The Politics of UN Security Council Reform

President Barack Obama chairs a meeting of the UN Security Council, September 24, 2009.

Blogging at Foreign Policy, David Bosco yesterday posted an interesting proposal for reform of the United Nations Security Council. As most readers probably already know, the UN Security Council is comprised of 15 members. The five permanent members (China, France, Russia, the United Kingdom, and the United States) each possess a veto over Security Council action. In addition, ten non-permanent members are elected by a two-thirds majority vote of the General Assembly to two year terms on a regional basis.

The structure of the Security Council was set in the immediate aftermath of World War II, when the five permanent members made more sense. The structure makes little sense today, though. Several important countries (such as Brazil, Germany, India, and Japan) lack a permanent seat but want one. Meanwhile, the current permanent members of the Security Council are hesitant to embrace expansion, as any expansion would dilute their position.

And therein lies the challenge. Given the competing positions, there has been little agreement on how to move forward.  And any changes would require the approval of 2/3 of the Member States in the General Assembly and agreement by the five permanent members of the Security Council. Thus while a general consensus that the Security Council’s structure needs reforming is widely shared, the specifics of any individual country’s membership on the Council draws opposition. Italy and Spain oppose Germany’s claim, Mexico, Columbia, and Argentina oppose Brazil, Pakistan opposes India, South Korea opposes Japan. The African bloc also demands membership, though precisely which countries would represent Africa on the Council is not entirely clear. Given this level of disagreement, it has been relatively easy for the permanent members of the Council to avoid the difficult decisions associated with reform.

And this is what makes Bosco’s proposal so intriguing. He suggests that the General Assembly engage in a policy of collective disobedience, refusing to approve any new rotating members for the Security Council until the permanent members of the Security Council move forward with a real reform of the Council. It would also force the various camps in the General Assembly to set aside their competing positions and develop a coherent reform proposal. Bosco notes the collective action problem that would have to be overcome for this proposal to work. Nevertheless, it represents in interesting possibility in moving a twenty-year old debate forward.

What do you think? Should Brazil, Germany, India, and Japan be granted permanent membership on the United Nations Security Council? Can the United Nations overcome the structural challenges it faces and reform its structure to become more relevant in the 21^st century? Or will competing positions and the structural power of the permanent members undermine proposals for reform? Take the poll or leave a comment below and let us know what you think.

The Cyprus Bailout and European Banking Stability

Cypriot protestors demonstrate against the EU’s proposed savings tax.

The Cypriot parliament on Tuesday rejected a proposed bailout package from the European Union that would have imposed a surcharge on bank deposits. The tax was resoundly defeated, with 36 members of parliament opposing the measure and 19 abstaining; no one voted in support. Meanwhile, thousands of protestors had taken to the streets to voice their opposition to the measure.

German Finance Minister Wolfgang Schauble noted that he “regretted” the Cypriot parliament’s decision, asserting that “There is a danger they won’t be able to open the banks again at all.”

The measure would have imposed a 6.75 percent levy on all deposits of less than 100,000 euros, and a 9.9 percent surcharge on deposits of more than 100,000 euros. In a last-ditch effort to save the measure, the government of Cyprus announced ahead of the vote that accounts of less than 20,000 euros would be exempted from the tax.

Cyprus, which like Ireland and Iceland had attempted to position itself as an international banking center, had an exceptionally large number of foreign depositors. It was estimated that approximately 40 percent of all deposits on the small island were held by foreigners, mostly Russians. The European Union’s measure angered the Russian government, which announced that it would need to reconsider the terms of a 2.5 billion euro loan it had made to Cyprus in 2011. Cyprus’ Finance Minister, Michalis Sarris, was in Moscow on Tuesday, hoping to extend repayment terms and lower the interest rate on the original loan.

International observers widely condemned the European Union’s proposed bailout package, the terms of which were released on Saturday. Economist Paul Krugman argued that,

You can sort of see why they’re doing this: Cyprus is a money haven, especially for the assets of Russian beeznessmen; this means that it has a hugely oversized banking sector (think Iceland) and that a haircut-free bailout would be seen as a bailout, not just of Cyprus, but of Russians of, let’s say, uncertain probity and moral character…The big problem, however, is that it’s not just large foreign deposits that are taking a haircut; the haircut on small domestic deposits is a bit smaller, but still substantial. It’s as if the Europeans are holding up a neon sign, written in Greek and Italian, saying “time to stage a run on your banks!”

