Weekly Commentary – Germany takes a tough line to Cyprus
Over last week, investors focus on the latest development in Cyprus. Cyprus needs 10 billion Euros aids from Europe’s rescue mechanism. Unlike what happens over last three years, Germany takes a much tough line this time.
The main reason is the economic size of Cyprus. Cyprus only accounts for less than 0.3 percent of total output in Eurozone, which most of the investors believe no significant impact to other countries even the country quits Eurozone.
Another reason is Germany is unsatisfied with the low tax and loose regulation in Cyprus, which many analysts believe Russian money laundered through Cyprus.
As parliament election of Germany is expected to held in September this year, Germany Chancellor Merkel may want to take the case of Cyprus to demonstrate she will take a tougher line to those countries without fiscal disciplinary, such as France and Italy, in order to get more votes from voters. Investors should not forget ex-French president was lost in the presidential election last year because of his pro-Eurozone attitude.
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