Don't miss the most significant story in the noise around this weekend's 50th birthday bash for the European Union in Berlin. Party hostess German Chancellor Angela Merkel has emerged as the West's most influential and promising leader in her second year in office, due to deeply held principles, good timing and no competition.

For the first time, the euro surpassed the US dollar in terms of the number of banknotes in circulation. Despite the euro's strength, European citizens remain skeptical, blaming it for making things more expensive.

"in a limited way," to sell part of its dollar reserves, the governor of the country's central bank, Sultan Bin Nasser al-Suwaidi, said in an interview. "We will accumulate euros each time the market appears to dip" as part of a plan to expand the country's holding of euros to 10 percent of the total from the current 2 percent. The Gulf state is among oil producers, including Iran, Venezuela and Indonesia, looking to shift their currency reserves into euros or sell their oil, which is now priced in dollars, for euros.

For the first time an 18-month programme for the three successive German, Portuguese and Slovenian Presidencies was elaborated for the period January 2007 to June 2008. (...) This "team programme" is designed to increase continuity in the Council's work.

America has habits that are inappropriate, to say the least, for the guardian of the world's main reserve currency: rampant government borrowing, furious consumer spending and a current-account deficit big enough to have bankrupted any other country some time ago. This makes a dollar devaluation inevitable, not least because it becomes a seemingly attractive option for the leaders of a heavily indebted America. Policymakers now seem to be talking the dollar down. Yet this is a dangerous game. Why would anybody want to invest in a currency that will almost certainly depreciate? (...)
America's current-account deficit is at the heart of these global concerns. The OECD's latest Economic Outlook predicts that the deficit will rise to $825 billion by 2006 (6.4% of America's GDP) assuming unchanged exchange rates. Optimists argue that foreigners will keep financing the deficit because American assets offer high returns and a haven from risk. In fact, private investors have already turned away from dollar assets: the returns on investments in America have recently been lower than in Europe or Japan (see article). And can a currency that has been sliding against the world's next two biggest currencies for 30 years be regarded as "safe"?

If you thought record oil prices this year were a pain in your wallet, there’s more bad news on the horizon. The latest Bank for International Settlements quarterly report, which tracks the investment trends of oil-producing countries, indicates that Russia and OPEC countries are moving their holdings out of dollars and into euros and yen. OPEC cut its holdings in the dollar by more than $5 billion during the first and second quarter of 2006. And Russia now keeps most of its new deposits in euros instead of dollars. That decrease is swift and significant—and helps to explain why the dollar recently fell to a 20-month low against the euro and a 14-year low against the British pound. Holding dollars while other currencies gain strength means less profit for oil producers. But if they rapidly divest themselves of dollars, it may weaken the currency and push up inflation in the United States. "This new trend may be bigger trouble for the United States than high oil prices and surging Chinese exports," says Nouriel Roubini, a professor at New York University’s Stern School of Business. If this year’s move away from the dollar is a sign of future thinking by oil producers, the pain felt at the pump may soon be the least of our worries.

While not drastically changing the foreign-policy course set by her predecessor, Gerhard Schroeder, she has replaced his emphasis on emotional, personal ties with a sort of friendly distance.  Raised in a former communist regime, she's able to share George W. Bush's fervor for freedom and still criticize US policy in Guantanamo Bay. In fluent Russian, she can praise Germany's close partnership with Russian President Vladimir Putin and then raise questions about Moscow's treatment of NGOs and the deaths of journalist Anna Politkovskaya and former spy Alexander Litvinenko. The result, says Hans-Ulrich Klose, a foreign policy expert in the Social Democratic Party, is a head of state who can boast solid relationships with leaders in Washington, Europe, and the Middle East - vital assets in the months ahead. "She addresses critical topics ... but she doesn't do it in the way that the person across from her feels challenged or hurt," says Mr. Klose. "She's not a confrontational person."

Europe is in a leadership vacuum. Ségo versus Sarko in France, an uneasy handover in Britain, Prodi wobbly, post-election Holland and Austria without governments, Sweden moulting ministers, Poland, Hungary and the Czech Republic all in varying degrees of mess. One could add: a limping White House, and a Kremlin preparing for succession.
If ever there was a time for Germany to assert its new-found confidence, this would be it. The economy is recovering strongly. Political opposition is virtually irrelevant, because a grand coalition of Christian Democrats and Christian Socialists can cook up more or less what it wants. And yet Germany's 2007 agenda looks ambitious for an incrementalist such as Merkel. Reviving the European constitution; securing Europe's energy supplies; a more dynamic European policy on the Middle East; an accord with Russia signed and sealed before Vladimir Putin heads off to a retirement job at Gazprom; a firmer line on Turkey; breaking the regulatory grip of Brussels on industry; controlling hedge funds: these are just some of the aims percolating in Berlin. But remember how Tony Blair declared his intention to save Africa, and failed? Angela Merkel is out to save Europe. And failure, sad to say, is almost certain.