Murdoch flies to London to tackle phone-hack crisis (Reuters)

LONDON (Reuters) – Rupert Murdoch was expected to fly to London to tackle a scandal engulfing his media empire while journalists prepared the last edition of a best-selling weekly they say he has sacrificed to protect plans to expand his television business.

The planned visit of the News Corp chief executive coincided with calls on Prime Minister David Cameron to speed up an inquiry into phone-hacking allegations which could jeopardize Murdoch's proposed takeover of a British broadcaster.

It has also unearthed allegations journalists working for Murdoch and others paid police for information and raised questions about relations between politicians, including Cameron, and powerful media owners like Murdoch.

Alan Rusbridger, editor of the left-leaning Guardian newspaper, said the past week had seen a whirlwind of stunning political, business and judicial developments.

"We've had both the prime minister and the leader of the opposition making the kind of statements that a week ago would have seemed suicidal for politicians, essentially conceding they had turned a blind eye to the abuse of press power because they wanted to keep in with Rupert Murdoch," he said in a video on the Guardian's web page.

News Corp, whose shares have fallen over the scandal, declined to comment on 80-year-old Murdoch's agenda.

A spokeswoman for News International, its British media arm, denied allegations an executive might have destroyed evidence relevant to a police inquiry into the allegations its reporters hacked into the telephones of relatives of troops killed in action and a string of celebrities several years ago.

News International chief Rebekah Brooks, 43, indicated more revelations may emerge in comments to News of the World staff on Friday, a day after she told them the 168-year-old newspaper had become "toxic" and would be shut.

"Eventually it will come out why things went wrong and who is responsible. That will be another very difficult moment in this company's history," Brooks said on Friday, according to a recording carried by Sky News.

Murdoch has brushed off calls for Brooks to resign due to her editorship of News of the World during some of the alleged hacking incidents.

She denies knowledge of the practice during her watch on the paper, hugely popular due to its celebrity gossip, campaigns and photos of scantily-clad young women.

Cameron, a friend and neighbor of Brooks, joined calls for her to step down on Friday at a news conference at which he admitted politicians had been in thrall to media for years and ordered a public inquiry.

Analyst Claire Enders said Newscorp was vulnerable. "As a business crisis it is immense," she told Reuters.

JOURNALISTS ANGRY

The Guardian newspaper said police were investigating evidence a News International executive may have deleted millions of emails from an internal archive in an apparent attempt to obstruct investigations.

The News International spokeswoman said the allegation was "rubbish," adding: "We are cooperating actively with police and have not destroyed evidence."

Journalists working on Sunday's last edition of the News of the World were angered by the loss of their jobs, saying they had been made scapegoats to protect NewsCorp's expansion in television.

"There are 280 journalists there who have absolutely nothing to do with the things that may have gone on many, many years in the past," chief subeditor Alan Edwards told the British Broadcasting Corporation.

A banner had been hung outside the newspaper's headquarters in east London, saying: "Break up the Murdoch Empire."

Neil Ashton, News of the World football correspondent told reporters before his final shift on the paper a lot of people on the paper wanted answers: "Rupert Murdoch is coming to London to restructure his company ... I don't know what the future holds."

Brooks denied the company, which many assume will fill the gap left by the News of the World by extending publication of its Sun daily to Sundays, was combining a cost-saving measure with a bid to remove a threat to its expansion in television.

British police on Friday arrested Andy Coulson, the former spokesman for Cameron who had resigned as News of the World editor in 2007 after one of his reporters and a private investigator were convicted of hacking into the phones of aides to the royal family.

Coulson has also said he knew nothing about the phone hacking.

PUBLIC INQUIRY

Cameron announced a full public inquiry into the hacking allegations at a hastily-convened news conference on Friday in which he was forced to defend his judgment in hiring Coulson.

The opposition Labour Party said on Saturday Cameron needed to appoint a judge quickly to get the inquiry going to avoid evidence disappearing, pointing to the Guardian reports.

"The clock runs out at the end of today," Labour Deputy Leader Harriet Harman told the BBC. "We ought to take precautionary measures."

A spokesman for Cameron said he was moving as quickly as possible. "We have already approached the Lord Chief Justice who will propose the judge," the spokesman said, adding that any destruction of evidence would be a criminal matter.

Cameron's opponents seek to block Murdoch's bid for the 61 percent of broadcaster BSkyB NewsCorp does not already own on the grounds it would give him too much political clout.

But allegations senior editors were involved in illegally accessing thousands of voicemail messages, and paying police for information, to get scoops, has raised questions about whether Murdoch's group is a "fit and proper" owner for BSkyB.