The Cypriot case is particularly interesting. According to an IMF report, the country was doing well before the 2008 global economic crisis, experiencing “a long period of high growth, low unemployment, and sound public finances.” But the global financial crisis hit Cyprus particularly hard, as the country was exceptionally dependent on foreign depositors. By 2011, concerns were emerging. Cypriot banks had made loans to Greek barrowers totaling more than 160 percent of the Cypriot GDP, and those ties to the Greek economy were beginning to drag down Cyprus.

What’s interesting is the moral hazard that the imposition of the new levy poses for other banks in the European Union. As Krugman notes, Europeans watching from other troubled economies (think Spain, Portugal, and Italy) the bailout requirements in Cyprus may be an incentive for them to relocate their assets before their country is forced to undertake similar reforms.

What do you think? Are the conditions imposed by the European Union on Cyprus as a prerequisite for receiving a rescue package reasonable? Or do they threaten to undermine economic stability in other troubled European economies? Leave a comment below and let us know what you think.

The Greek Option: Monetary and Fiscal Policy

German Chancellor Angela Merkel meets with Greek Prime Minister Antonis Samaras in August.

The Greek government met with the European Union, the European Central Bank, and the International Monetary Fund over the weekend. The meeting between Greece and the troika was intended to clarify requirements to qualify for the next round of bailout funds. Greece has already committed to more than 11.5bn euros in spending cuts and another 2bn euros in tax revenue. But Prime Minister Antonis Samaras concedes Greece is unlikely to meet expectations imposed by international lenders.

The challenge for Greece is that the plan is highly unpopular, and the country has been rocked by several rounds of widespread protest. The Greek economy has collapsed, contracting by 20 percent over the last year alone. Yet absent external relief from the IMF and EU, Greece faces the prospect of bankruptcy and potential expulsion from the eurozone. And outside of Greece, observers in Spain, Portugal, and other troubled eurozone economies are watching developments closely.

The current conundrum in Greece illustrates some of the economic challenges of the common European currency. In normal times, a common currency presents clear benefits. It facilitates closer and more efficient management of the economy, reduces transaction barriers and cost of trade between countries sharing the currency, and can help to reduce economic uncertainty.   Indeed, when the euro was adopted as the exclusive currency in the eurozone in 2002, it was highly popular, and many eurozone members enthusiastically embraced the new currency.

At the same time, though, the common currency presents a key challenge, particularly during economic downturns. Traditionally, governments have two economic toolkits available to them. Fiscal policy, advocated most famously by John Maynard Keynes, focuses on the use of government revenue (taxation) and expenditures (spending) to influence economic activity in the country. Keynes argued that in good times, governments should run a budget surplus so that during poor economic times, it would have ample revenue to spend, including running a deficit, and prevent a deep recession or depression.

Monetary policy, on the other hand, focuses on manipulation of the money supply, often through interest rates, to promote economic growth and stability. Monetary policy, which was most famously promoted by Milton Friedman, provides that governments should lower interest rates to promote economic growth, but should engage in contractionary policies (including raising interest rates) to prevent the economy from overheating. Above all, monetary policy focuses on maintaining a stable money supply and money value, and keeping inflation as close to zero as possible.

In practice, governments regularly use a combination of both monetary and fiscal policy to manage economic growth and stability. However, the eurozone encompasses a wide range of countries and economies, ranging from the economic powerhouse of Germany to the crisis-ridden economies of Greece, Spain, and Portugal, to a large number of smaller economies somewhere in the middle. The question of how to balance competing demands across all eurozone economies presents a challenge. The monetary policies that would maintain economic stability and growth in Germany are different from the monetary policies that might be used to prevent economic collapse in Greece. Consequently, the European Central Bank faces the challenge of finding a fine line to walk between the two.

The other challenge, of course, is that because Greece is a member of the eurozone, it effectively has cut off one of the two primary economic policies governments might use to address the economic crisis. While the Greek government can continue to use fiscal policy, its ability to use monetary policy to address the crisis is sharply limited by the fact that the Greek government does not control the Greek currency.

Not that leaving the eurozone would make things better for Greece. For now, it appears the Greek government is committed to remaining in the seventeen nation eurozone, and the German government is committed to helping Greece remain there. But if Greece is unable to reach agreement with the troika, exiting the eurozone, either on its own terms or aftering being forced out by the other members, may be Greece’s only option.

