France and Germany have agreed to a bailout plan for debt-struck Greece; Moody's have downgraded Irish and Portuguese debt to "junk" status; China and Philippines in territorial dispute; Japan posts unexpected trade surplus as exports to China and Europe return to normal levels; famine spreads to Southern Somalia; Obama open to temporary debt rise if congressional leaders commit to significant debt-reduction plan; and more

Top of the Agenda: France, Germany Reach Greek Deal Ahead of Summit

 

German Chancellor Angela Merkel and French President Nicolas Sarkozy agreed Wednesday to a financial rescue plan (DeutscheWelle) for Greece, ahead of today's emergency eurozone summit on the continent's ongoing sovereign debt crisis.

During a late-night meeting in Berlin, Merkel convinced Sarkozy to drop his plan to help fund a €115 billion EU-IMF Greek bailout--the country's second--with a bank tax. However, the leaders agreed to involve private creditors (FT) in a rescue package through a bond swap or rollover plan.

Senior EU officials conceded that such a plan could lead to a selective default (WSJ) for Greece, a route the European Central Bank--whose president, Jean-Claude Trichet, was also present for part of the Berlin meeting--has forcefully opposed in the past. European stocks responded nervously (Guardian), while the euro dropped in foreign exchange trading.

Meanwhile, eurozone leaders will also use the Brussels summit to discuss options for stemming sovereign debt contagion (Bloomberg) to at-risk countries like Spain and Italy.

Analysis:

There are profound reasons why the twin giants of the liberal democratic West--the United States and the EU--are both on the edge of default, writes the Guardian's Timothy Garton Ash.

The eurozone, once seen as a crowning achievement in the decades-long path of European integration, is buffeted by a sovereign debt crisis of nations whose membership in the currency union has been poorly policed, explains this CFR Backgrounder.

With Moody's downgrading Irish and Portuguese debt to "junk" status and Italy's borrowing costs rising, U.S.-based rating agencies--still reeling from financial-crisis criticisms--are under fire from the EU for being too aggressive, though many experts say complaints are unjustified, says this CFR Backgrounder.

Eurozone leaders meeting for today's summit are unnecessarily worried about contagion to Italy, but a growing sovereign debt crisis highlights the role of politics in the markets and the need to find common, EU-wide solutions, says expert Franco Pavoncello.

 

PACIFIC RIM: China, Philippines in Territorial Dispute

 

China accused the Philippines of infringing on its sovereignty by sending a delegation to one of the Spratly islands (BBC) in the contested--and potentially resource rich--South China Sea.

Escalating hostilities between China and its neighbors over competing claims to the South China Sea is a test of China's growing strength and a diplomatic challenge for the United States, which insists that the waterway should be open, says CFR's Joshua Kurlantzick.

Japan: The country posted an unexpected trade surplus (WSJ) of $897.4 million in June, as exports to China and Europe began to return to levels posted prior to the March tsunami and nuclear disasters.

 

ELSEWHERE:

- Famine in Southern Somalia
- Obama Open to Temporary Debt Deal

This is an excerpt of the CFR.org Daily News Brief. The full version is available on CFR.org.