International news summary: July 14-18

Flight MH17 crash

The tensions in eastern Ukraine intensified earlier this week, after an strike destroyed a building killing 11 civilians and a Ukrainian military transport plane was shot down. In both cases, the Ukrainian government claimed a direct involvement of Russia which continues to deny the supply of arms to the pro-russian separatists. Earlier, two men were killed in the Russian half of the City of Donetsk by Ukrainian mortars.

Yet, all these incidents have become bagatelles when a Malaysian Airlines Boeing 777 crashed near the village of Grabovo in the disputed area, killing all 298 people on board. The plane traveled at a cruising altitude about 10km which means that only sophisticated weaponry would have been able to reach it. The Ukrainian government, the separatists, as well as the Russian government were quick to blame each other for downing the plane by a surface-to-air missile. While international investigators struggle to reach the site of the crash to secure any evidence, U.S. officials and President Obama presented first signs that point towards the separatists, thus questioning the involvement of Russia which could have supplied the necessary weapon system.

Gaza – Israel conflict

The recent violent clash between the Palestinian Hamas and Israeli armed forces intensified during the last days. A cease-fire brokered by Egypt on tuesday only lasted for a couple of hours before Hamas continued to launch rockets against Israel, met with heavy Israeli air strikes. The ongoing assault killed more than 200 Palestinians, of which two-thirds are civilians according to the UN, and two Israeli with one civilian being hit by rocket launched from the Gaza strip.

Israeli Prime Minister Netanyahu in the meantime stated Israel’s ambition to inflict a significant blow to Hamas and ordered attacks by ground troops. However, even a new invasion of the Gaza strip will not eradicate Hamas and both sides remain tough on their demands in order to agree to a cease-fire. While the U.S. administration so far supports Israeli ground attacks targeted on Hamas infrastructure like tunnels, the increasing death-toll is likely to escalate the pressure on Obama by Arabian and European country to push for a cease-fire.

BRICS summit

Just after wrapping up the FIFA world cup last sunday, Brazil hosted the annual meeting of the BRICS countries in Fortaleza. And every year during this important diplomatic conference among the biggest emerging economies, outside commentators ask what the BRICS actually stand for. Despite China’s overall appetite for commodities the trade between Brazil, Russia, India, China, and South Africa is limited. Rather, the group, whose acronym was originally made up to sell bonds of those economies, is united in a growing repulse of the prevalent global economic order enshrined in “outdated” institutions still reflecting the former undisputed economic dominance of the U.S. and Europe.

On tuesday, the leaders of the BRICS finally announced their first big step towards challenging this global order by officially announcing the creation of the BRICS development bank, a step expected at least since last year’s meeting. Initially, the bank will be capitalized with 50 billion dollars for financing large projects and provide a 100 billion dollar fund of currency reserves from which member countries can draw if they encounter balance of payments problems. With these instruments, the BRICS development bank is positioned against the IMF and World Bank which governing bodies are, despite recent concessions to the growing economic power of the emerging economies, still dominated by Western countries.

US Economy outlook

Early this week, U.S. Federal Reserve chairwoman Janet Yellen gave a mixed outlook on the development of the U.S. economy during her presentations of the semi-annual monetary report in Congress. She explained that if the monthly job creation, currently at a rate of about 230.000 jobs per month remains stable, the FED will have to start raising interest rates earlier than originally anticipated to meet its dual objective of price stability and high employment. Before her statement, the first increase of the interest rate was expected for the second half of next year.

Yellen cautioned about the outlook in other parts of the U.S. economy. The recovery of the housing market has stopped to further improve since last years raise in the mortgage rates. In addition, the FED is closely observing the build-up of leverage in some parts of the financial market, for instance in lower-rated corporate debt. Finally, even the good outlook in the labor market could be overly optimistic: recent data shows that the overall participation in the labor force remains weaker than in past which could imply a hidden form of unemployment.

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