Cyprus has been squeezed in the corridors of power

Sir, Your editorial “Europe gets real – not before time” (March 26), which suggests that Cyprus got the best deal it could have expected, sits oddly with its acknowledgment that, like the Greek economy before it, Cyprus’s economy could contract by 25 percent over the next few years. Were anything like that to occur, Cyprus would have the greatest of difficulties in complying with the strictures of its IMF-EU bailout package, which is premised on a gross domestic product contraction of “only” about 3.5 percent in 2013.

With such bleak prospects ahead, one might ask whether Cyprus would not have been better advised to exit the euro as a means to limit the decline in its economy. For by exiting the euro, Cyprus would have been able to use a cheaper currency to promote its tourist sector as an offset to its fiscal adjustment as well as to effect the necessary adjustment of its economy away from an excessive reliance on its financial sector.

What might have been a good deal to get Angela Merkel through her September 2013 election would not appear to have been a good deal for Cyprus. It is also not clear that it will have served to keep a collapsing Cyprus in the euro over the longer haul. This would particularly appear to be the case since 67 percent of the Cypriot electorate already has doubts about the advantages of staying in the euro.

Desmond Lachman, American Enterprise Institute, Washington, DC, US

 

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Desmond
Lachman
  • Desmond Lachman joined AEI after serving as a managing director and chief emerging market economic strategist at Salomon Smith Barney. He previously served as deputy director in the International Monetary Fund's (IMF) Policy Development and Review Department and was active in staff formulation of IMF policies. Mr. Lachman has written extensively on the global economic crisis, the U.S. housing market bust, the U.S. dollar, and the strains in the euro area. At AEI, Mr. Lachman is focused on the global macroeconomy, global currency issues, and the multilateral lending agencies.
  • Phone: 202-862-5844
    Email: dlachman@aei.org
  • Assistant Info

    Name: Emma Bennett
    Phone: 202.862.5862
    Email: emma.bennett@aei.org

What's new on AEI

image The money in banking: Comparing salaries of bank and bank regulatory employees
image What Obama should say about China in Japan
image A key to college success: Involved dads
image China takes the fight to space
AEI on Facebook
Events Calendar
  • 21
    MON
  • 22
    TUE
  • 23
    WED
  • 24
    THU
  • 25
    FRI
Wednesday, April 23, 2014 | 12:00 p.m. – 1:30 p.m.
Graduation day: How dads’ involvement impacts higher education success

Join a diverse group of panelists — including sociologists, education experts, and students — for a discussion of how public policy and culture can help families lay a firmer foundation for their children’s educational success, and of how the effects of paternal involvement vary by socioeconomic background.

Event Registration is Closed
Thursday, April 24, 2014 | 12:00 p.m. – 1:30 p.m.
Getting it right: A better strategy to defeat al Qaeda

This event will coincide with the release of a new report by AEI’s Mary Habeck, which analyzes why current national security policy is failing to stop the advancement of al Qaeda and its affiliates and what the US can do to develop a successful strategy to defeat this enemy.

Friday, April 25, 2014 | 9:15 a.m. – 1:15 p.m.
Obamacare’s rocky start and uncertain future

During this event, experts with many different views on the ACA will offer their predictions for the future.   

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.