What do you think? Do the benefits of eurozone membership outweigh the costs for the Greek government? Should Greece make the sharp spending cuts demanded by the international community to remain part of the eurozone? How would Greece leaving the eurozone affect future economic developments in other troubled European economies, like Spain and Portugal? Let us know what you think by leaving a comment or answering the poll question below.

The Challenge of a Two-Speed Europe

German Chancellor Angela Merkel and French President Nicolas Sarkozy at the Summit of EU Heads of State.

The recent spate of crises in the European Union has once again raised questions about the future of the European Union. As Greece and Ireland struggle to rebuild their economies, the debate over the future of the European Union is once again on the stage. At one extreme, Germany and France continue to push for further integration, particularly within the eurozone, the group of seventeen countries using the euro as their unified currency. At the other end, euroskeptics in the European Parliament continue to debate the need for the EU in the first place. Governments in the United Kingdom and many of the former Soviet-bloc countries appear to be hesitant about further economic integration.

This tension, which has long been known as the problem of a two-speed Europe, has become more pronounced in light of recent economic crises and the pressure placed on the euro by the collapse of the Greek and Irish economies. Blogging at the Finanical Times, Philip Stephens points out  that the euro has to date been maintained largely by the sheer will of the German government and its willingness to devote considerable resources (not to mention foreign policy clout) to support the euro and prop up several of the weaker European economies.  Euroskepticism, in other words, has not reached the German Länder. This is not to suggest that German magnanimity is the basis of the euro…Germany clearly benefits as well, as its exports to the rest of the eurozone indicate. But what happens if Germany decides that the euro is no longer a core part of its foreign policy vision?

Or more to the point, is the euro in danger? There is good reason to believe that future crises are in store for the eurozone. The economies of Portugal, Italy, and Spain leave considerable room for concern.

A far more likely scenario, however, would be the continued development of a two speed Europe, with France and Germany leading the charge for a more integrated economic policy within the eurozone, while Britain, the Scandinavian states, and many of the former Soviet-bloc countries, standing on the sidelines of economic integration while moving forward with political union. Certainly some interesting things to consider.

Quantitative Easing and Global Hyperinflation

Street cleaner sweeps worthless German Marks into the gutter.

Apart from the U.S. elections, the news last week was heavily focused on the decision of the U.S. Federal Reserve to inject some $600 billion into the economy by purchasing treasury bills. The policy, referred to as quantitative easing, is a tool of monetary policy [glossary] intended to address the ongoing economic malaise in the United States. Because interest rates are already near zero, the traditional monetary policy of reducing interest rates is not viable.

The move has provoked considerable discussion, not least because it risks stimulating inflation, as Alex Evans at the Global Dashboard notes. The policy will certainly cause a decline in the value of the U.S. dollar, promoting U.S. exports and encouraging greater investment. The broader challenge, as Robert Reich observes, is that a dual economy system is emerging in the United States. On the one hand, the financial economy is doing well. The Dow has had its ups and downs, but the sharp declines of 2008 appear to be in the rear view mirror. On the other hand, the economy of American workers continues to be in the doldrums. Unemployment appears to be stuck at just under 10 percent, real wages are frozen, and workers continue to be skittish about future employment prospects. Will Bernanke’s efforts to stimulate the economy work? It depends on who you are. Financial markets may worry about the inflationary effects of quantitative easing, but the policy of keeping interest rates near zero has certainly been positive. For workers, however, monetary policy may not be as effective as fiscal policy [glossary]. Sustaining unemployment benefits, for example, may be more effective as an economic stimulus. But such a policy is politically untenable, particularly after the mid-term elections. However imperfect, quantitative easing may be the only policy tool left to address the ongoing economic crisis in the United States.

A Non-Multicultural Germany

A Turkish Parade in Berlin

German Chancellor Angela Merkel last week asserted that multiculturalism had “utterly failed” in Germany. Her comments, offered as part of a broader speech to young members of the Christian Democratic Party, provoked sharp debate. And it was a somewhat surprising development, given Merkel’s history of trying to placate both sides of the argument by simultaneously calling for stricter integration standards for immigrants while simultaneously calling for the public to accept the religious freedom of immigrants, particularly the existence of mosques.

