Editor's Note: The following is reprinted with the permission of the Council on Foreign Relations.
The German economy–the eurozone's largest–slowed to 0.1 percent in the second quarter of this year, its weakest growth rate (DerSpiegel) since the height of the global financial crisis in the first quarter of 2009. France announced last week that its growth had been flat in the second quarter, indicating that economic stagnation (Guardian) could be spreading from the indebted eurozone periphery to the core countries.
The German data calls into question the European Central Bank's recent interest rate hikes, a move that could potentially accelerate a recession (WSJ) in Germany and the rest of the eurozone.
French President Nicolas Sarkozy and German Chancellor Angela Merkel are set to meet in Paris (DeutscheWelle)today for talks on how to alleviate eurozone debt contagion and avoid a downgrade of French and German debt. Pressure is mounting on Sarkozy and Merkel to back the idea of common eurozone bonds (Reuters) as a way of ensuring financing for indebted member states. FULL POST
Syrian security forces reportedly shelled a residential district in Latakia on Monday, following a violent weekend crackdown (al-Jazeera) on anti-government protesters in the western port city.
Syrian President Bashar al-Assad unleashed a mix of naval vessels, tanks, soldiers, and paramilitary fighters on Latakia on Sunday. According to residents, bombing, shelling, and looting (NYT) left at least twenty-five dead.
The military's move into Latakia, the country's main container port, risks disrupting transport (WSJ) links and further isolating Syria's weakened economy. FULL POST
Four members of the Eurozone–France, Italy, Spain, and Belgium–implemented a fifteen-day ban on the practice of short-selling some financial assets (BBC) in an effort to calm jittery markets troubled by a lingering sovereign debt crisis. While European indices, including Britain's FTSE and Germany's DAX, are trading slightly up on the temporary ban, some investors remain unconvinced of the effectiveness of such policy in the long term.
The last time short-selling was banned in Europe, in late 2008, negative market fundamentals trumped any initial salutary effects. Some economists fear the policy may backfire (FT), providing a negative signal to markets that the financial situation has grown so ominous. U.S. and UK markets have no plans to follow suit.
Harvard economist Kenneth S. Rogoff said “the ban smacks of desperation,” adding that falling stock prices have more to do with the state of European banks (NYT), such as in Italy and France. Some analysts fear the decision may force investors with bearish views on bank stocks to migrate their negative bets to U.S. banks–placing new pressure on U.S. regulators.
Chinese authorities continued to press policymakers in Europe and the United States to hold down public debt and put their fiscal houses in order. Speaking at a meeting of Southeast Asian trade ministers, China's trade minister (Reuters) said, "We support stabilizing measures taken by relevant countries, but we hope these countries will take measures to control their government debt proportion and take bigger responsibilities."
Amid investor fears that France could be next in line to have its AAA credit rating downgraded after the United States, French President Nicolas Sarkozy instructed his budget and finance ministers to come up with new deficit reduction (FT) measures to help the country meet its debt obligations.
The eurozone sovereign debt crisis was compounded by concerns over the health of the European banking sector (DeutscheWelle) and its exposure to the struggling economies of Spain and Italy. In a volatile day of trading Wednesday, French bank shares plunged, with Société Générale dropping nearly 15 percent.
French bank stocks rose in early trading Thursday but then quickly erased gains as investors moved to safe-haven (Reuters) government bonds. The volatility came despite assurances from the leading credit rating agencies that France was not under review (WSJ) for a downgrade and an adamant assertion by Société Générale CEO Frédéric Oudéa that the bank was not on the brink of collapse.
The Fed's move indicates that it sees limited U.S. growth through 2013, but nonetheless hopes to assuage investors (NYT) and foster risk-taking by keeping borrowing costs down.
Asian and European markets responded positively (FT) to the announcement in Wednesday trading, even as long-term investor sentiment remained cautious amid the ongoing U.S. and European debt crises.
However, U.S. stock index futures dropped (Reuters), pointing to a lower opening on Wall Street. FULL POST
The downgrade of the United States' long-held AAA credit rating ignited a global sell-off, as Wall Street's Dow Jones Industrial Average dropped 5.5 percent Monday in its steepest (WSJ) one-day decline since December 2008.
Asian markets remained under pressure, plunging (BBC) by as much as 10 percent in morning trading, with some stocks rebounding and others paring loses as the markets closed.
European markets showed gains in early trading, but then dropped rapidly (DeutscheWelle), with spread-betters expecting German, French, and British stocks to drop by as much as 5 percent today. FULL POST
World finance ministers and central bank governors from the G7 pledged Sunday to take "coordinated action" (WSJ) to ensure liquidity and support financial markets, following mounting global economic fears over last week's U.S. debt downgrade and a rising risk of eurozone sovereign debt contagion to Italy and Spain.
