Comments on: Cyprus is edging towards euro exit http://blogs.reuters.com/hugo-dixon/2013/04/08/cyprus-is-edging-towards-euro-exit/ Mon, 18 Apr 2016 14:55:08 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: yPapa http://blogs.reuters.com/hugo-dixon/2013/04/08/cyprus-is-edging-towards-euro-exit/comment-page-1/#comment-609 Tue, 09 Apr 2013 12:50:50 +0000 http://blogs.reuters.com/hugo-dixon/?p=563#comment-609 Let’s review some of Mr. Dixon’s assertions, shall we?
(1) “Such a massive devaluation would savage the wealth of all other depositors.” – Laiki deposits over 100,000 have been wiped out. (They may get back 10-15% in 10 years’ time). Despite the smear campaign against Cyprus, most of that money is the working capital of local companies. These companies are for intents and purposes bankrupt. In BoC things are not much better: the confiscation will reach about 50% of “uninsured deposits”, 10% has already been released but is subject to capital controls and the rest will remain frozen until September. So, all companies having their working capital in BoC may not be bankrupt just yet, but will be starved to bankruptcy in the next few months. CONCLUSION: There is NO WEALTH TO BE SAVAGED left in banks.
(2) “Cyprus is a small open economy” – not any more it ain’t. It has ceased to be such since March 16th.
(3) “All the oil is imported. Over 80 percent of the textiles, chemicals, electronics, machinery and automotive vehicles” – absolutely true. Any hard currency will to diverted to the purchase of the absolute essentials – fuel, medicines etc. I guess we’ll just have to import fewer german cars, dutch TV’s and finnish mobile phones won’t we?
(4) “Following a 50 percent devaluation, these would be double their current value”. The real question is, what will the value of the debts be in 10-20 years time? With the GDP about to collapse by 20% in the next few years, won’t the government need even more financing form the Troika, given that its tax revenues will collapse? So, the difference may not be that great between the two scenario after all.
(5) “Exit from the EU would be another blow for Cyprus.” – nobody said exiting the EU. Just the Eurozone. After all, of the 27 member-states, currently 10 do have the Euro.
(6) “It might also need to maintain capital controls.” – capital controls will be here for a LOOOOOOOOONG time, whether in or out of the Euro.

So, unsavoury as the exit from the Euro might sound, the differences between staying and exiting would be, I’d wager, quite small. But devaluation would provide an essential tool that is currently missing from the arsenal of financial planners in Cyprus. So, in an effort to achieve a similar effect, they’ll savage people’s wages instead. Therefore, the effect to common folk is pretty much the same: keep the Euro and watch your purchasing power diminish through pay cuts and higher taxation, or leave the Euro and watch your purchasing diminish because of devaluation. 6 of one and half a dozen of the other.

Exiting the Euro would, however, have a distinct advantage over staying in the Euro: unemployment can be controlled much more effectively. All Cypriots will be earning less, but at least we won’t have a quarter of the population on the dole and we won’t end up having people scavenging garbage bins to find something to eat.

The Euro is NOT and SHOULD NOT be a sacred cow. If the Cypriot government has the best interests of the Cypriot people at heart then it MUST, at the very least, weight the two options and make an informed decision instead of simply proclaiming that “the Euro is non-negotiable”. And it should also have an exit plan in place, should we ever need it. As Mr. Dixon says, our presence in the Eurozone is not entirely in our hands.

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By: Willvp http://blogs.reuters.com/hugo-dixon/2013/04/08/cyprus-is-edging-towards-euro-exit/comment-page-1/#comment-608 Mon, 08 Apr 2013 16:11:13 +0000 http://blogs.reuters.com/hugo-dixon/?p=563#comment-608 no-no, Cyprus must give the same treatment to the ECB / IMF of what they gave to them: wait for the €10 billion and once that is in just CONFISCATE that money. That will also teach the ECB and La Lagarde a lesson.

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By: gooneraki http://blogs.reuters.com/hugo-dixon/2013/04/08/cyprus-is-edging-towards-euro-exit/comment-page-1/#comment-607 Mon, 08 Apr 2013 10:13:13 +0000 http://blogs.reuters.com/hugo-dixon/?p=563#comment-607 Very nice, simple and straightforward article.
My point of view is suffer another 5 years in the eurozone, have a target of minimizing our debts and then exit the euro at a future date lets say another 5 years. Is that possible?

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