Editor's Note: The following is reprinted with the permission of the Council on Foreign Relations.
Credit rating agency Moody's downgraded Irish debt to junk status Tuesday, suggesting the country may need a second bailout, just a week after the agency provided Portugal with a similar assessment. European Union officials have expressed public frustration (DerSpiegel) toward the "Big Three" rating agencies–Moody's, Fitch, and Standard and Poor's–for exacerbating the European sovereign debt crisis with speculative ratings.
At the same time, markets feared that Italy could be the next victim in the ongoing eurozone crisis, as the yields on the country's ten-year bonds reached a high of 6 percent (Bloomberg) Tuesday for the first time since 1997. Bonds gained today, after Italian Prime Minister Silvio Berlusconi vowed to push a €40 billion deficit-reduction (FT) plan through Parliament by the end of this week.
Meanwhile, eurozone officials planned to hold a special summit (WSJ)Friday to hash out a second financial rescue package for Greece. On the agenda is a proposal by the Washington-based Institute of International Finance that advocates buying back Greece's debt at a discount and exchanging bonds to reduce the country's debt burden.
Italy is used to crises–the government is rudderless, the economy is stagnant. and Prime Minister Silvio Berlusconi is mired in scandals. Now the country may become embroiled in the euro crisis, and its fate lies in the hands of its finance minister, writes Der Spiegel's Michael Braun.
The United States may be on the verge of making one of the biggest and least-necessary financial mistakes in world history, while the eurozone could be on the verge of a financial crisis that destroys not just countries' solvency but even the currency union and, at worst, much of the European project, writes the Financial Times' Martin Wolf.
EU leaders will be asked to approve an expensive compromise to save Greece and the eurozone, says the Economist.
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MIDDLE EAST: Thousands Return to Egypt's Tahrir Square
Thousands of Egyptian protesters turned out in Tahrir Square (NYT)–the locus of the popular revolution that toppled former president Hosni Mubarak in February–to call for the removal of military council leader Mohammed Hussein Tantawi, saying the demands of the revolution had not been met.
CFR President Richard N. Haass writes in the Financial Times that the" Arab Spring" has started to produce a region that is less tolerant, less prosperous, and less stable than what existed–and outsiders can't do much to change the course of events.
Palestinian Authority: Palestinian President Mahmoud Abbas said he would pursue a bid for Palestinian statehood (al-Jazeera) at the UN General Assembly this September, after the so-called Middle East Quartet, hosted by U.S. Secretary of State Hillary Clinton, failed to reach an agreement on restarting Israeli-Palestinian peace negotiations.
PACIFIC RIM: China's Growth Slows in Second Quarter
Following the Chinese government's implementation of strict monetary policies to fight rising inflation, China's growth slowed (FT) to 9.5 percent in the second quarter of this year, down slightly from 9.7 percent in the first quarter.
China: In a move to give emerging markets a greater voice at the IMF, the Fund's new managing director, Christine Lagarde, appointed China's Zhu Min (BBC) to a deputy managing director post.
The International Monetary Fund, both criticized and lauded for its efforts to promote financial stability, is again at the forefront of global economic crisis management. This CFR Backgrounder examines the Fund's history and role.
SOUTH AND CENTRAL ASIA: Pakistan's Spy Chief Heads to Washington
Pakistan's Inter-Services Intelligence chief, General Ahmed Shuja Pasha, flew to Washington, DC Wednesday to meet with his U.S. counterparts at the CIA, amid rising tensions (IHT) between Pakistan and the United States following the killing of Osama bin Laden in May.
Afghanistan: Afghan President Hamid Karzai attended the funeral (al-Jazeera) of his assassinated half-brother, Ahmed Wali Karzai, in Kandahar Wednesday, amid persistent violence in the province.
AFRICA: Thousands Flee Nigerian City Following Violence
Thousands of civilians fled the northeastern Nigerian city of Maiduguri, after a week of attacks by the Islamist sect Boko Haram (Reuters), the most recent of which killed three people and injured two soldiers.
Boko Haram violence continues to intensify and spread. According to press accounts, as many as forty people have been killed in a number of incidents since July 4, writes CFR's John Campbell in his blog Africa in Transition.
Kenya: The Kenyan government said it is overwhelmed by an influx of Somali refugees (DailyNation) - the result of a drought and subsequent food shortage that is ravaging that country–and called for the UN to settle the refugees outside Kenya to avoid congestion and insecurity at its refugee camps.
AMERICAS: Senate Republican Proposes 'Last-Choice' Option for Debt Debate
Amid a widening stalemate between the White House and congressional Republicans over a deficit-reduction plan, Senate Republican leader Mitch McConnell (NYT) proposed a "last-choice option" that would empower President Barack Obama to raise the debt limit without waiting for Congress to cut spending.
Brazil: Brazilian Central Bank President Alexandre Tombini said he was "comfortable" with Brazil's higher-than-expected June inflation rate (MercoPress) of 0.15 percent, even as experts forecasted that interest rates may have to be raised for a fifth time this year.
The United States should seize the opportunity to transform its relationship with Brazil to reflect its role as a world power, says David Rothkopf, member of a CFR Independent Task Force whose new report urges a UN Security Council permanent seat for Brazil.
EUROPE: British Political Parties Unite Against Murdoch
In the wake of a burgeoning phone hacking scandal that has engulfed Rupert Murdoch's News Corporation, the British House of Commons will issue a unanimous call (Guardian) for the media tycoon to drop his £8 billion bid to acquire Britain's BSkyB broadcasting group.
"At the same time, markets feared that Italy could be the next victim in the ongoing eurozone crisis, as the yields on the country's ten-year bonds reached a high of 6 percent".
Moody's has downgraded the creditworthiness of Irland and Portugal. Their junk status means it wouldn't be easy for them to borrow money and they would need a second bailout.
Investors are still lending to Italy, though to higher interest rates. They could lay their hands on the art works of Da Vinci, Michelangelo and many others, if Italy were to go bust.
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