The EU vs. Italy. Brussels has kicked off the formal process of taking Italy’s new populist government to task. On Thursday, the European Commission sent Italy a warning letter asking it to make changes to its draft budget plan by Oct. 22. The document called the plan, which would hike Italy’s fiscal deficit and boost welfare spending, an unprecedented deviation from EU fiscal rules. If Italy doesn’t comply, Brussels could effectively reject the budget by Oct. 29. Things will only get trickier from there. If Italy takes a hard line and its government can survive the resulting standoff with the EU, it will put Brussels in a difficult position. If the EU gives in, it will undermine its own authority. But if it tries to treat Italy the way it did Greece, there might not be much of an EU left to govern.
A long time coming. China’s economic crunch is starting to show up in its official data. Growth in the third quarter dropped to 6.5 percent – the lowest level since the 2008 global financial crisis. Beijing expected growth to slow this year (and slow further next year) as its economic reforms and deleveraging campaign start to kick in. But the U.S. trade war appears to have accelerated the downturn. Growth of manufacturing production, for example, slowed to 6.7 percent through the first nine months of the year, and to just 5.8 percent in September, despite soaring fixed-asset investment in the sector. U.S. policies really only arrived a month ago, and they won’t be fully felt until next year, but Chinese officials are acting like the crisis is here. On Friday, Beijing unveiled a slew of measures meant to stabilize equity markets and give ailing private firms a boost. Chinese stock markets tanked initially, before rebounding dramatically, hinting at a direct intervention by the government to keep panic from making a bleak situation wholly unmanageable.
ASEAN looks out for itself. Southeast Asian states are doing what they can to prevent competition from getting out of hand in the South China Sea. At a summit in Singapore, defense ministers from the Association of Southeast Asian Nations rolled out guidelines for warplanes operating over the disputed waters, urging outside powers – the U.S. and China in particular – to sign on. This, like a similar code of conduct for naval ships unveiled by the bloc last year, won’t deter outside powers from doing what they think they need to do to secure their interests. But it may reduce the chance of accidental escalation, and it reflects widespread anxiety among ASEAN states about getting caught up in a conflict in the region. To that end, ASEAN confirmed plans to hold its first maritime exercises with China later this month, even as it announced one with the U.S. Navy for next year. Of course, there are other parties with a stake in the South China Sea as well. Japan ordered two warships on a tour of the Indo-Pacific to stop in Singapore on Thursday, claiming the timing with the ASEAN defense ministers was “just a coincidence.” India, meanwhile, announced Friday that it would hold a series of exercises with the U.S., Japan and Russia in the coming months ahead of an annual drill with China.
- Pakistani Prime Minister Imran Khan said his government may not seek another International Monetary Fund bailout, after all, preferring instead to resolve its balance of payments crunch with help from “friendly countries.”
- Senior Japanese and North Korean intelligence officials reportedly met secretly in Mongolia in early October.
- Russian President Vladimir Putin said he was told by Japanese Prime Minister Shinzo Abe that a peace treaty that has eluded the two countries since World War II would remain impossible until their territorial dispute could be resolved.
- The Turkish navy stopped a Greek frigate from “harassing” a Turkish seismic and drilling vessel conducting research in disputed, oil-rich waters near Cyprus. Meanwhile, the leaders of Egypt, Greece and Cyprus held talks on forming an energy-based alliance in the Eastern Mediterranean.
- China and the EU joined a major World Trade Organization case against U.S. steel and aluminum tariffs.
- The leaders of Turkey, Russia, Germany and France will hold a Syria summit in Istanbul on Oct. 27. (Note the absence of the U.S.)
- Vietnam said it would become the fifth country to ratify the revived 11-member Trans-Pacific Partnership trade pact next month.