guaranteed throughout the eurozone,
and any tax on such deposits violates
this system-wide guarantee. If this can
be done for Cyprus then, many would
argue, it may be tried again at a later
date in a more significant country.
If it were thought that this could be
applied as a remedy elsewhere, then
the merest hint of trouble in the
future could lead to a bank run, and
that's what has to be avoided at all
cost if the eurozone is to survive.
two largest banks in Cyprus, and taxed
only those deposits above 100,000
euros. The size of the `haircut' will be at
least 40%, and may be as high as 60%.
foreigners, particularly Russians, for
whom Cyprus is a tax haven. Such a
tax is not likely to encourage growth in
the `tax haven' industry! Russians are
estimated to hold about one-third of all
bank deposits (by value) in Cyprus.
have been imposed. This means
a euro inside Cyprus is no longer
equivalent to one elsewhere, which
violates a fundamental tenet of the
currency union.
Cyprus. By the time it has worked
through its problems, its economy
is likely to have shrunk by about
20%. Apart from its status as a tax
haven, Cyprus, which joined the
eurozone as recently as 2008, relies
on tourism and some offshore energy
to survive. It is used to shrinkage; the
Cyprus economy is estimated to have
Turkey annexed a large part of the
island in the mid-1970s. But whatever
happens to Cyprus really doesn't
matter in a direct sense.
Pennsylvania. Most readers will never
have heard of Scranton, and there's a
good reason for that. It's very unlikely
that anything that happens there
would have a great direct effect
in Australia.
to know more, it's the hometown
of Joseph Biden, and a sister city to
Ballina, but the one in County Mayo
rather than the one in New South
Wales. Perhaps most importantly, it
is the home of the famous Dunder
Mifflin paper supplies company. The
point of this digression is to highlight
just how small Cyprus is; its GDP is
about 0.03% of global GDP!
episode has done is raise the tail risk
of a catastrophic ending to the entire
European debt issue. This risk is still
very small, however.
United States, mandatory government
spending cuts began in early March,
but the US economy seems to have
been little affected to date. Congress
even passed a further continuing
budget resolution, thus avoiding a
Federal Government shutdown. Early
forecasts suggest the US economy
will record GDP growth of close to 3%
(annual rate) in Q1, and the housing
recovery is clearly continuing.
second election before September or
October. An earlier election, say in June,
would have required that the current
president resign before the end of his
term on 15 May. He can't dissolve
parliament and thus bring on a new
election in the last six months of his
term, and he has shown no inclination
to resign early so that his successor
could do so, with the obligatory 45 days
notice, before the country effectively
shuts down for the summer.
place for some time yet, or that it
will be succeeded by an institutional
government a committee of `wise
men' (some sexism there!) agreeable
to the major political parties. If the
latter were to occur, this would obviate
the need for a second election.
ECONOMY
economy grew at only a moderate rate
in the second half of 2012. The news
about the labour market was decidedly
mixed, with the employment growth
reported for February clearly too good
to be true and the vacancy data for
the same month unbelievably bad.
Slow credit growth suggested that
Australian businesses are still very
cautious, but the January retail trade
report was much better than those of
recent months.
pat on 2 April. It still has at least a soft
bias to ease, being cognisant of the
need to cushion the economy when
the mining capital spending boom
peaks, as it surely will.