This Week's News: April 3 - 5

Last week brought good economic news in Canada: Gross Domestic Product rose 0.2% in January, compared to - 0.2% in December 2012. Inflation also grew 1.2% in February, in line with expectations. This was the highest monthly jump since 1991 when the Mulroney government introduced the GST. All this good news allowed the Canadian dollar to rise slightly, up 0.75% on the week. Germany released good employment figures, having created 13,000 jobs in March. This far exceeded expectations, as economists had forecast the loss of 2,000 jobs. Germany’s Retail Sales for February grew 0.4%, which also topped expectations. The German economy slowed in 2012 and dropped 0.4% in the last quarter, but it could regain its stride with a few good months of job creation. Have a great week!

The Loonie
“If a free society cannot help the many who are poor, it cannot save the few who are rich.” John F. Kennedy There were many surprises in the euro zone last week:

An agreement was reached between Cyprus and the Eurogroup on a $9 billion bailout plan conditional on a tax, currently estimated at 40%, on deposits of 100,000 euros or more. In exchange, account holders would receive shares in the bank.

The Bank of Cyprus, the country’s largest bank, will absorb the profitable banking activities of Laiki. The second largest bank in Cyprus, Laiki is currently being liquidated. The details of the agreement with the Troika of international lenders (the European Union, the European Central Bank and the International Monetary Fund) included new governance for the Bank of Cyprus.

Jeroen Dijsselbloem, the Dutch Minister of Finance and President of the Eurogroup, said that a tax on deposits creates a risk of contagion for other European banks.

Even if the size of Cyprus’s debt is negligible, the greatest danger lies in a chain reaction, should the example of this famous tax ever be repeated. Cyprus could well become a model for future bailouts. Will Europeans pull out their money, or will they place it in a series of financial institutions? Where should it be deposited? In their mattresses? Will investors looking for a safe haven turn to the U.S. dollar, the loonie or gold, the precious metal that has always served as a safe bet during major financial crises?

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