was restored to Egyptian control by the 1979 peace agreement brokered by the United States.

One of Israel's concerns is that its Palestinian enemies in the Gaza Strip, including governing Hamas Islamists, could use Sinai as a back door for attacks on southern Israel.

But the ideas spreading in Sinai could also present a threat to stability in Egypt itself and to Hamas, which looks to the Muslim Brotherhood for ideological inspiration and which has waged its own war against al-Qaida-inspired militancy in Gaza.

As in other waves of Islamist militancy that have swept Egypt in the past decades - it was Islamist gunmen who killed peacemaking President Anwar Sadat in 1981 - experts believe heavy-handed police tactics have only made the problem worse.

The security forces' campaign to find the culprits in the 2004 and 2005 Sinai bombings has left a bitter taste. Police staged mass arrests, even rounding up suspects' wives to force them to hand themselves in.

Beduins in South Sinai staging acts of rebellion against Egypt

For the most part, South Sinai is a different story from the northern region. Beduin in the mountainous south on the Red Sea maintain a nomadic lifestyle that differs to the urban development in the north, where many have settled in towns along the Mediterranean coast and have mingled with outsiders from Egypt's Nile Valley heartlands and from neighboring Gaza.

Yet in southern Sinai, which is more sparsely populated than the north, Beduin have similarly been alienated by years of state neglect and oppression. They too are staging acts of rebellion, though not in the Islamist form found in the north.

Seeking the release of jailed relatives, Beduin have kidnapped two Americans, three Koreans and two Brazilians in the last two months, believing it is the only way they can get the Cairo government's attention. They did not ask for ransoms and all were released unharmed after talks with the authorities.

The Beduin say traditional tribal structures in the south have guarded against the infiltration of violent militant ideas. But their grievances against the state are just as profound.

The Beduin say they have not felt the benefit of the income brought by tourist resorts such as Sharm el-Sheikh, which have given many thousands of jobs to Egyptians from the Nile Valley.

"We don't feel like Egyptian citizens," said Sheikh Ahmed Hussein, a member of the Qararsha tribe, one of the biggest in the southern Sinai. A government report compiled in 2010 said a quarter of all Sinai's population of some 600,000 did not carry a national ID card. The Beduin, who make up the bulk of that number, are not allowed to own land or serve in the army.

Sensing the urgency of the problem, the military-appointed government of Prime Minister Kamal al-Ganzouri has taken action in the few months since it took office in November.

Seeking to alleviate tensions, Ganzouri has ordered the retrial of those imprisoned after the Sinai bombings. He also ordered the revival of development projects in the region, including a railway and a canal to supply water to central Sinai.

Abdullah Abu Ghama, a member of parliament from Sinai, says it cannot come too soon:

"The state has to speed up the process of development," he said. "If not, the mother of all problems will occur and extremists will increase in numbers."