INTERNATIONAL AFFAIRS - MAY 2010

INTERNATIONAL AFFAIRS - MAY 2010

Hung House in Britain after 36 years
On May 7, 2010, Britain woke up to a hung Parliament, an election outcome that this country last experienced in 1974 when the then Prime Minister Edward Heath tried and failed to persuade the Liberal Party to join him in a coalition.

The Conservatives under David Cameron emerged as the single largest party with 306 seats in the 650-member House of Commons, while Labour bagged 258 and Lib Dems 57.

Eight NRIs won elections, four each from the Labour Party and the Conservatives. Likewise four Pakistani-origin MPs, Sadik Khan, Khalid Mahmood, Anas Sarwar and a woman lawyer Shabana Mahmood, were successful on behalf of the Labour Party.

The LibDems play an extremely important role in the formation of the next government, although they have not been able to attract as many votes as they hoped for. They were expecting to win more than 100 seats, but they had to be satisfied with less than 60. However, despite the poor show, they still hold the trump card and are destined to play the role of king-makers.

On May 11, Conservative leader David Cameron (43), who favours a ‘new special relationship’ with India, took charge as Britain’s youngest Prime Minister in nearly 200 years, heading a coalition with the support of centrist LibDems, and vowed to put aside party differences and provide a strong and decisive government. He made Liberal Democrats leader Nick Clegg Deputy Prime Minister.

EU steps to halt economic crisis
On May 10, 2010, European policy makers unveiled an unprecedented loan package worth almost $1 trillion and a program of bond purchases to stop a sovereign-debt crisis that threatened to shatter confidence in the euro. Following the announcement, stocks surged around the world, the Euro strengthened and commodities rallied.

The 16 Euro nations agreed in a statement to offer as much as 750 billion Euro ($962 billion), including International Monetary Fund backing, to countries facing instability and the European Central Bank said it will buy government and private debt. The rescue package for Europe’s sovereign debtors came little more than a year after the waning of the last crisis, caused by the US mortgage-market collapse, which wreaked $1.8 trillion of global credit losses and write-downs. Under US and Asian pressure to stabilise markets, Europe’s governments bet their show of force would prevent a sovereign-debt collapse and muffled speculation the 11-year-old Euro might break apart.

The new war chest would be used for countries like Portugal or Spain in case their finances buckle. Deficits are set to reach 8.5 percent of gross domestic product in Portugal and 9.8 percent in Spain in 2010, above the Euro region’s 3 percent limit. Both countries pledged “significant” additional budget cuts in 2010 and 2011.

The vow to push budget shortfalls below the Euro's 3 percent limit echoes promises that have been regularly broken ever since governments in 1999 set a three-year deadline for achieving balanced budgets. The Euro region’s overall deficit is forecast at 6.6 percent of gross domestic product in 2010 and 6.1 percent in 2011.

Britain, the EU’s third-largest economy, won’t contribute to a Euro rescue fund, though it backs efforts to restore stability.

Now Spain struggles
Spain’s socialist government is seeing its political power erode as it struggles to chart a path out of deep financial trouble, failing so far to satisfy conflicting demands to cut its budget and stimulate job creation.

The coming months could bring far more problems as Prime Minister Jose Luis Rodriguez Zapatero reforms the country’s labour market, risking national strikes and the loss of support from trade unions, a core source of his centre-left party’s strength.

Zapatero’s minority government is already running into serious trouble, although there appears to be no immediate threat of it falling.

A package of austerity measures was passed by only one vote in the Parliament’s lower chamber on May 27, 2010. Opposition parties have called for new elections.

The austerity package aims to cut spending by Euro 15 billion ($18.4 billion) over two years by freezing pensions and cutting civil servants’ wages.

But investors and lenders such as the International Monetary Fund are demanding that Spain reform its labour market, overhauling hiring and firing rules and moving to find jobs for the long-term unemployed and the young.

Europe’s top job creator only two years ago, Spain now has the highest unemployment rate—just over 20 per cent—of the 16 nations that share the Euro currency.

The resulting austerity package, nicknamed the “scissors action” by Spanish media, was welcomed by the European Union and the IMF, which said Spain’s “ambitious fiscal consolidation is under way to reach the three percent GDP deficit target by 2013”.

US asks Pak, China to follow NSG rule
The US administration has said that civil nuclear cooperation between Pakistan and China must be in compliance with rules of the Nuclear Suppliers Group (NSG) if China proceeds with plans to set up two new nuclear reactors in Pakistan.

