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from MacroScope:

A reminder that all is not well in the euro zone

Bank of Portugal Governor Costa arrives to read a statement in Lisbon

A reminder that while the euro zone crisis may be in abeyance, it still has the ability to bite.

Portugal will blow 4.4 billion euros of the 6.4 billion euros left from Lisbon’s recently exited international bailout programme shoring up troubled lender Banco Espirito Santo which will be split into "bad" and "good" banks. Junior bondholders and shareholders will be heavily hit.

BES’s tale of woe is so specific that there is no obvious reason to think it will be replicated. But it is a reminder that bank stress tests later this year could throw up other nasties and more immediately the saga leaves Lisbon short of rescue funds should anything else blow up. The bond market is likely to react adversely. The 4.4 billion euros will come in the form of a state loan to a bank resolution fund which the government insists will be paid back.

Jean-Claude Juncker, the new European Commission President, will visit Athens for talks. The point at which Greece will ask its euro zone peers for some form of further debt relief is nearing amid signs of its economy finally pulling out of recession after six years.
EU officials have warned that Greece is slowing down on the reform front after the opposition, anti-bailout Syriza party won the country's EU election in May.

from MacroScope:

The long and winding road to sanctions

Russia's President Vladimir Putin talks to reporters during a meeting in Brasilia

If it’s true to its word, the European Union will impose sweeping new sanctions on Russia this week, targeting state-owned Russian banks and their ability to finance Moscow's faltering economy.

EU ambassadors will continue discussions on the detail of new measures, most significant of which would be banning European investors from buying new debt or shares of banks owned 50 percent or more by the state.

from MacroScope:

EU carve-up

Elected president of the European Commission Juncker is congratulated by European Parliament President Schulz after his election in Strasbourg

EU leaders meet for a summit at which they were supposed to decide who gets which European Commissioner posts – one for each member state – in what will be a huge carve-up, so huge in fact that it may well be that only a very few jobs are decided tonight.

Current best guesses – though they are just guesses – are that despite a willingness among some to play nice with the Brits, Prime Minister David Cameron may lose out again having voted against Juncker at a June summit. He is seeking one of the big economic portfolios; internal market, trade or competition but putting forward a low-profile politician as his point person in Brussels has not that made that any more likely.

from MacroScope:

Draghi vs Weidmann

draghi.jpg

European Central Bank President Mario Draghi makes a lengthy appearance in the European Parliament in Strasbourg. He will doubtless reassert that the ECB would start printing money if necessary but, as we reported last week, policymakers are fervently hoping they won’t have to and that a raft of measures announced in June will do enough to lift the economy and inflation.

Bundesbank chief Jens Weidmann fired another broadside over the weekend, saying rates were too low for Germany and policy should remain expansive for no longer than absolutely necessary.

from MacroScope:

Gas talks resume

Fresh talks between Russia, Ukraine and the European Commission in Berlin will aim to resolve a gas price dispute that Moscow has warned could make it cut off supplies next week.

Ukraine has said the price for 2014 should be agreed before it starts making any payments. Russia's energy minister has said Moscow and the EU have proposed that Kiev pay Gazprom $2 billion, and another $500 million before June 7, as a precondition for a price discount and further talks.

from David Rohde:

How 2013′s partisanship hurt us abroad, as well as at home

The furious partisan debate that erupted this week after a New York Times investigation questioned the central tenet of the Republican assault on the White House regarding Benghazi was a fitting end to 2013.

The lengthy article revealed that the State Department and CIA’s intense focus on al Qaeda caused officials to miss the threat posed by local militias. David Kirkpatrick’s reporting showed that Libya’s rebels appreciated the U.S. support in helping oust Muammar Gaddafi, but were strongly influenced by decades of anger at Washington’s support for dictators in the region.

from Ian Bremmer:

Can the U.S.’s limited military strike against Assad stay limited?

After Secretary of State John Kerry’s speech about Syria’s chemical warfare yesterday, it’s clear that the U.S. is going to attack Syria. Defense Secretary Chuck Hagel says U.S. forces are “ready to go.” Envoys are telling rebels that Western forces “could attack Syria within days,” per Reuters.

But even as the United States prepares to strike, Syria is not really the heart of the issue. As Kerry said in his speech, “The meaning of [Assad’s chemical weapon] attack goes beyond the conflict in Syria itself.” The goal will not be to tilt the scales in Syria’s civil war or to put an end to the violence; rather, the U.S. wants to retaliate against an affront to its credibility, and the unambiguous breaching of an international norm. But there is danger. What begins as a limited military strike to punish Assad could quickly devolve into deeper engagement in Syria, or it could scuttle America’s top regional priorities like its nuclear discussions with Iran.

from The Great Debate:

Assessing the resiliency of Hillary Clinton

As Hillary Rodham Clinton finished her last few weeks on the job, after a month of convalescence, how can we assess the secretary of state’s contributions?

The question is worth asking simply because of the job’s importance and its significance for U.S. national security. It is also relevant given Clinton’s unprecedented role in our national life over the last two decades.

from David Rohde:

State fixes are long overdue

This week's scathing report on the death of four Americans in Benghazi, Libya – followed by the resignation of one department official and removal of three others – confirms that the United States has an underfunded State Department is in decay. It also gives the clearest understanding yet of where fault lies for four unnecessary deaths in Libya and how the U.S. can do the vital work of diplomacy in dangerous areas.

The goal of the attackers was to drive American diplomats and aid workers out of Libya. We must not let this happen. Washington’s most effective weapon in the post-Arab Spring is promoting economic growth, trade and technology ‑ not mounting invasions. Diplomats and aid workers are the vital heart of that effort.

from David Rohde:

A hidden cause of Benghazi tragedy

Amid the politicking, there's an overlooked cause of the Benghazi tragedy

For conservatives, the Benghazi scandal is a Watergate-like presidential cover-up. For liberals, it a fabricated Republican witch-hunt. For me, Benghazi is a call to act on an enduring problem that both parties ignore.

One major overlooked cause of the death of Ambassador Chris Stevens and three other Americans is we have underfunded the State Department and other civilian agencies that play a vital role in our national security. Instead of building up cadres of skilled diplomatic security guards, we have bought them from the lowest bidder, trying to acquire capacity and expertise on the cheap. Benghazi showed how vulnerable that makes us.

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