Sliding toward all-out war

Fears of an all-out war between Israel and Hezbollah [View in browser]( [Bloomberg]( Welcome to Balance of Power, bringing you the latest in global politics. If you haven’t yet, sign up [here](. For months, world powers have been increasingly concerned about the [prospect of an all-out war]( between Israel and Hezbollah. Those fears have become far more justified in recent days: Israel escalated its campaign against the Iran-backed militant group [with a massive bombardment]( of its positions in Lebanon yesterday. The strikes killed almost 500 people — including around 100 women and children — and wounded 1,650, according to Lebanese officials. Civilians are panicking in the south of the country and the Bekaa region in the north-east, with thousands of cars clogging roads to the capital, Beirut. Israel says it had no choice but to act more aggressively after months of diplomacy — including by the US, France and Germany — failed to get Hezbollah to stop its missile and drone attacks. Those are being carried out in support of Hamas in the devastating war in Gaza. Last week, Israel made enabling the return of tens of thousands of displaced civilians to the country’s north an official war objective. Prime Minister Benjamin Netanyahu says that can’t happen unless Hezbollah moves its fighters back around 20 miles (32 kilometers) from the border with Lebanon. He seems to hope Israel’s aerial campaign will be enough to achieve that without a ground offensive, which his government knows could bog down its troops for months, if not longer, and come at a huge human and economic cost. It could also trigger a fierce retaliation from Hezbollah. Iran would likely act if it felt the existence of Hezbollah — its [most important proxy group]( — as a military force was in question. The US, for its part, may [have to back Israel]( even more than it’s done for the war in Gaza. There is a growing danger that the current clashes will spiral into the regional war the rest of the world is so keen to avoid. — [Paul Wallace]( WATCH: Israeli air strikes on Hezbollah targets in Lebanon. Global Must Reads From the Arctic tundra to the vast floodplains of Brazil and Indonesian peatlands, wildfires that tend to move below ground are burning up huge stores of carbon and [threatening to worsen global warming](. In the Arctic, 2024 is shaping up to be the worst fire year since 2020, when blazes burning across Siberia for several months consumed 8.6 million acres of tundra and sent emissions surging to a record. A subarctic forest fire outside the village of Berdigestyakh in Siberia. Photographer: Dimitar Dilkoff/AFP/Getty Images US President Joe Biden will use his final address to the United Nations General Assembly today to [champion the value of alliance-building]( even as Russia’s invasion of Ukraine and Israel’s war against Hamas have tested the limits of his foreign policy doctrine. He will pitch collective action as the solution to emerging concerns, from climate change to artificial intelligence and synthetic drugs, administration sources say. Russia plans to maintain military spending at a historic high in 2025 and sees only slight declines in the following two years as President Vladimir Putin’s war on Ukraine shows no sign of ending. Draft budget proposals show the government intends to increase [defense spending]( to 13.2 trillion rubles ($142 billion) next year from 10.4 trillion rubles projected for 2024, putting it at 6.2% of gross domestic product. Japanese Foreign Minister Yoko Kamikawa told his Chinese counterpart yesterday that Beijing must act to protect his nation’s citizens within its borders, following [the stabbing death]( of a 10-year-old Japanese boy in southern China, and deal with “untruthful and malicious” internet posts targeting his country. Ties between the neighbors were already tense due to historical resentments, a territorial dispute and Japan’s release of wastewater from a destroyed nuclear power plant. Mexican President Andres Manuel Lopez Obrador is leaving his successor a volatile currency, tepid economic growth and the widest budget deficit since the 1980s. But the most urgent challenge Claudia Sheinbaum will face [is calming investor fears]( that the outgoing leader’s overhaul of the judiciary will remove checks and balances on the ruling Morena party and erode the rule of law. Hungarian European Affairs Minister Janos Boka told Bloomberg Television that the European Union’s asylum policy is [nearing a breaking point]( as opposition grows in other member states. Egypt said it sent military aid to Somalia, the latest show of support for the Horn of Africa nation [embroiled in a feud]( with neighboring Ethiopia over a breakaway territory. Zambia’s democracy may face greater scrutiny after President Hakainde Hichilema suspended three Constitutional Court judges with immediate effect yesterday, and the United Nations High Commissioner for Human Rights last month expressed concern [over multiple allegations]( of authorities making arbitrary arrests. Italian government officials are growing frustrated at Germany’s opposition to a potential takeover of Commerzbank by Milan-based UniCredit, threatening to [disrupt the delicate diplomatic relations]( between Berlin and Rome. Washington Dispatch Donald Trump, in a speech in Savannah, Georgia, today, plans to detail his vision to [deploy tax breaks]( and other incentives to bolster American manufacturing. The former president and 2024 Republican nominee has offered a smorgasbord of wide-ranging tax proposals that include something for almost every American family: workers who rely on tips; retirees; hourly employees who work overtime and even higher-income residents of Democratic-led states whose breaks he eliminated when he was president. If elected, Trump would go into negotiations with Congress regarding a wish list totaling $11 trillion and counting, according to the Tax Foundation. Vice President Kamala Harris has also made tax policy a central part of her campaign, pledging to increase the child tax credit, create incentives to first-time home-buyers and expand deductions for startup businesses. She even co-opted one of Trump’s signature ideas — no taxes on tips — giving the proposal bipartisan momentum. One thing to watch today: The Conference Board’s gauge of consumer confidence in September will be released. [Sign up for the Washington Edition newsletter]( for more from the US capital and watch Balance of Power at 1 and 5 p.m. ET weekdays on Bloomberg Television. Chart of the Day China’s central bank unveiled a broad package of monetary stimulus measures to revive the world’s second-largest economy, [underscoring mounting alarm]( within President Xi Jinping’s government over slowing growth and depressed investor confidence. People’s Bank of China Governor Pan Gongsheng cut a short-term key interest rate and announced plans to reduce the amount of money banks must hold in reserve to the lowest level since at least 2018. And Finally Elon Musk [offered effusive praise]( for Italian Prime Minister Giorgia Meloni in brief remarks at an awards ceremony in New York. The billionaire, who’s trying to get Trump elected, bestowed an Atlantic Council Global Citizen Award on Meloni, describing her as “authentic, honest, truthful.” After he spoke, Meloni, leader of the right-wing Brothers of Italy party, delivered an implicit rebuke to the left, lamenting the desire “to violently erase the symbols of our civilizations in the US as in Europe.” Musk with Meloni in New York yesterday. Photographer: Michelle Farsi/AP Photo More from Bloomberg - Check out our [Bloomberg Investigates]( film series about untold stories and unraveled mysteries - [Bloomberg Opinion]( for a roundup of our most vital opinions on business, politics, economics, tech and more - [Next Africa]( a twice-weekly newsletter on where the continent stands now — and where it’s headed - [Economics Daily]( for what the changing landscape means for policymakers, investors and you - [Green Daily]( for the latest in climate news, zero-emission tech and green finance - Explore more newsletters at [Bloomberg.com](. 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