Headlines:
- Iran-US Historic Deal Reached
- Greek Leaders do U-turn on Referendum Result
- China Stock Market Crash
Iran-US Historic Deal Reached
Both US officials and Iranian officials announced Tuesday 14th July that a historic deal has been agreed between Iran and the P5 + 1 group of nations. Under the terms of the deal, Tehran agreed to remove two-thirds of its centrifuges, reduce its stockpile of enriched uranium to a fraction of what would be needed to make a bomb and halt the use of advanced centrifuges for 10 years. Iran also promised not to build a new heavy water reactor for 15 years and will modify the core of its heavy-water plutonium reactor at Arak, while its spent fuel — a key component of a potential bomb — will be shipped outside of the country. On top of this Iran would allow UN inspectors round-the-clock access to nuclear sites.
The US president confirmed the series of sanctions would be gradually lifted — providing Tehran with access to between $100 billion and $150 billion in frozen funds — only after Iran demonstrates it is abiding by its commitments under the agreement and would be reimposed if Iran was caught cheating. He also reiterated that Washington reserved the right to use force to prevent Iran from obtaining a bomb. The US Congress has 60 days in which to consider the deal, though Obama said he would veto any attempt to block it.
Despite this agreement taking so long which included lots of extensions, the deal is really the culmination of more than a decade of careful diplomacy, with much of it behind the scenes. This nuclear deal was inevitable as Iran was always prepared to abandon its nuclear programme for recognition as the regional power. With the US bleeding to death in the Middle East, Iran has played a central role in extricating the US from both Iraq and Afghanistan and now Syria. Iran has actually given up much more then it needed to and now will play America’s key ally in maintaining US strategic interests in the Middle East.
Greek leaders do U-turn on referendum result
Just last week the Greek public voted no to austerity measures in a referendum. The Greek public effectively rejected the EU proposal, giving a vote of confidence to the Syriza government. But despite such unprecedented domestic support by the end of the week the Greek government had caved in to EU demands. The Greek government put forward it deal after the vote, which in effect accepted all the long held EU demands. Syriza’s capitulation earned the resounding approval of the Greek parliament.
After battling against the sever austerity cuts that were required for further bailouts, Greece capitulated as its banks had been closed for two weeks, and Greek banks came dangerously close to losing access to emergency liquidity assistance from the European Central Bank. Berlin was counting on Athens to become desperate and make last-minute concessions that seemed unlikely only a few weeks ago.
The Greeks now face the prospect of long term austerity and for its economy to remain in depression for a lot longer.
China’s Economy on the Edge
China’s economy is in serious trouble. Both the Shanghai Composite Index and the Shenzhen Stock Exchange, have fallen over 40% since they peaked in mid-June. It has become common for listed companies to suspend trading, having plummeted below the minus 10% daily threshold set by the Chinese government. In China’s stock market bubble has burst. In June 2015 market capitalization across the country’s largest exchanges peaked at around $10.3 trillion, China’s markets have lost more than $3.2 trillion in value.
There was an extraordinary boom in Chinese stocks over the past few years. Since early May alone, more than 5 million new investors, most of them ordinary Chinese, entered the market, bringing the total number of investors to 90 million. Over the past five months, total assets under management at China’s mutual funds have nearly doubled, from $720 billion to over $1.2 trillion. In November 2014, China overtook Japan as the world’s second largest stock market, with a market capitalization of $4.5 trillion. Today, its stocks have an estimated value of around $9 trillion, the same size as its gross domestic product.
The Chinese government has carefully directed its economic development for three decades through State Owned Enterprises (SOE) and state intervention across the economy. Through a strategy of low wages and aggressive exports abroad China was able use its export cash to invest across the economy. But what has become clear now is much of the domestic savings of its public went into the stock market bubble. Whilst banks and pension funds make up most of the customers in western financial markets, in China it was the savings of ordinary Chinese citizens. China is currently attempting to transition from external reliance to domestic consumption where the Chinese people drive the economy. But this stock market crash puts this in complete jeopardy as the stock market consists of the Chinese citizens’ money.