What's Important in the Financial World (9/10/2012)

Any Takers for ECB Bond Buying?

One of the problems with the ECB bond-buying plan, which was hailed last week as a way to help curb the borrowing costs of financially troubled nations, is that it may have no takers. Italian Prime Minister Mario Monti told CNBC that his country has no intention of drawing from the facility. Spain also may avoid borrowing for as long as possible. There are two reasons for the reluctance. The first is that borrowing would signal that a nation has moved to the brink of real trouble. It is hard to argue that Spain is not there already, but that does not mean it wants to admit its severe problems. The other reason is that any borrowing has to be coupled with budget reforms approved by EU authorities. Spain and Italy want to avoid this kind of stranglehold if possible. Barron’s reports:

Everyone is of course looking at Spain and Italy, but they seem in no hurry to raise their hands. Today, GMP Securities’ Adrian Miller asks “whether the plan will ever get off the shelf of the ECB as Spain and Italy have both indicated they are in no hurry to make an official request for aid. Indeed, while Italy’s Mario Monti announced the ECB bond buying plan reduced the stigma of asking for aid as “the drama in the word ‘help’ has been reduced”, he said he was trying to avoid seeking aid. Monti indicated it was premature to comment on the details of the OMT plan.”

Fate of Eurozone in Hands of German Judge

The possibilities of a broad set of bailout programs for Europe’s weak nations rests in part with the top Germany court — the Constitutional Court. On Wednesday it will announce whether the German government can participate in these plans without violating the law of the land. Should the court vote no, the German contribution to these rescue mechanisms would largely disappear. Without the weight of the region’s largest economy by gross domestic product behind it, most of the plans would have to be scuttled. Reuters reports:

Angela Merkel may be the most powerful woman in Europe, but this week the chancellor’s plans to save the euro lie in the hands of Andreas Vosskuhle, the supreme court judge known as Germany’s most powerful man.

France Moves to Tax the Wealthy

France has taken another step toward severe austerity programs set by the central government. Its economy has dipped into a recession. New President François Hollande claims that the government needs to cut costs and place an extreme tax on the income of the country’s richest citizens. According to the Wall Street Journal:

Mr. Hollande said his government would propose a budget this month packed with as much as €20 billion ($25.6 billion) in new taxes and €10 billion in spending cuts. He confirmed that the budget will include a special 75% tax for people earning more than €1 million a year that has fanned fears of an exodus of France’s wealthiest citizens.

The painful measures are necessary to fulfill pledges to lower the country’s budget deficit to 3% of gross domestic product next year from 4.5% in 2012 and reassure investors, who have been more lenient with France than with other highly indebted euro-zone countries such as Italy and Spain.

Douglas A. McIntyre