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Thursday, September 6, 2012

ECB to Launch Long-Awaited Bond-Buying Program

The European Central Bank announced today it will launch a bond-buying program to help lower borrowing costs for struggling euro area nations. “The euro is irreversible,” ECB President Mario Draghi repeated a few times as he presented the most ambitious rescuing plan the central bank has ever undertaken. The program, called Outright Monetary Transactions, or OMTs, will focus on government bonds of maturities between one and three years, as well longer-dated bonds that are due to be redeemed within that time period. Buying from investors rather than from governments themselves, the ECB said it will not have “seniority,” meaning it will be treated like other lenders in case the borrowing governments default on their debt. The purchases will be unlimited, but also “sterilized,” guaranteeing that the ECB won’t simply print money and leave it out in the real economy, but rather recapture the cash by selling other assets it already owns. This will help stave off inflation, a major concern for Germany, the European Union’s largest economy. The ECB also said governments that apply to the program will have to agree to “strict and effective” policy conditions, probably overseen by the International Monetary Fund. This was not enough to reassure Germany’s top Central Banker Jens Weidmann, who was the only one who voted against the plan in the governing council of the ECB. Weidmann said after the announcement OMTs are “tantamount to financing governments by printing banknotes.” He also fears that by bringing more help to countries in difficulties, they will lose motivation to reform their economies. The news brought more relief to stock markets in Europe and in the U.S., and European stocks rose the most in a month.
Sovereign Debt

Syria: Mounting Worries Over Chemical Weapons

Intelligence agencies in the West are increasingly concerned that tons of chemical weapons have been scattered around Syria across 20 different sites. This is taken as an indication that the Syrian government, led by President Bashar al-Assad, could use them against the opposition forces, harming civilians in the process. Officials also worry that there could be more sites that have not yet been identified, which would make it difficult to secure all of the weapons should it become necessary. The information prompted the U.S. and its allies to hasten preparations for a military intervention. It also appears that Russia and North Korea have helped Syria build the stockpiles of weapons, which include sarin, a gas that can cause death or permanent neurological damage if inhaled or absorbed by the skin.

Greece Cracks Down on Tax Evasion

The Greek authorities froze the assets of 121 individuals and corporations as they continued to crack down on tax evasion, a problem that has contributed to Greece’s debt woes. Fighting tax fraud is one of the many measures the nation has had to implement since applying for rescue packages from the European Union and the International Monetary Fund. Horst Reichenbach, the head of the EU task force on Greece, said in March “there is about €8 billion in collectible revenue” ($10.1 billion) in the country. In 2009, a new report shows, the estimated €28 billion of unreported debt could have covered 31 percent of the nation’s budget deficit.

U.S. Stock Market Closes at Multi-Year High on ECB, Job Data

The S&P 500 rose to a four-year high and the NASDAQ rose to its highest level since 2000 after the European Central Bank announced its bond-buying plan, reassuring investors that it is serious about getting Europe’s finances back on track. A private job report also added to the positive mood after it showed American companies added 201,000 jobs in August, suggesting they hired at a faster pace than predicted. Should the U.S. Labor Department confirm this number tomorrow, it would be a sign that the economy is picking up. The service industry did grow at a faster pace than forecast in August, and jobless claims fell last week. These numbers should give a boost to U.S. President Barack Obama as he prepares to accept the Democratic nomination for a second term at the White House, which he will do this evening in Charlotte, North Carolina.

Curiosity Rover to Test Mars Atmosphere

Curiosity, the NASA rover that has been exploring Mars for the past month, is preparing to test the red planet’s atmosphere in search of methane, which could indicate biological or geochemical activity. The robot “inhaled” Martian air into its Sample Analysis at Mars (SAM) tool to evaluate the concentration of each gas on the surface of the planet. While it has been established that carbon dioxyde (CO2) is the atmosphere’s main component, Curiosity could identify other gases that would help us understand with more precision what it is made of. Results are likely to be published next week. Curiosity was sent to Mars with a dozen instruments for studying the red planet’s climate, geology, and habitability, partly in preparation for a future manned mission.

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