June 4 - June 10
Hello, and welcome to the Dispatch for June 4 - 10!
This week’s dispatch is fairly brief - there were a number of stories over this week, but only two that really rose to the front. I expect a bit soon, though - between the elections in Egypt and Greece and the buzz from Syria, I suspect next week will be rather interesting.
Burmese president Thein Sein warned that a flare-up of sectarian violence between the Muslim minority group, known as the Rohingya, and Buddhists in the country’s western state of Rakhine may threaten the country’s move to democracy. The violence, which started on Monday with the killing of 9 Muslims in retaliation for the murder of a Buddhist woman, has claimed 7 more lives and caused the government to declare a state of emergency in the region.
The president’s warnings are apparently serious: the country’s constitution allows for the army to take over the country in times of national crisis. It’s unlikely the sectarian violence in will spill too much further - the violence is concentrated around the Muslim minority, who mostly live in the western- most part of the country - but the President’s concerns do underline the fragile nature of the Democratic transition in Burma. While the country has made enormous strides in the past year or so, the military and its affiliates are still very well represented in Burma’s power structures. With so much still unclear about the country’s rapid transition to democracy, the president’s apparent fear of a return of the Army’s rule is concerning.
The Spanish government announced the country had secured over $125Bn in bank bailout funds from the Eurozone. The news followed growing concerns over the solvency of Spanish banks, including a downgrade by Fitch and an assessment by the IMF that Spanish banks need more than $50Bn to remain solvent. Unlike most of the Eurozone bailouts, this seems to have come with almost no strings attached.
Spanish Prime Minister Mariano Rajoy is taking a victory lap right now, and he deserves it: the Spanish bailout is one of the most proactive and generous actions by the Eurozone so far. Most of the banking bailouts have come with strict austerity demands or other restructuring requirements, but all evidence so far is Spain managed to get a nearly string-free bailout. What’s more, the amount of money offered by the Eurozone is more than double the IMF’s estimate of what Spanish banks need to stay afloat.
There’s two possibilities here: The first is that the Spanish government finally made the Eurozone financial leaders blink. The EU might be able to survive a Greek exit, but the Spanish economy is three times the size of the Greek economy, at over a trillion dollars - the Eurozone wouldn’t survive a messy Spanish exit, a point the Spanish government has made loudly and repeatedly the last few months. The size of this bailout suggests the Eurozone may be acting decisively to get ahead of the crisis and prevent further contagion effects from fears of a Spanish collapse. The other possibility is that the Spanish economy is in a whole lot worse shape than even the IMF suspected. The Eurozone agreed to the bailout fairly quickly, and they haven’t been known for generous packages so far, so I’m left wondering if there’s something worse on the Spanish books than we’ve seen so far.
Thanks for joining me, and my best for the week ahead!