Two months after Cyprus joined the euro area [in January, 2008], there were presidential elections and the Cypriot public elected as president a communist, Demetris Christofias. The public was convinced he could solve the political problem we had with Turkey and reunify the island. The issue was not economic.
If one thing has become clear over the last five years in Cyprus, it is that the euro area, which is not just a market economy but a currency union with strict rules, is not compatible with a communist government. Why is this important? This government took a country with excellent fiscal finances, a surplus in fiscal accounts, and a banking system that was in excellent health. They started overspending, not only for unproductive government expenditures but also they raised implicit liabilities by raising pension promises, and so forth.
Typo in heading: Cyprus – not Cyrprus.
Or Cyrpus
I think that saying they elected a Communist is only half the story. Why did they elect a Communist? Britain wouldn-t have. I hope.
The truth is simpler – they are not Europeans, they are Ottomans. They are not culturally inclined to fiscally sane government policy. They will not be happy until they are all back raising goats and selling carpets. They won’t like that outcome. They want to be Swedish. But they will not, they cannot, make the intellectual adjustment that is required.
So in essence, the commie bought votes. How does that distinguish the commie from politicians of any other stripe?
And isn’t it wonderful if the euro (or anything else) stops politicians from carrying through (if not making) unaffordable promises?
@SMFS, Arguing against your point is that Cyprus didn’t overspend and did have minimal public debts. This wasn’t merely “because of the euro”. Indeed, Cyprus was in a currency union with the UK until 1972, and since then the CYP in fact fared rather better than the motherland’s currency.
JamesV – “So in essence, the commie bought votes. How does that distinguish the commie from politicians of any other stripe?”
Because most Northern European Protestant countries have a party for insane spending and a party for fiscal rectitude. The voters alternate the two depending on how safe they feel.
The Southern Europeans tend to have a party for insane spending and another party for insane spending plus Soviet liberation. Which means that when the economy is close to collapse, the military has to step in. Or the EU these days.
The Fiscal rectitude parties are not 100 percent pure, but they are pure enough to keep the show mainly on the road.
“Arguing against your point is that Cyprus didn’t overspend and did have minimal public debts. This wasn’t merely “because of the euro”. Indeed, Cyprus was in a currency union with the UK until 1972, and since then the CYP in fact fared rather better than the motherland’s currency.”
I flatly did not say it was because of the euro. I said it was because they are Greek. Well, Ottoman. Greeks have three thousand years of trading. Cyprus is a major shipping nation to this day. Culture matters. But unfortunately actual manufacturing seems too much for them and so they have pimped out their beaches and their banks. This worked for them up to a point.
The problem being that they are f**king Greeks. Which means they hate the West and love their fellow Orthodox Russians. They are in trouble because they have been sucking up to Putin and his gangster cronies. As they would because, as I said, they are Ottomans. They can’t help it.
” Greeks have three thousand years of trading. Cyprus is a major shipping nation to this day. Culture matters. But unfortunately actual manufacturing seems too much for them and so they have pimped out their beaches and their banks.”
I thought that doing what you are good at (Ricardo?) was accepted as being the way to go? Whether that’s trade, metal bashing or pimping out your beaches (the last of which won’t work all that well in Protestant Northern Europe).
SMFS, sorry for putting words in your mouth. I think I was reacting to the usual anti-euro trope, not you.
Point is, being Greek, Ottoman, shipping magnates, loving the orthodox Christian Russians or whatever did not destroy Cyprus’ finances at any time between 3000BC and 2013AD, so I don’t think you can invoke it as being the factor behind the destruction of their finances in 2013AD.
…..Point is, being Greek, Ottoman, shipping magnates, loving the orthodox Christian Russians or whatever did not destroy Cyprus
…..Point is, being Greek, Ottoman, shipping magnates, loving the orthodox Christian Russians or whatever did not destroy Cyprus finances at any time between 3000BC and 2013AD, so I don
…..Point is, being Greek, Ottoman, shipping magnates, loving the orthodox Christian Russians or whatever did not destroy Cyprus finances at any time between 3000BC and 2013AD, so I dont think you can invoke it as being the factor behind the destruction of their finances in 2013AD……
Reading a book called Why Nations Fail, and the authors use very similar arguments against the culture arguments. They argue instead that it is all about institutions.
All politicians want to go too far, but the markets react. Its only when the markets stop looking at fundamentals that this kind of problem happens, this time with Euro membership bamboozling everyone into mispricing risk.
>Because most Northern European Protestant countries have a party for insane spending and a party for fiscal rectitude.
We used to have that. We dont any more.
Luke – “I thought that doing what you are good at (Ricardo?) was accepted as being the way to go?”
I am all for comparative advantage. But one does lend itself to further technological development than the other. I doubt many tavern owners are going to invent the next iPhone.
I always admired those Germans who tried to set out beachside resorts on the North Sea.
7 JamesV – “Point is, being Greek, Ottoman, shipping magnates, loving the orthodox Christian Russians or whatever did not destroy Cyprus- finances at any time between 3000BC and 2013AD, so I don-t think you can invoke it as being the factor behind the destruction of their finances in 2013AD.”
Hang on, I kind of think it did. Largely because the Cypriots did not have control of their own finances for most of that period. Being subjects of the Romans, the Crusaders, the Ottomans and what have you. But also because when they did have control of their finances, their finances were not good. We are talking about a very short period after the British left. So it took them a little while to ruin the legacy left to them. No surprise.
10 Serf – “Reading a book called Why Nations Fail, and the authors use very similar arguments against the culture arguments. They argue instead that it is all about institutions.”
How is that against the culture argument? Britain has free courts and Parliament because Britain is full of British people (or used to be) who have grown up with very British attitudes to things like the rule of law. Turkey does not because it is not. Institutions are a reflection of culture. Zimbabwe has the institutions. It does not have the culture.
11 Tank – “We used to have that. We dont any more.”
And soon we will be joining Cyprus as a country where possession of three goats makes you rich enough to be worth shooting.