In a sense, the German debate echoes similar debates in the United States, where concerns over the “Ground Zero” mosque have stoked anti-immigration and anti-Muslim sentiment. Recent polls in Germany show that 1/3 of the population believes the country had been “overrun by foreigners” and over half believed that “Arabs are “unpleasant people.”

Other German leaders reflected this sentiment. Earlier this month, Horst Seehofer, head of the Christian Social Union, the Bavarian sister party of Chancellor Angela Merkel’s Christian Democrats, called for Germany to halt immigration for Turks and Arabs on the grounds that they have difficulty assimilating into German society. And in August, Thilo Sarrazin, who is a member of the governing board of the Bundesbank, Germany’s equivalent of the U.S. Federal Reserve, published a book in which he claimed that immigration from Turkey and the Arab world had made Germany “more stupid” and that Arab and Turkish immigrants had no useful function “except for the trading of fruit and vegetables.”

But the problem of integration in Germany is complicated by the nature of German citizenship and the history of Turkish immigration. German citizenship is based on the principle of jus sanguine, or right of the blood. This means that individuals acquire their citizenship from the based on the nationality of their parents rather than from the country in which they were born (jus soil). As a result, millions of ethnic Turks, born in Germany as the children of workers who migrated to Germany in the 1960s to satisfy German demand for labor under the Gastarbeiter (Guest Worker) program. These ethnic Turks grew up in Germany, attending German schools, speaking the German language, and often even adopting German customs and traditions. But because of the principle of jus sanguine, they were not entitled to German citizenship.

Changes to German citizenship laws passed in 2000 were intended to rectify the worst instances of this. Under the new law, a person born in Germany to parents who had legally resided in Germany at least three years prior to their birth and who does not have citizenship in another country can apply for German citizenship after they turn 23 years of age.

But, as in the United States, recent economic difficulties have sharpened tensions between eh various ethnic communities that comprise the country. In Germany, Turks have become the target for economically disenfranchised Germans. In the United States, Hispanics and Muslims have played a similar role. But rather than rejecting multiculturalism as the problem, perhaps the underlying issues of alienation and economic disenfranchisement should be the target of public policy.

Five Stories You Might Have Missed

Debates over Wall Street compensation reemerged on the national stage last week, as the government urged companies that received federal assistance under the Troubled Asset Recovery Program (TARP) limit executive compensation. On Thursday, the Federal Reserve issued draft rules governing compensation for companies that have not repaid TARP assistance. Under the new rules, the companies would be required to demonstrate that their compensation packages do not encourage excessive risk-taking. In an interview with the Financial Times, George Soros weighed in on the debate, calling Wall Street’s profits this quarter “hidden gifts” from the U.S. government. He commented that, “Those earning are not from the achievement of risk-takers. These are gifts, hidden gifts, so I don’t think that those monies should be used to pay bonuses. There’s a resentment which I think is justified.”

Meanwhile, concerns over the spread of the H1N1 (swine flu) virus continue to grow. On Saturday, President Barack Obama declared a declaration of “national emergency” to combat the flu. Under the declaration, hospitals eases some restrictions on hospital operations, giving them additional powers to treat the flu. 

In news from outside the United States last week:

1. German Chancellor Angela Merkel formally announced her new coalition agreement on Saturday. There were few surprises, as Merkel’s center right Christian Democrats allied with the liberal Free Democratic Party. The coalition contract included a promise to pass a €24 billion tax cut for poor and middle-income Germans and will reform inheritance laws. Under the new coalition agreement, Guido Westerwelle, the leader of the Free Democrats, will assume the post of foreign minister. The Christian Democrat’s Wolfgang Schäuble, a strong fiscal conservative, will become finance minister.

2. In two separate attacks, two car bombs exploded outside government buildings in Baghdad, Iraq, on Sunday, killed more than 130 people and injuring more than 500. The attacks were the deadliest in more than two months. Iraq had been enjoying a period of relative stability, as Western-backed tribal leaders had pushed al Qaeda militants into the margins. But U.S. officials contend that Iraq may be entering a period of increased violence, as militants attempt to reignite sectarian violence ahead of parliamentary elections scheduled for next year.