After years of allegations about hacking the voicemail of celebrities and politicians in search of stories, the scandal reached a tipping point earlier this week when it was alleged that in 2002 the paper had listened to the voicemail of Milly Dowler, a missing schoolgirl who was later found murdered, and even deleted some of her messages to make way for more.

That claim, and allegations that a growing list of victims included Britain's war dead and the families of those killed in the 2005 London transport bombings, outraged readers and caused many brands to pull advertising from the title.

A source familiar with his plans said Murdoch, who began his British media arm in the 1960s, was likely to arrive in London on Sunday morning.

Analysts and investors said the 14 billion dollar takeover deal could be jeopardized if British regulators impose tougher rules in response to new concerns around News Corp's dominance in British media.

Cameron indicated a new assertiveness toward the Murdoch empire by withholding overt endorsement of News Corp's bid for BSkyB on Friday.

"This scandal is not just about some journalists on one newspaper," he said. "It's not even just about the press. It's also about the police. And, yes, it's also about how politics works and politicians too."

News of the World and other newspapers have been accused of paying the police for information. Police said on Friday they had arrested a 63-year-old man in Surrey, southern England over allegations of inappropriate payments to police.

The prime minister's close links with those at the heart of the scandal mean he has been damaged by it but analysts say that with probably nearly four years until a parliamentary election he is unlikely to be sunk by it.

The police also face questions over why an initial investigation into phone hacking was closed after royal correspondent Clive Goodman and a private detective were jailed in 2007.

(Additional reporting by Sudip Kar-Gupta in London; writing by Philippa Fletcher; editing by Ralph Boulton)

Eurozone set for a busy summer of crisis talks (AP)

BRUSSELS – The eurozone's hope that it could enjoy a summer lull in its crisis has vanished as quickly as it appeared.

Last week, it seemed all sides would get a time out. Greece had avoided a default on its huge debts. Banks had agreed to roll over their holdings in Greek bonds, and finance ministers signaled that a second bailout would be agreed — though not before the autumn.

But while few observers believed that Europe's crippling debt crisis had been resolved, the good mood was shattered after ratings agency Standard & Poor's warned that the banks' plan to contribute to a new Greek rescue package would likely cause a default.

Rival agency Moody's then reignited market jitters in countries outside Greece when it slashed Portugal's credit grade to junk, saying a bank contribution plan would likely push it to take a second bailout.

And with Greece due for another review of its finances in August, the European Union's traditionally quiet summer period looks set for a repeat of the June drama.

That month, Greece's international debt inspectors spent weeks in Athens trying to save a faltering bailout while eurozone states fought about the role of private creditors and Greeks held days of violent protests.

At what was meant to be their last meeting before the summer, eurozone finance ministers on Monday face the challenge of rebuilding an eroding consensus on how to bailout Greece again.

"It will be a difficult Eurogroup, because positions are hardening," an EU official said of the meeting on condition of anonymity because of the sensitivity of the bank talks.

After rating agency Standard & Poor's said that even the market-friendly French model for a bond rollover would likely be seen as a "selective default" by Greece, Germany is pushing again for its original plan: a bond swap where, instead of buying new bonds, banks and other private investors would exchange their bonds for ones with longer maturities.

"If this French model — depending on how it is shaped — has this problem (of triggering a default rating) too, then we can go back to the model that we had proposed," German Finance Ministry spokesman Martin Kotthaus said Friday in Berlin.

A bond swap is commonly seen as a more radical option than a rollover, because it would be easier to verify how many investors are actually taking part and thus leave more room for naming and shaming.

"We have to walk a very narrow path between a voluntary contribution, and at the same time a substantial one," Kotthaus said.

The situation in Greece and the currency union's other struggling members — already bailed out Ireland and Portugal as well as Spain and Italy — is also set to overshadow the other main topic at next week's get-together: how to deal with banks that fail stress tests.

The results of EU bank stress tests are due next Friday and are seen as an important gauge for the region's credibility, after last year's exercise glossed over massive problems at Irish banks.

The EU's new banking regulator has stressed that this year's tests are much stricter and insists that states have the necessary backstops in place to deal with the results.

"Before the stress tests are published, the affected states have to be in a position to say 'this is how we will react,'" said a eurozone official. That involves boosting safety funds and coming up with models for an orderly restructuring in some cases, the official added. He was speaking on condition of anonymity because EU finance ministers, who will join their eurozone colleagues on Tuesday, still had to finalize the decisions on backstops.

However, fears over the potential costs for states to deal with failing lenders was already pressuring bank shares Friday, especially in debt-laden Italy, whose banks have so far weathered the crisis much better than their counterparts in other European countries.

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Geir Moulson in Berlin contributed to this story.