Daily News Brief

July 22, 2011

EXECUTIVE SUMMARY

- EU Leaders Decide New Greek Bailout
- North, South Korea in Nuclear Talks
- Somali Islamists Reject Aid
- Obama, Boehner Move Closer to Deal

Top of the Agenda: EU Leaders Decide New Greek Bailout

At a summit to tackle the eurozone’s ongoing sovereign debt crisis yesterday, European officials agreed on a new $157 billion bailout (FT) package for Greece. Most notably, the plan calls for an additional $53 billion in contributions by private bondholders, expected to lead to a selective Greek default.

Eurozone leaders also agreed to an expansion of its $634 billion bailout fund (WSJ), which will now be authorized to buy eurozone bonds on secondary markets and to lend directly – at lower rates – to troubled countries before they lose access to market financing, as happened with Greece, Ireland, and Portugal over the past year.

The development of the bailout fund was part of an effort to create stronger eurozone governing mechanisms (Guardian) and contain the threat of sovereign debt contagion to vulnerable countries like Italy and Spain.

Yesterday’s agreement was a victory for French President Nicolas Sarkozy, who has called for the creation of “European Monetary Fund,” and German Chancellor Angela Merkel, who has been adamant that private creditors contribute to a second Greek bailout. The Franco-German compromise (DerSpiegel) was a rebuke of European Central Bank President Jean-Claude Trichet, who argued forcefully against any plan that could see Greece default.

Meanwhile, world stocks (DeutscheWelle) hit a two-week high after European leaders announced the plan yesterday.

Analysis:

The draft agreement to hold together the eurozone probably won't quell financial panic, but it's a start, says this Guardian editorial.

The Economist reviews yesterday’s eurozone summit, and the fierce political wrangling that finally led to an agreement on a second Greek bailout.

Yesterday’s agreement is a small, but important, step forward for the eurozone, putting it on a path towards fiscal integration and a monetary union, writes TIME’s Leo Cendrowicz.

A growing sovereign debt crisis highlights the role of politics in the markets and the need to find common, EU-wide solutions, says Franco Pavoncello, president of Rome's John Cabot University, in this CFR Interview.

MIDDLE EAST: Qaddafi Rejects Talks with Rebels

Libyan leader Muammar al-Qaddafi rejected the possibility of negotiating with opposition forces, as the rebels pushed east (al-Jazeera) towards the capital of Tripoli, capturing a prominent military commander in the Qaddafi government.

In a Wall Street Journal op-ed, CFR’s Max Boot says U.S. recognition of the provisional rebel government is important progress in Libya, but it's time to get tough with the Qaddafi regime.

Saudi Arabia: According to Amnesty International, a new anti-terror law (BBC) being drawn up by Saudi officials would “strangle” the right of Saudi citizens to protest peacefully.

PACIFIC RIM: North, South Korea in Nuclear Talks

North and South Korea’s nuclear envoys held talks on the sidelines of the Association of the Southeast Asian Nations Regional Forum in Bali, Indonesia, in an effort to restart negotiations (Yonhap) on ending the North’s nuclear weapons program.

Australia: The country is set to finalize an agreement under which eight-hundred asylum seekers (SydneyMorningHerald) on Christmas Island will be transferred to Malaysia in exchange for four-thousand refugees who will be resettled on the Australian mainland.

SOUTH AND CENTRAL ASIA: Pakistan PM Says U.S. to Stop Unilateral Raids

Pakistani Prime Minister Yousaf Raza Gilani claimed he received assurances (Guardian) from Secretary of State Hillary Clinton that the United States would not conduct further unilateral raids on terrorism targets in Pakistan, like the one that killed al-Qaeda leader Osama bin Laden in May, despite contradictory assertions by U.S. officials.

The FBI's arrest of Ghulam Nabi Fai on charges of acting as a Pakistani agent to lobby U.S. policymakers on Kashmir may worsen the countries' already troubled relationship, says CFR's Daniel Markey.

Pakistan: During a speech at the Woodrow Wilson Center in Washington, D.C., former Pakistani president Pervez Musharraf (ExpressTribune) vowed that if he ever rose to power again he would not do things differently, while also claiming that as president and chief of the army he was not aware that Osama bin Laden was hiding out in Abbottabad.

AFRICA: Al-Shabaab Maintain Aid Ban

Somalia’s al-Shabaab Islamist rebels, in charge of two of the country’s southern provinces experiencing a severe drought, upheld a ban on Western aid agencies (AFP) and rejected UN reports of a famine.

A photo slideshow by Foreign Policy documents the crippling drought in the Horn of Africa that has put twelve million lives at risk.

Malawi: The Malawi government deployed military troops (Reuters) throughout major urban areas Friday, following two days of anti-government protests that left eighteen people dead.

AMERICAS: Obama, Boehner Move Closer to Deal

Following a comprehensive, bipartisan deficit-reduction proposal this week by the Senate’s so-called Gang of Six, President Barack Obama and House Speaker John Boehner restarted negotiations over a similar “grand bargain” (WSJ) that could save $3 trillion over ten years, while allowing for the nation’s debt ceiling to be raised in advance of a looming August 2 deadline.

While Congress is likely to raise the U.S. debt ceiling ahead of the August 2 deadline, lawmakers will still need to hash out a long-term deficit-reduction package to avoid market disruption and preserve U.S. global standing, says C. Fred Bergsten, director of the Peterson Institute for International Economics.

Brazil: The unemployment rate in Latin America’s largest economy (MercoPress) dropped to its lowest level since January, at 6.2 percent, while the Brazilian Central Bank increased interest rates for the fifth time this year in an effort to cool demand and slow inflation.

EUROPE: Murdoch Accused of Misleading UK Parliament

News Corporation’s James Murdoch, son of Rupert, was accused by two former News International executives of misleading the UK parliament this week when he claimed he had not known in 2008 that phone hacking (NYT) by reporters at the News of the World was widespread.

If James Murdoch's evidence was wrong, it undermines all the clean broom assurances he and his father gave to parliament, says this Guardian editorial.