3. Negotiations intended to resolve the standoff over the Iranian nuclear program appear to have stalled. The talks, which were reopened early last week, were intended to develop an agreement which reduced Iran’s stockpile of low enriched uranium (LEU), building upon an agreement reached earlier this month under which Iran agreed, in principle, to send some of its estimated 1,200 kg of LEU to Russia and France, which would convert the fuel into medical isotopes before sending it back to Iran. But after Iran failed to meet a Friday deadline, the United States warned that it would be willing to wait for a few more days, but cautioned that its patience was limited. Iran’s current stockpile, if enriched, could provide enough uranium for a single nuclear weapon.

4. Figthing between Somali insurgents and African Union (AU) peacekeepers broke out in Mogadishu on Thursday, killing at least 30 people. According to witnesses, militants attacked using mortars as Somali President Sheikh Sharif Ahmed was leaving the country for a meeting in Uganda. AU forces responded with artillery fire. More than 19,000 civilians have been killed, and an estimated 1.5 million people have been displaced from their homes since 2007 as a result of ongoing fighting in Somalia, which has made the country a center for international piracy and terrorism.

5. The government of Brazil on Tuesday imposed a two percent tax on some capital inflows into the country. The decision, which as intended to slow the increase in the value of the real, Brazil’s currency, which had already increased more than 36 percent against the U.S. dollar this year. The new tax targets portfolio investment and financial speculation, not productive investment in the country. Nevertheless, the announcement was not well received by the market, and stocks fell sharply after the government made its announcement. But analysts offered a more positive pronouncement. In an editorial comment, the Financial Times described the new tax as “wise,” “sensible,” and “honest.”

Five Stories You Might Have Missed

There have been several interesting developments in European politics over the past few days. Final results were released Saturday from the Irish referendum on the Lisbon Treaty. The Irish approved the treaty by a wide margin (with 67.1% of voters in favor) after defeating the treaty in June 2008 by a 53.4 percent majority. Ireland’s approval of the treaty represents an important step forward in approving a restructuring of the European Union; a restructuring that would expand the influence of the European Parliament, establish a full-time presidency for the EU (a position for which former British Prime Minister Tony Blair may be tapped), and limit the ability of national governments to veto EU legislation in certain areas. But despite the approval by Irish voters, Czech President Vaclav Klaus tempered expectations, stating that he may delay signing the treaty until a Czech appeals court can review the treaty and assess its implications for Czech sovereignty.

Two important elections also took place recently. In Germany, Angela Merkel won reelection as Germany’s Chancellor. The victory of her center-right coalition promises to continue her emphasis on greater openness for the German economy. Preliminary results from Greek elections on Sunday suggest that the Socialists will soundly defeat the ruling New Democracy party, possibly securing a legislative majority in the national parliament. The contradictory results suggest an interesting restructuring of European politics.

In news from outside of the European Union last week:

1. Government ministers at the annual meeting of the International Monetary Fund in Turkey this week rejected warnings by the banking sector that new financial regulations could undermine economic growth. Representatives from the United States, Italy, and the United Kingdom all rejected claims by the global bankers association that regulatory overkill could undermine global economic growth and result in the creation of fewer jobs. But despite apparent agreement on the need for new financial regulations, considerable debate over the exact nature and structure of those regulations remains, and an agreement on the details appears to be a ways off.

2. The International Olympic Committee granted Rio de Janeiro the right to host the 2016 Olympic Games on Friday, making Rio the first South American city to host the Olympics. A last minute visit by President Barack Obama to Copenhagen was unable to convince the IOC to grant the games to Chicago, which was also bidding to host. Several observers have raised concerns that Obama’s unsuccessful campaign to win the games may undermine his ability to deliver on health care reform and foreign policy objectives.

3. A massive earthquake in Indonesia resulted in the deaths of an estimated 1,100 people last week. The tragedy follows a tsunami in the South Pacific that killed more than 100 people. Concerns that another, larger quake could strike soon were also raised on Saturday. International aid campaigns have begun delivering supplies to the region, but the widespread devastation of government facilities in the region could hamper aid efforts.

4. The President of Burkina Faso has been dispatched to meet with the military rulers of Guinea to address the emerging crisis in the country. More than 100 people have been killed in Guinea in the past week, as the county’s military government has moved to quash opposition protests. On Thursday, Cellou Dalein Diallo, former prime minister and current opposition leader, was forced to flee the country, as Captain Moussa Dadis Camara, who came to power as the country’s leader in a December coup, has attempted to solidify his hold on power.

