The Morning Brief - Lignet
Cyprus: Bailout Deal Will Do More Harm than Good
The apparent resolution of the Cypriot bailout fiasco – which narrowly
avoided several undesirable outcomes such as the island nation’s euro
exit and Russian loans to circumvent EU rules – is the prolongation of
an EU-wide sovereign debt crisis that has shown no signs of ending. None
of the parties involved are happy about this deal and there are concerns
that the financial assistance agreement will lay waste to the huge
Cypriot offshore banking sector, dragging the country into a Greek-style
depression for years to come.
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France: Disastrous 75 Percent Tax Hits a Brick Wall
French President Francois Hollande’s socialist government apparently has
never heard of the economist Arthur Laffer, who proved that high tax
rates actually reduce tax revenue because they cause economic activity
to slow down, which in turn erodes the tax base. Hollande is now
proposing a 66 percent tax on high earners to replace the old 75 percent
tax, which was declared unconstitutional by France’s highest court, but
LIGNET believes its effects will still damage the country’s beleaguered
economy.
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With Energy Deal, a Russia-China Alliance Looms Large
Russia’s state-controlled oil company Rosneft [London: ROSN] scored a
big victory last week when it sealed a deal to dramatically increase oil
sales to China over the coming decade. Russia and China will also soon
sign a major natural gas agreement. China benefits by gaining more
access to Russia’s vast energy reserves and exploration rights in the
Arctic, something it has been seeking aggressively for many years.
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Russia Tries to Bully U.S. With ‘Bomber Diplomacy’
Since June 2012, Russia has used nuclear-armed bombers on four occasions
to send pointed messages to the United States and its allies – a
stratagem that might be called ‘bomber diplomacy.' In less than a year’s
time, Russian aircraft that can carry nuclear cruise missiles and bombs
have challenged American air defenses in Guam, flown near South Korea,
and came close to the Alaska and California coasts. While the flights
probably helped advance Russian defense planning and capabilities,
LIGNET believes they have had little effect on U.S. policy.
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China: New Leadership Unlikely to Tackle Pollution Crisis
China’s severe pollution problems are currently in the spotlight after a
dangerous spike in smog in Beijing and a water pollution scandal
overshadowed the recent assumption of power of Chinese President Xi
Jinping and Premier Li Keqiang. While Li has promised to enforce China’s
environmental laws and punish violators with an “iron fist,” the
government is still beholden to industrial elites who demand more
economic growth no matter the cost, making it difficult to resolve the
country’s growing environmental crisis.
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