North and South Korea Fire Artillery in Anger

World markets are sharply lower this morning. The selloff appears to have been triggered by two principal factors: Worries about a worsening debt crisis in Europe, and North Korean shelling of a South Korean island.


Here are the raw data: (From Yahoo Finance via AP) "In Europe, the FTSE 100 index of leading British shares was down 35.77 points, or 0.6 percent at 5,645.06 while Germany's DAX fell 16.76 points, or 0.3 percent, to 6,805.29. The CAC-40 in France was 30.16 points, or 0.8 percent, lower at 3,788.73."

"Wall Street was also poised to open lower—Dow futures were down 61 points, or 0.6 percent, at 11,104 while the broader Standard & Poor's 500 futures fell 9.2 points, or 0.8 percent, at 1,188.70."

North and South Korea Fire Artillery in Anger

North Korea and South Korea have exchanged artillery fire after the North shelled a South Korean island with artillery rockets near the two countries disputed maritime border. This is an international incident of a serious magnitude, with ramifications for both the regional markets in Asia, as well as for the broader global financial markets.

The New York Times provides a timeline, as well as a context for the hair-trigger potential for escalation on the Korean Peninsula:

"The South Korean military went to “crisis status,” and fighter planes were put on alert but did not take off. South Korean artillery units returned fire after the North’s shells struck South Korea’s Yeonpyeong Island at 2:34 p.m., said Mr. Kwon, adding that the North also fired numerous rounds into the Yellow Sea. News reports said dozens of houses were on fire, and TV footage showed large plumes of black smoke spiraling from the island."

From the Wall Street Journal, a sense of the gravity and chaos on the ground:

"'The whole neighborhood is on fire,' island resident Na Young-ok said from a bomb shelter about an hour after the shelling began. 'I think countless houses are on fire, but no fire truck is coming. We have a fire station but the shots are intermittently coming.'"

In its article, Bloomberg News quotes the official U.S. response to the shelling—also pointing out the substantial presence of U.S. troops stationed in South Korea.

"'The United States strongly condemns this attack and calls on North Korea to halt its belligerent action,' the White House said today in a statement. The U.S., which stations about 25,000 troops in South Korea, is in contact with Seoul’s government, the statement said."

The United States plays a significant role in the security arrangements of the strategically important Asia-Pacific region—a region beset by several 'unresolved territorial disputes', as well as the occasional outbreak of actual hostilities.

From the Financial Times, the recent backdrop of conflict between the two nations, which have been formally at war since 1950. (At the conclusion of the Korean War, an armistice—but no peace treaty—was signed.)

"The attack, which comes days after North Korea revealed the existence of a previously secret uranium nuclear programme, raises the stakes in an increasingly tense stand-off between the two Koreas by targeting civilians, something Seoul had dreaded could follow the sinking of a warship in March with the loss of 46 sailors."

Also from the Financial Times, a note on political succession and a history of belligerence:

"Many analysts say North Korea is flexing its muscles to smooth the succession of Kim Jong-eun, the third son of Kim Jong-il, the country’s ailing dictator. They say he is seeking to build political capital by bloodying the South with attacks such as the torpedoing of the warship Cheonan in March."

Finally, from BBC News diplomatic correspondent Jonathan Marcus, a compendious analysis:

"Nobody needed any reminder of the volatility of the relations between North and South Korea, nor of the sensitivity of their disputed maritime border. In March, a South Korean warship was sunk by an explosion and an investigation indicated strongly that the North was responsible."

"The shelling of Yeonpyeong fits into the same pattern. From the North Korean viewpoint, this is about establishing deterrence over the South and defending its interests. But it is also a wider demonstration to the world of the North's power and an indication of some kind of political transition."

"Quite what is going on in Pyongyang is impossible to say. Nonetheless, there are strong indications that Kim Jong-il has designated his son, Kim Jong-un as his successor. This opens up a period of uncertainty and unpredictability and this kind of incident is exactly what observers most feared. "

Continued Political Strife In Ireland Over Budget—with Bailout Fears And a Looming Debt Crisis as Backdrop (Wall Street Journal) "The opposition parties and independents are struggling to decide if they should support Mr. Cowen's government in the upcoming budget, which is crucial to securing a bailout worth tens of billions from the European Union and the International Monetary Fund. Their other option is to push for an immediate election that could delay a rescue package."

" With his political support waning, Mr. Cowen said late Monday that he intends to dissolve parliament in the new year after the budget process is completed. His hand was forced after his coalition's junior partner, the Green Party, on early Monday called for an election to be held in late January. The Greens said they plan to support the four-year budgetary plan, which will detail how €15 billion ($20.44 billion) of budget cuts will be made, and the 2011 budget."