On Cyprus

Cyprus mail has a good comment on the situation in Cyprus and the way forward for the (half) island. It is nothing new though. The situation will through the rescue continue to deteriorate without any hope for a better future, and the troika keeps making up fantasy forecasts to show that it will always be the next year where we will see that the plan is working, or in the case of Cyprus next year will see a much slower decline of GDP than this year.

The solution that is suggested is also nothing new: Cyprus should leave the euro. The banking system lies in shambles, anyway, therefore there the country is already experiencing most of the downsides of a exit without the upsides. That being of course, that the island could become more competitive much faster and easier if it does not deleverage within the euro zone.

There are several things that need mentioning though. First up, I am quite sick of people who invoke Einstein when they want to call others idiots. Also, the Cypriot politicians aren't even the ones that have tried the same plan over and over again. Why not just call the troika incompetent fools. They are (the ECB is at least trying to actually make this union work, it just has to also fight an enemy within). Of course, every time somebody does call them out, they will point at Ireland, in the hope that nobody has realizes, that the other divided European island isn't recovering either.

Second: Cyprus should have left the euro before the "rescue", since the plans are specifically designed to cause high damage in the beginning. Of course that would have been difficult to sell to the population, it would have been better to act than to react. Also, it will get significantly harder for government to leave once the unemployment rate has reached Greek levels. Still, to make the sitiation even more messed up: without significant hair cuts in both Greece and Cyprus, the countries have no other way than to leave the euro eventually, which will cause further damage. It was an all round horrible idea to accept the package. The advise is late, possibly too late.

Third: the island should not bet on improvements to tourism just because a new currency is introduced and devalues. Germans not having to exchange money is actually making Cyprus more competitive compared to other countries. A falling currency will keep tourists away. It seems unlikely that a bet on tourism will pay off.

Still I agree that the Cypriot government has to think about exiting. If they do they should do it within this year and more importantly via a referendum. The people should be shown both scenarios. Both will cause significant harm to the economy but only one provides a chance to recover.