On this Cyrpus thing

The situation could go one of four ways, according to Mats Persson at think tank Open Europe- the levy is forced through as the best of a bad bunch, the eurozone loosens its terms, Cyprus looks elsewhere, possibly Russia, to raise extra cash, or total collapse of the Cypriot finance system. The final scenario could be catastrophic for the island, which could find itself exiting the euro, printing its own currency and risking hyperinflation.

Well, yes.

But what happens if they leave, print their own currency and then in a year or so everything is ticketty boo?

That would really put the kybosh on the euro project, wouldn\’t it? And we should note that hyperinflation isn\’t a necessary outcome of their doing so.

9 thoughts on “On this Cyrpus thing”

  1. I presume Cyprus currently imports all its oil, petrol, gas, consumer durables and most of its food. So a 30% collapse in the currency will result in a massive one off collapse of the economy, living standards and hyper inflation.

    How quickly it recovers from this is the key question. But you have to think there will be a massive switch from rich Europeans holidaying in beach resorts in Turkey/Egypt and returning to Cyprus.

  2. The eurotwerps forecast a surge in inflation following black/golden Wednesday.

    Did it occur? It did not.

  3. The Pedant-General

    ” if they leave, print their own currency and then in a year or so everything is ticketty boo?”

    That is a pretty big “if” right there.
    The problem being that they would really really struggle to raise sovereign debt finance on the open markets. That might be ok if they had a responsible government that balanced its budget, in which case, yes, it might all be really tickety boo. But there was a big if there. Especially when the other possible scenario is , sod the budget, let’s print cash…

  4. Well, that’s what I’ve been saying. They, like everyone else, need weaning off central bank currencies.

    Britain: borrows

  5. Britain: borrows GBP120bn and pays GBP50bn in interest. Fucking barmy. Even sillier for Cyprus, since their central bank is in a large and faraway country. But the same applies.

    The only difference is whether you print your own currency, or pay someone else to do it. You only get the hyperinflation if you print too much of it.

    Worth remembering: the Weimar hyperinflation occurred in an advanced economy with both a central bank and a gold standard.

  6. I`m not very sure that it makes a lot of sense for a country like Cyprus to choose a single currency. Why not have a free market in currency choices? It’s not impossible for shopkeepers to give prices in two or more currencies as their customers demand; a little inconvenient, perhaps, but less and less so with technological assistance.

  7. Can I just ask why a country of 860,000 needs a 17Billion Euro Bailout. That is just under 20,000 per head of population. What the Fuck did the Cypriot Government Spend all thier money on, have they decided to make all government toilets out of platinum or something. That is a shitload of cash for a very small country.

    Tim adds: Here’s what actually happened. The Cypriot banks were taking in deposits. These deposits were “invested” in Greek Government bonds. Those bonds took a haircut (a massive one, near 90% in any realistic calculation). Those banks (actually, the two big ones, there are several entirely sound smaller Cypriot banks) are therefore bust.

    The money has actually gone into Greek public sector pay.

  8. So Much For Subtlety

    Tim adds: Here’s what actually happened. The Cypriot banks were taking in deposits. These deposits were “invested” in Greek Government bonds.

    Now the fun question is to what extent the same is true of Spanish, Italian and, God help us, French banks? Not just Greek bonds but other PIIGS.

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