Tuesday 19 March 2013

Cyprus Triggers Collapse



 Who would have thought that tiny Cyprus would be the trigger that finally explodes the euro?

The euro was conceived at a time when economic globalisation was seen as the way of progress and the Washington consensus was the recommended package of economic policy foisted onto countries by the IMF. This era is drawing to a close as countries begin to understand that macroeconomic stability comes from taking back national control under the policy of ‘proximization’. [1] [2]

The euro was always more a political project than an economic plan. The idea that countries with vastly different cultures and circumstances could be shoehorned into a single currency was a non-starter. The fact that the euro has survived as long as it has is testament to the difficulty in dismantling it. The only reason it still holds together is because taking it apart would be worse. That is how it is seen from Brussels, but what is the view from Cyprus?

I don’t see Cypriote politicians worrying at rejecting the Troika’s plan to impose a tax on bank deposits. They have little to lose; although their creditors have much to lose. As one of their politicians mentioned on News Night this evening, they can start printing the Cyprus Pound if the EU does not lend them yet more money. When Cyprus shows the way, other much bigger countries will follow.

Cyprus will default on its international debt and leave the euro before opening its banks. It could be a week or more before this becomes clear, but I see no other sensible way forward. This will lead of course to turmoil and bankruptcies in the short-term but Cyprus will soon find that it has cleared a way ahead. Tourists will come flooding back as the Cyprus Pound dives. Cyprus is too small to lead directly to collapse outside its borders but it will set an example.

When the Greeks see that there is a credible way to leave the euro and start on a new road, they may also rush to default and exit. Would Italy and Spain be next?

Go Cyprus. Go; show the way.


[1] McManners, P.J. 2008. Adapt and Thrive: The Sustainable Revolution. Reading: Susta Press.
[2] McManners, P. J. 2010. Green Outcomes in the Real World: Global Forces, Local Circumstances and Sustainable Solutions. UK: Gower.

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