Cyprus
I care deeply about what is happening in my adopted country
It doesn't take an economics degree (I don't have one for example) to understand the problems facing Cyprus going forward.
It is obvious from the EU and ECB stance on every issue they face that they are short term in their vision and way too influenced by Germany ( I realize that is stating the obvious).
It is ludicrous that far and away the strongest economy in Europe is able to have the same exchange rate as the weakest. The competitive advantage that gives the strongest is ludicrous.
Cyprus mostly exports citrus fruits, cement, potatoes, clothing and pharmaceuticals. Cyprus' largest, and most important, trading partner is the European Union, which accounts for 50% of all Cypriot trade flows, followed by the Middle East, destination for 20% of exports from Cyprus. The largest export is not even mentioned in this list and that is tourism. It is nigh on impossible for the government of Cyprus to force all the component parts of the tourist industry to lower their prices especially in current environment.
This brings me back to the short termism of the EU and the exchange rate. Why is it anathema for the EU for a member to leave? The cynics would say that it is because it weakens Germany's grip; if one goes why not many? For Cyprus being in the Euro going forward will simply exacerbate their problems
Devaluation is a far more effective tool than austerity. Cyprus should have been allowed a "soft departure" from the Euro. That is to say bring back the Cyprus Pound but in some kind of ERM structure with maximum and minimum bands protected by the ECB. For example if they New CYP was able to fall by say, 30% but that is all it would have brought stability internationally and also given Cyprus an opportunity to export both visibly (goods) and invisibly (tourism) starting it on its way to recovery. It is obvious that Cyprus as ranked by the value of its currency should be trading at a 30% discount to Germany.
The tax on bank accounts would still have taken place but in a different way and would have been far more equitable. I cannot say why the Russian money flowed into Cyprus but I am pretty sure it wasn't because that Cyprus was a member of the Eurozone.
I have no data for the percentage of client deposits pre-Euro compared to now.
Laiki and BoC would still have been handled in the same way, unfortunately banks go under it's part of the cycle, but a foreign exchange loss is far more palatable than giving customers shares in banks that may never come back. In fact as Cyprus started to recover so the New CYP would have risen and foreign depositors would have started to claw back their losses. I don't have access to all the background to the whole situation but interpreting what I know this would/could have been a far more equitable solution
It doesn't take an economics degree (I don't have one for example) to understand the problems facing Cyprus going forward.
It is obvious from the EU and ECB stance on every issue they face that they are short term in their vision and way too influenced by Germany ( I realize that is stating the obvious).
It is ludicrous that far and away the strongest economy in Europe is able to have the same exchange rate as the weakest. The competitive advantage that gives the strongest is ludicrous.
Cyprus mostly exports citrus fruits, cement, potatoes, clothing and pharmaceuticals. Cyprus' largest, and most important, trading partner is the European Union, which accounts for 50% of all Cypriot trade flows, followed by the Middle East, destination for 20% of exports from Cyprus. The largest export is not even mentioned in this list and that is tourism. It is nigh on impossible for the government of Cyprus to force all the component parts of the tourist industry to lower their prices especially in current environment.
This brings me back to the short termism of the EU and the exchange rate. Why is it anathema for the EU for a member to leave? The cynics would say that it is because it weakens Germany's grip; if one goes why not many? For Cyprus being in the Euro going forward will simply exacerbate their problems
Devaluation is a far more effective tool than austerity. Cyprus should have been allowed a "soft departure" from the Euro. That is to say bring back the Cyprus Pound but in some kind of ERM structure with maximum and minimum bands protected by the ECB. For example if they New CYP was able to fall by say, 30% but that is all it would have brought stability internationally and also given Cyprus an opportunity to export both visibly (goods) and invisibly (tourism) starting it on its way to recovery. It is obvious that Cyprus as ranked by the value of its currency should be trading at a 30% discount to Germany.
The tax on bank accounts would still have taken place but in a different way and would have been far more equitable. I cannot say why the Russian money flowed into Cyprus but I am pretty sure it wasn't because that Cyprus was a member of the Eurozone.
I have no data for the percentage of client deposits pre-Euro compared to now.
Laiki and BoC would still have been handled in the same way, unfortunately banks go under it's part of the cycle, but a foreign exchange loss is far more palatable than giving customers shares in banks that may never come back. In fact as Cyprus started to recover so the New CYP would have risen and foreign depositors would have started to claw back their losses. I don't have access to all the background to the whole situation but interpreting what I know this would/could have been a far more equitable solution
No comments have been added yet.