5. On Sunday, the government of Iran agreed to permit International Atomic Energy Agency inspectors to visit a secret uranium enrichment facility made public by the United States last week. The discovery of the site led the Russian government to concede the possibility of United Nations sanctions on the Iranian government—a proposal which both Russia and China have long opposed. The Iranian decision comes ahead of scheduled six-party talks, involving the United States, Russia, France, China, Britain, Germany, and Iran, at the end of the month.

Five Stories You Might Have Missed

The G20 meeting in Pittsburg this week resulted in agreement on several important principles, with the group agreeing in principle to establish guidelines for bankers’ pay, developing a timetable for reforming financial regulations, and establishing a new framework for economic growth. The G20 also agreed to transfer five percent of the shares in the International Monetary Fund and three percent of the shares in the World Bank to emerging countries. The organizations have long been criticized for voting structures which over-represent the developed world at the expense of the developing world.

In other news from the previous week:

1. There were several important developments in Iran this week. On Sunday, Iran test fired a short-range missile as part of ongoing war games in the country. The missile, a Shahab-3, has range sufficient to reach Israel and U.S. bases in the Persian Gulf. The launch comes just days after the United States announced it had discovered Iran possessed a second, secret uranium enrichment facility. France and the United Kingdom joined the United States in condemning Iran for misleading the international community. The discovery and announcement put pressure on Tehran, which maintains that the facility is used for peaceful purposes. The most recent announcement produced new signals from Russia, which had historically opposed sanctions against Iran. But after being briefed on the new facilities by the Obama administration, Russian President Dmitry Medvedev indicated that the Russian government may be willing to consider sanctions as a way of addressing the Iranian nuclear situation.

2. Germany is headed to the polls today, with most analysts calling the election too close to call and many speculating about what kind of coalition will take control of the world’s fourth largest economy. Although Angela Merkel’s ruling Christian Democrats have been leading throughout the campaign, her support has been slipping over the past week. With low turnout forecast, observers believe that the election could still be close. Further, a quirk in the German voting system could result in Merkel’s CDU winning a plurality of seats in the Bundestag despite winning a smaller percentage of the popular vote than her rivals. Her rival, the Social Democrats, have lagged in the polls throughout the campaign but managed a late-campaign surge. No matter what the margins, negotiations around a forming a new coalition in Germany will likely be the central focus of German politics in coming days.

3. Two car bombings believed to the work of the Taliban in Pakistan killed 27 people on Saturday. The attacks targeted Pakistan’s military and police forces, coming just days after the country’s President, Asif Ali Zardari, appealed to the G20 for assistance in fighting terrorism in Pakistan. The attacks demonstrate the resilience of the Taliban in Pakistan, which has been engaged in a protracted war with the national military. Last month, the Pakistani military killed Baitullah Mehsud, the Taliban’s main leader in Pakistan, and earlier this year, the military killed more than 3,000 Taliban militants in operations in the Swat valley region. Despite these losses, however, the Taliban remains a central threat to the stability of the Pakistani regime. 

4. The government of Guinea is moving forward with its efforts to overturn some of the contracts signed with foreign companies under the military dictatorship of Lansana Conté, whose 24 year-rule ended with his death in December. The new government has already forced Rio Tinto to return a portion of its iron ore concessions and convinced the South African gold company, AngloGold Ashanti, to establish a $10 million fund to pay for environmental damages caused by their operations in the country. On Tuesday, the government ordered the Russian aluminum company Rusal to quit the country, claiming that it owed more than$750 million in taxes, royalties, and other duties owed since 2002. With a GDP per capita of $442, Guinea remains one of the poorest and least developed countries in the world.

5. Deposed President Manuel Zelaya returned to Honduras last week, sneaking into the country and hiding in the Brazilian embassy in Tegucigalpa. Honduran security forces used water cannons and tear gas to dispurse crowds which had gathered outside the embassy in support of Zelaya. The Brazilian government has called on the international community to do more to support Zelaya’s return. Most of the international community has refused to recognize the new government and international assistance from the World Bank and the International Monetary Fund has been suspended. Speaking before the United Nations General Assembly on Wednesday, Brazlian President Luiz Inácio Lula da Silva said, “The international community demands that Mr Zelaya return immediately to the presidency of his country and must be alert to ensure the inviolability of Brazil’s diplomatic mission in the capital of Honduras.”

Five Stories You Might Have Missed

It’s been an interesting week for the U.S. economy. According to figures released on Thursday, the U.S. trade deficit jumped by 16.3 percent to $32 billion in June, a figure sharply higher than the $27 billion that had been forecast. The dramatic increase in imports was fueled by the “Cash for Clunkers” program, which led to a dramatic increase in auto imports. Meanwhile, the Commerce Department reported that the poverty rate had increased from 12.5 percent in 2007 to 13.2 percent in 2008. The poverty rate, which is defined as the number of people with an annual income of less than $11,200 (or less than $22,000 for a family of four), increased as a result of the global economic downturn. Home foreclosures also remain near their record high level. The troubled status of the U.S. economy led the Federal Reserve to indicate that it would be unlikely to raise interest rates in the first half of next year.

In news from outside the U.S. economy last week:

1. A trade dispute between the United States and China may be headed to the World Trade Organization for resolution. The United States last week imposed a new duty on tires manufactured in China, less than one week after it also imposed higher tariffs on Chinese steel piping. A spokesperson for the Chinese government condemned the move as protectionism, warning that “a chain reaction of trade protectionist measures that could slow the current pace of revival in the world economy.” Observers fear that the Chinese could respond with higher tariffs on U.S. agricultural and automotive exports, potentially sparking a trade war. But in an interesting editorial in the Financial Times, Clyde Prestowiz argued that the imposition of higher tariffs on Chinese exports to the Untied States could potentially help the push for free trade.

2. With the German election just a couple of weeks away, campaigning is in full force, and observers are already working through the numerous possible coalition arrangements. But in perhaps the most interesting development to date, German Finance Minister Peer Steinbrück last week called for the imposition of a new global tax on international financial transaction, the proceeds of which would be used to repay governments for the cost of fiscal stimulus packages and bank rescue operations. While not dismissing the idea out of hand, German Chancellor Angela Merkel called the proposal “electioneering.” Steinbrück’s call follows a similar proposal made by the Chair of the British Financial Services Authority, Lord Turner, and could make for interesting discussions at the upcoming G20 summit.

3. The counting process in the Afghan elections continues to drag on. Although incumbent President Hamid Karzai now has enough votes to win the disputed presidential election outright, according to the most recent results of the Independent Election Commission, widespread irregularities have led to calls for partial recounts. On Sunday, the IEC agreed to move forward with discussions on a recount, but it stopped short of spelling out precisely what votes would or would not be included. The Electoral Complains Commission, a body established by the United Nations to observe elections and investigate allegations of fraud, noted “clear and convincing” evidence of fraud and vote rigging in southern provinces which went heavily towards Karzai.

4. The first high-level contact between the government of Zimbabwe and the west took place on Sunday, as the European Union’s Commissioner for Humanitarian Aid and Development and the Swedish Prime Minister (who also holds the European Union’s rotating presidency) met with representatives of the Zimbabwean government in Harare. The meeting is the first high-level contact since the European Union imposed sanctions against Zimbabwe in 2002. While the European Union delegation remained noncommittal regarding the future direction of contact with the Zimbabwean government, stating only that “We’re entering a new phase. The [power-sharing agreement in Zimbabwe] was an important step forward, but much more needs to be done. The key to re-engagement is the full implementation of the political agreement.” The status of the power sharing arrangement in Zimbabwe remains uncertain, as President Robert Mugabe and his rival, Prime Minister Morgan Tsvangirai, continue to struggle over the distribution of political authority within the country.

5. The government of Guatemala last week declared a “state of calamity” in response to the widespread hunger gripping the country. The World Food Programme estimated that the country would require an immediate shipment of 20 tons of food the worst affected areas in order to stave off starvation. Alvar Colom, Guatemala’s president, said that global climate change was affecting the El Niño, causing a massive drought in the northeastern portion of the country. But Colom was also critical of the high level of inequality in the country, observing that “There is food, but those who go hungry have no money to buy it.” Critics also note that poorly defined land rights, narcoviolence, and alleged corruption have also undermined food production. According to the World Food Programme, half of all children under five in Guatemala suffer from malnutrition.

And in a bonus story for this week:

6. After more than three months since the general election, the political situation in Lebanon remains cloudy. On Thursday, Saad Hariri, the leader of Lebanon’s pro-Western majority, resigned as prime minister designee, despite performing well-above expectations in June’s elections. According to Hariri, the country’s parliamentary minority blocked efforts to develop a coalition government, leaving the country in a period of political uncertainty.