Economist Covers

In the news last week...

South Korea's president, Lee Myung-bak, announced punitive measures against North Korea in response to the North's sinking of one of the South's warships in March, in which 46 sailors were killed. Trade with the North is to be cut severely, sea lanes closed and propaganda will once again be blasted over the border. North Korea responded in kind and threatened to shoot out the loudspeakers.

Britain's new Conservative-Liberal Democrat coalition government laid out its legislative agenda in the Queen's Speech. The measures included plans to set up schools along the lines of America's charter system and Sweden's 'free schools', and also a controversial move that requires a super-majority of 55% of MPs to dissolve parliament.

Investor concerns about the euro area turned to Spain when the country' central bank took control of CajaSur, a small, troubled savings bank based in Córdoba. Spain's cajas account for almost half of its banking system and have been hit by the collapse in property prices. After the Bank of Spain' intervention, yields on Spanish government bonds rose, making it more expensive to finance public borrowing. Separately, the IMF said Spain should conduct a 'radical overhaul' of labour laws and carry out 'bold' pension reforms, warning that 'time is of the essence'.

Global stockmarkets took another battering and remained volatile, partly because of fears about euro-zone debt and increased tensions between North and South Korea. The S&P 500 index was some 10% lower than its level at the beginning of May; the Dow Jones Industrial Average closed below the 10,000 mark for the first time since February; and the FTSE 100 finished below 5,000 for the first time since October.