Greece cuts spending and increases taxes, but markets still wary; China sends message to US; Arab leaders support last crack at Israel peace talks; Afghan authorities threaten to arrest journalists; and more

Greece Announces New Austerity Measures

Greece's cabinet approved (FT) a new austerity package to manage its debt crisis, balancing domestic public ire with European concerns about the effect on the euro. The new package includes an immediate freeze on pensions; a 30 percent cut in annual bonuses for government workers; increased taxes on fuel, alcohol, and cigarettes; and an increase in value-added tax. Several hundred pensioners demonstrated outside Greek Prime Minister George Papandreou's office during Wednesday's cabinet meeting.

The risk of deflation, or sustained falling prices, could make it harder for the Greek government to repair (WSJ) its budget and reduce public debt.

The euro stabilized (Reuters) on news of the Greek package, but markets await a key meeting between Greek and German leaders Friday about implied financial support and the expected sale of ten-year Greek government bonds.

Analysis:

The effects of Wall Street swap transactions on Greece's debt crisis pale in comparison to Greece's own misguided budget moves, which European governments long ignored, reports the Wall Street Journal.

PIMCO's Bill Gross questions whether a debt crisis like Greece's can be cured by government bailouts, which imply more debt.

Merk Investment's Axel Merk says despite money managers calling for a Greek bailout, there are risk-friendly investors willing to extend loans to Greece.

In this interview, CFR's Sebastian Mallaby says the markets' reaction to the sovereign debt crisis in Greece and other European countries suggests global governments "have used up all their ammunition to boost global growth."

Background:

This CFR Geographics chart indicates that default fears remain high despite the EU's pledge to "safeguard financial stability in the euro area as a whole."

 

PACIFIC RIM: China Urges US to Normalize Bilateral Relations

China urged the United States to normalize (Xinhua) bilateral ties during a US diplomatic visit to Beijing aimed at easing tensions between the two countries. Separately, China launched (NYT) its annual Chinese People's Political Consultative Congress, a 2,252-member body that advises Communist Party leaders on how to run the country.

Tajikistan: The Islamist opposition in Tajikistan threatened to challenge (FT) the result of a parliamentary election after the ruling party won a landslide victory at the polls.

 

ELSEWHERE:

Arab League Agrees to Israel-Palestinian Talks
US Reacts to Afghanistan Media Ban

 

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