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We study sovereign yield dynamics and order flow in the largest euro-area treasury markets. We exploit unique transaction data to explain daily yield changes in the ten-year government bonds of Italy, France, Belgium, and Germany. We use a state space model to decompose these changes into (i) a "benchmark" yield innovation, (ii) a yield spread common factor innovation, (iii) country-specific innovations, and (iv) (transitory) noise. We relate changes in each of these factors to national order imbalance and find that Italian order imbalance impacts the common factor innovation, French and Belgian order imbalance impact country-specific innovations, and German order imbalance only changes yields temporarily. Order imbalance, however, does not have explanatory power for the most important factor: benchmark yield innovations.

Two versions of balance of power theory are applied in an attempt to understand recent events in Europe. "Hard balancing" is the more traditional military & economic action taken by one or more states when it appears that the power of another state or group of states is growing to the point that it is seen as a threat to physical security. A better explanation of what is happening in Europe is "soft balancing," in which there is no fear of physical security, but rather a perceived threat of adverse effects that might result from another state's growing economic & political power in the world community. Such is the case between Europe & the US. This paper analyzes the hedging policies adopted & the actions & reactions taken by one or another European country, or the whole of Europe, from the 1990s to 2003 to counter the hegemonic power exercised by the US while still maintaining their traditional solid alliance. J. Stanton

Fulvio Attinà examines the concept of "regional security partnership" both theoretically and in the context of Euro-Mediterranean region-building. He argues that this partnership is an intermediate venture on the road to the possible appearance of a Euro-Mediterranean security community. By discussing the difficulties of negotiating a security partnership in the framework of the Euro-Mediterranean Partnership, Attinà highlights the security culture divide on both sides of Mediterranean. The differences in the security culture between European and Arab states have deepened in recent years in view of regional and global developments, constituting a major obstacle to the implementation of a security partnership. Attinà argues, however, that the interaction between the two shores of the Mediterranean in coping with globalization-driven problems may prevail over the factors that have led to a deepening of the security culture divide in recent years.