China’s decision to sell nuclear reactors to Pakistan, which has not signed the nuclear Non-Proliferation Treaty, is proving to be a litmus test for President Barack Obama, who has championed the cause of curbing the spread of nuclear technology.

China has helped Pakistan set up nuclear reactors since 1991 when China National Nuclear Corporation (CNNC) entered into a contract with the Pakistan Atomic Energy Commission (PAEC) to build Chashma-1, a 325 MW nuclear power reactor. When it joined the NSG in 2004, China cited a Sino-Pakistan framework agreement that committed it to set up a second reactor, Chashma-2, for Pakistan.

CNNC and PAEC have also worked out a deal to set up two separate 650 MW reactors—Chashma-3 and Chashma-4.

Analysts say the Obama administration is reluctant to press China on the matter in case Beijing responds by dropping its tentative support for sanctions on Iran.

NSG rules prohibit the sale of sensitive nuclear technology and materials to nations that have not joined the Nuclear Non-Proliferation Treaty (NPT) and do not allow international monitoring of their nuclear activities.

Daryl Kimball, executive director of the Arms Control Association, says the agreement between China and Pakistan is “deeply troubling because we have China engaging in civil nuclear trade with a country that does not meet the requirements of the NSG for such trade.” He said the Obama administration should insist at the NSG that the Chashma -3 and -4 projects be discussed and it be determined that they not be permitted.

Iran ready for nuke fuel swap
It’s being regarded as a major diplomatic coup that could spell the beginning of the end of the isolation of Iran from world affairs. On the sidelines of the G-15 summit in May 2010, Iran dramatically announced that it has arrived with Brazil and Turkey a deal that could possibly break the nuclear stalemate, stave off sanctions being contemplated by the UN and the US against Iran and bring the contentious issue back to the negotiating table.

Under the agreement Tehran will ship 1,200 kg of low-enriched uranium (LEU) to Turkey in exchange for fuel for a research reactor. Turkey will keep Iran’s LEU and the IAEA and Iran can monitor the fuel.

Iran is a signatory to the Nuclear Non-Proliferation Treaty regime (NPT) which had enabled it to received nuclear technology for civilian use from other NPT signatories, including the US in return for committing that it would not be diverted or misused for military purposes. In 2002, Iran was discovered to have clandestinely set up a uranium enrichment plant and a heavy water unit without informing the IAEA. Since then major powers led by the US have got the UN to impose severe sanctions and refuses to lift them till Tehran's comes clean and puts an end to all clandestine use.

Apart from curbs on banking and trade, heavy sanctions had been imposed on some key public sector enterprises of Iran and the Iranian Revolutionary Guard Council, the striking arm of the current regime.

Currently Iran is estimated to have 1,500 kg of 3.5 per cent (low) enriched uranium. For running research reactors like the Tehran facility for medical purposes, the uranium needs to be medium enriched to 20 per cent. According to a deal, Iran would swap 1,200 kg of its stockpile of low-enriched uranium in exchange for 120 kg of medium-enriched uranium that is to be supplied by the Vienna Group.

For making weapons grade material, uranium has to be enriched to at least 90 per cent. At least 300 kg of this highly enriched uranium is needed to develop an atom bomb. By keeping Iran’s low enriched uranium stockpiles to around 3,000 kg, the world hopes that it would prevent it from crossing the threshold of nuclear material needed to make a bomb.

Reacting to the Iran’s deal with Brazil and Turkey, the US pointed out that Tehran’s decision to continue with some enrichment of nuclear fuel is a direct violation of UN Security Council and that the details of the agreement must be conveyed to the International Atomic Energy Agency before it can be considered by the international community.

UK responded by saying that Iran’s actions remain a serious cause for concern. “There is a need for a continued effort to impose sanctions.”

EU responded by saying that “this is a right direction but it does not answer all the concerns raised over Iran’s nuclear programme.

Tension between Koreas escalates
On May 24, 2010, South Korea announced steps to tighten the vice on the North’s already stumbling economy in punishment for sinking one of its navy ships, with both sides stepping up their war-like rhetoric.

The United States, which backs Seoul, warned that the situation was “highly precarious”. China, the North’s only major ally, urged calm. The mounting tension followed report by international investigators accusing the North of torpedoing the Cheonan corvette in March 2010, killing 46 sailors in one of the deadliest clashes between the two since the 1950-53 Korean War.

The United States, which has 28,000 troops on the peninsula, threw its full support behind South Korea and said it was working hard to stop the situation from escalating.

Few analysts believe either Korea would dare go to war. The North’s military is no match for the technically superior South Korean and US forces. And for the South, conflict would put investors to flight.