After a sharp drop in Asian stock markets on Monday, the G20 issued a similar call out of South Korea, signaling the group would take "all necessary initiatives" (AFP) to ensure global financial stability.
The European Central Bank intervened (FT) in bond markets shortly after, buying up Italian and Spanish debt and pushing yields down sixty-five basis points, as Spanish and Italian stock markets rebounded. However, European stocks resumed a sell-off (Bloomberg), as investors quickly turned back their attention to the economic ramifications of the U.S. downgrade.
The dollar continued to weaken against most major currencies, and U.S. index futures remained down (NYT) ahead of markets opening on Wall Street. FULL POST
Though the United States economy continues to struggle, employers added 117,000 jobs (NYT) in July, the Labor Department reported on Friday. The figure was far more than the 18,000 net new jobs reported in June and the most new jobs added in a month since April. Unemployment dropped slightly to 9.1 percent. Fears that the global economy could be moving again toward recession sent global markets plunging Thursday and Friday (WashPost), with economic and financial problems around the world fueling a cycle that risks spiraling beyond the governments' control. It was the second drop in two days, after stocks plummeted Wednesday following President Barack Obama signing of the $2.4 trillion debt limit increase.
A troubling dynamic is taking hold where spreading debt in Europe creates new risks for the United States, and the chance of another U.S. recession worsens the European fiscal crisis. These hurdles come as China and other rising economic powers are trying to slow their economies to combat inflation.
The United Nations Security Council condemned ongoing violence perpetrated by the security forces of Syrian President Bashar al-Assad against anti-government protesters. The council, which censured Syria by issuing a presidential statement (NYT) rather than a full-blown resolution, criticized the Assad government's "widespread" human rights violations in its attacks on civilians.
The UN statement came after months of diplomatic debate over how to address the crackdown against protesters. U.S. Ambassador to the UN Susan Rice called it a "strong step" (WSJ) for the international community, but human rights groups criticized the statement for lacking any concrete actions to hold the Assad government accountable.
Meanwhile, Syrian tanks (al-Jazeera) continued to bombard the city of Hama. Human rights groups say at least one hundred and forty people have been killed since Sunday in Hama and surrounding towns.
Security forces shot and killed (BBC) at least four protesters following evening prayers Wednesday in the cities of Damascus, Deraa, and Palmyra. Anti-government demonstrators have vowed to rally every night during the Muslim holy month of Ramadan. FULL POST
Editor's Note: The following is reprinted with the permission of the Council on Foreign Relations.
Former Egyptian president Hosni Mubarak appeared in a Cairo court (al-Jazeera) Wednesday to face charges of corruption and the killing of anti-government protesters during February's popular revolution that ousted him from power. He pled not guilty to all of the charges.
The former ruler - Egypt's longest serving in modern history - appeared in court on a hospital bed inside a metal defendant's cage (National), along with his two sons. Mubarak was charged with the “intentional and premeditated murder” of peaceful protesters and with accepting bribes in a land-swap deal.
The trial, a key demand (DeutscheWelle) of the protesters who ousted him, came amid rising tension between the ruling Supreme Council of the Armed Forces and the opposition, who accuse the caretaker government of failing to speedily implement all necessary reforms.
Mubarak's court appearance was hailed as a seminal moment in the so-called Arab Spring (NYT) that has led to protests against autocratic leaders throughout the Arab world, starting with the ouster of Tunisia's president in January.
The U.S. House of Representatives passed legislation Monday night to raise the nation's $14.3 trillion debt ceiling by $2.4 trillion (WSJ) in three steps. The Senate is expected to pass the bill today, after which President Barack Obama will sign it into law, narrowly meeting a deadline that could have seen the United States default on its financial obligations for the first time in history.
If enacted, the plan will create a bipartisan congressional committee (NYT) to make recommendations on cutting the deficit–through spending cuts and a possible revision of the tax code–by at least $2.1 trillion over ten years.
Global markets and international leaders initially responded positively (DeutscheWelle) to news of the deal, with French Finance Minister Francois Baroin saying the move would "reinforce global growth." But stock markets dropped by the end of Monday as international investors responded to weak U.S. manufacturing figures for June and continued speculation that the United States may lose its AAA credit rating (Guardian), despite an agreement on the debt ceiling.
The deal, which will be voted on by the House and the Senate today, would raise the debt limit by $2.4 trillion in two stages, while committing to equal spending cuts over ten years. If approved, the deal will establish a new congressional committee to recommend a long-term deficit reduction (NYT) package by Thanksgiving.
Global investors responded positively to the news, boosting U.S. stocks (Reuters) and selling off safe-haven assets. But many investors still fear that the deal does not go far enough to shield the country from a credit rating downgrade that could see it lose its long-held AAA status. The agreement includes only around $1 trillion (Politico) in spending cuts upfront, far short of the $4 trillion encouraged by Standard and Poor's. While less severe than a default, a credit downgrade would have significant repercussions for the U.S. and global economies.
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