World View: China, Philippines Face Off in South China Sea

This morning's key headlines from GenerationalDynamics.com.

  • Philippines and China in nationalistic confrontation in South China Sea
  • Syria's psychodrama continues for another day
  • European financial crisis growing quickly in Spain and Italy

Philippines and China in nationalistic confrontation in South China Sea

According to the Philippines side of the story, a Philippine warship was patrolling the Panatag (Scarborough) Shoal and came across eight Chinese fishing vessels anchored inside a lagoon. A Philippine inspection team boarded the fishing vessels and found large amounts of illegally collected corals, giant clams and live sharks inside the compartments of the first inspected vessel. Then two Chinese maritime surveillance ships entered the lagoon and prevented the fishermen from being arrested.

According to the Chinese side, the fishing boats took shelter from the weather in the lagoon of Huangyan Island, when a Philippine warship showed up, boarded the fishing vessels, and harassed the Chinese fishermen. Two Chinese maritime surveillance vessels showed up and demanded that the Philippine gunboat leave, because Huangyan Island is an integral part of Chinese territory and China has indisputable sovereignty over the island.

The island in question is fairly close to Manila, but China has beceom increasingly aggressive in claiming all the islands in the South China Sea as their sovereign territory, even islands that have historically been part of other countries' sovereign territory. The claim that China has "indisputable sovereignty" is a joke. China is in territorial disputes with Philippines, Vietnam, Malaysia, Taiwan and Brunei, and it's clear that an increasingly nationalistic China has no intention of backing down, and will pursue its claims with its rapidly growing and increasingly hostile and belligerent military force. Philippine Daily Inquirer and Shanghai Daily

Syria's psychodrama continues for another day

The news on Wednesday morning was the Syria's president Bashar al-Assad had agreed to Kofi Annan's peace plan, and would end the violence by Thursday morning. Hooray!! But by Wednesday afternoon, it turned out that Syria reserves the right to respond to any attack by "armed terrorist groups," which is exactly what the Syrian regime has been saying for over a year. So nothing's changed, and there was another day of game-playing and stalling by the Syrian regime, as they continued to slaughter innocent Arab citizens like cockroaches. Reuters

European financial crisis growing quickly in Spain and Italy

According to EuroIntel, we are right on the edge of a major new European financial crisis:

"It was only a couple of weeks ago, when [German Finance Minister] Wolfgang Schäuble and his subordinates briefed journalists in Brussels that the calming financial markets made a big firewall [bailout fund] unnecessary. And remember all these statements, including from [Italian Prime Minster] Mario Monti, according to which the worst of the financial crisis was behind us? Complacency is the default mode of eurozone policy makers.

Yesterday, the financial markets produced a reminder that the crisis continues. Italian and Spanish 10-year spreads are now back in the familiar territory of over 4% [above German bond yields]. Global stock markets fell over fears of a renewed eruption of the eurozone crisis, with Milan down 5%, driven by 8% falls in the share prices of Unicredit and Intesa San Poalo. Spanish ten-year yields [interest rates] now trade above 6% for the first time since December, and in Madrid there is clear no sense at all that the worst of the crisis is over. The 10-year [German] bond yield fell to an astonishing low of 1.649% [indicating that investors are selling Italian and Spanish bonds, and buying German bonds].

The news coverage, as ever, struggled to explain the turnaround in market sentiment -- oscillating between "markets worried about Spain missing its deficit targets" and "markets worried about Spain trying to hit its deficit targets". Our sense is that investors have belatedly realised that the austerity drive is counter-productive, and that Spain is virtually certain now to require an ESM [bailout] programme. El Pais lists the reasons for the shift in market sentiment: the visible deterioration in the Spanish deficit; the ECB's LTRO running out of steam; an insufficient attempt to force the Spanish banks to take losses; and doubts over the latest austerity budget.

The article noted that the announcement of further €10bn in cuts failed to calm the markets. The bond spreads are now only a whisker from its absolute peak in November when they reached 4.7%. The articles quotes a financial analyst as saying that once Spain applies for the ESM [bailout], the mechanism will then be regarded as quite small. Spanish officials were wheeled out yesterday to downplay the crisis, with economy minister Luis de Guindos saying that Spain had already raised half of its 2012 refinancing requirements, and central bank chief Miguel Ordonez insisted that Spain was "not even close" to an ESM programme. Earlier in the day Reuters reported -- without even a hint of irony -- that the European Commission welcomed new Spanish austerity plans, and that it had a positive view on the 2012 budget draft."

EuroIntelligence


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