“Angela Merkel’s Election…..”

Germany – Angela Merkel’s Election

German Chancellor Angela Merkel won her fourth term in a vote that saw her party taking its lowest share of votes since 1949.  She spoke about building a coalition government a day after her win.  German bonds climbed with the ten year bund yields falling to their lowest in more than a week as Merkel faces tough talks to form a government with a party opposed to further European Union Integration.  The current coalition partner the Social Democratic Party ruled itself out of another pact following her fourth-term victory.   Merkel will have to negotiate with the Free Democrats and the Green Party which differ on issues including European reforms.  These talks might take months.

Spain

Spain as well as Italy have their political challenges.  In Spain the wealthy Catalonia region is going ahead with plans for a referendum on independence on 1^st October in an attempt to push the movement forward after six years of demonstrations.  Decades of political and legal fights to win recognition for their distinct traditions and language have left many Catalans infuriated.   These challenges are a strain on the bond that has existed in Spain for more than 500 years.  Spanish nationalists brings forth the argument that Catalonia has always been part of Spain while Catalans trace their independent identity back to the 13^th century.  The 1978 constitution does not allow any region to vote.  Either all of Spain votes or no one does.  The main political groups are considering some form of constitutional re-think as the way for settlement.  It is unclear what the consequences will be if Catalonia pushed ahead with independence.  Warnings from European leaders say that it could be excluded from the bloc and cut off from using the Euro as its currency.

UK – Brexit Talks

Donald Tusk European Council President met British Prime Minister Theresa May in London as the latest round of Brexit talks enter their second day in Brussels.  David Davis said clearly that the UK will only pay the exit bill if it gets the deal it wants.  This is at odds with what Theresa May said in her speech in Florence last week.  EU ministers are calling for more clarity. In the Italian city of Florence, in delivering her speech Theresa May gave the clearest indication so far that Britain will pay to smooth its departure from the bloc. May said that “the UK will honour commitments we have made during the period of our membership.” A government official further clarified that what Theresa meant was open to discussing financial commitments beyond the scope of the EU budget and the UK will honour its dues more broadly.

US – Obamacare

Republicans face the deadline on 30 September to pass the Obamacare Repeal Bill.  On Sunday revisions were made to the version released last week.  If Republicans cannot get the votes or decide to scrap this bill altogether it will mark another reminder of the party’s inability to deliver on seven years of promises to repeal the 2010 law.  Under the revised version, states would have to describe how their health plans shall maintain access to adequate and affordable health insurance coverage for individuals with pre-existing conditions.  The bill further gives states broad new authority to allow insurance companies to provide skimpier plans with fewer benefits while charging higher premiums to more vulnerable, the sick and the old.  Furthermore, under the new version states could let insurers impose deductibles that are higher than the limits set by the Affordable Care Act or remove the health law’s limits on the costs that an individual family can incur in an entire year.  They could also offer other services that are excluded from the ACA’ s benefits such as maternity care, prescription drugs or mental health.  States can also let insurers widen the gap between how much old people and young people are charged.  While GOP Senators are trying to win holdouts on the plan to repeal Obamacare, President Donald Trump is not optimistic and told reporters that he is focusing on tax cuts.

US – Trump’s Travel Bans

President Donald Trump restricted or suspended travel plans to the US from eight countries adding North Korea and Venezuela while removing Sudan from his earlier ban on travellers from six Muslim majority nations.   This step was taken as the original order was set to expire.  The new restrictions impact travel to varying degrees from Iran, Libya, Somalia, Syria and Yemen which were all on the original list.  The US will now restrict or ban travel from Chad, North Korea and Venezuela.  The efforts by Trump to restrict travel to the US has prompted challenges, mass protests and criticism from corporate leaders.

US – Tax Plans

On Wednesday the White House released the tax plan after long negotiations between administration officials and top Republican lawmakers.  The proposal would reduce the corporate tax rate to 20 percent down from the current 35 percent and lower the tax burden for pass-through entities including partnerships and limited liability companies.  Trump said that the plan would deliver “the largest tax cut in our country’s history.” In his arguments Trump said that by eliminating the estate tax, small businesses and farms could be easily transferred within families leaving middle-class Americans with more money in their pockets.  The tax overhaul was a promise in Trump’s presidential campaign. The plan will set out three tax brackets for individuals 12 percent, 25 percent and 35 percent.  The plan also calls for almost doubling the standard deduction and increasing substantially the child tax credit while at the same time eliminating tax loopholes.  It faces challenges among lawmakers who disagree on critical elements of the framework the White House released.   The plan sets off debates over how much top earners would benefit.  Furthermore under the framework businesses would be allowed to immediately write off their capital spending for at least five years.  On the international side, the plan is to move towards taxing corporate profits regardless of where they are earned.  Companies with accumulated offshore profits would be subject to a one-time tax on those earnings – clearing the way for that income to return to the US.  The applicable rates are still unclear but there would be a higher rate for income held in cash compared to the rate for less liquid investments.  Firms will be able to pay the new tax over several years.  Currently, companies can defer paying US tax on their offshore earnings until they are brought to the US with the result that US firms have stockpiled an estimated $2.6 trillion in profit offshore.  As a result of the tax plans stocks surged on hopes that the rate cuts will be embedded into legislation this year.

Japan – Snap Election

The prime minister of Japan Shinzo Abe has dissolved the lower house of parliament on 28 September for a general election as he announced an $18 billion economic package.  The economic package includes spending on preschool and higher education, and on improving conditions for people working in elderly care.  The economic measures will be met from the use of revenues arising from a planned increase in the nation’s consumption tax in October 2019 to 10 percent from the current 8 percent.    Abe further spoke about the need to keep pressure on North Korea after the regime of Kim Jong Un fired two missiles over Japan in recent weeks.  Voting is set for the 22^nd October.  The heightened tensions with North Korea have boosted Abe’s approval rating after a series of scandals and can help him to retain his coalition of two-thirds majority in the lower house of parliament.    He said that among his reasons for calling the election is the current situation on the Korean peninsula and added that, “by holding an election at this time, I want to ask the people’s view on how we are dealing with North Korea”.  Abe has served a total of almost six years as prime minister.  The opposition party agreed to merge with a new group created by Tokyo Governor Yuriko Koike setting her as the main challenger to Prime Minister Shinzo Abe.

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