credit: Philippe Waechter
The E-zone is not out of the woods economically speaking. The red trend line shows a modest 1.9% growth rate in GDP while the blue line shows a sub-par recovery rate. Europe like the US fell off the cliff in 2008 and output has not recovered since. The E-zone is even falling off its post-crisis upward trend. No wonder a bank crisis in tiny Cyprus rattles markets so disproportionately. Another reason is Cyprus has a huge shadow economy, one that circumvents government regulation or taxation. So there is little incentive in Germany, facing a federal election in the fall, to bail out Cyprus banks with making serious financial demands on Cypriots:
