Goodbye, Cyprus

Cyprus should leave the euro and the European Union behind.

Ronald Dixon

 

The nation of Cyprus, an island that is part of the European Union, is currently in hot water over its banking and monetary systems.

There are several reasons as to why Cyprus is now locking down its banks, only allowing for citizens to withdraw 300 euros — or 5,000 for businesses — in fear of a “run on the banks.” What we should be discussing, though, is a long-term solution to Cyprus’ economic situation.

Accepting a bailout package from the superpowers of Europe, such as Germany, would come at the harsh cost of strict austerity measures. As in the nations of Greece and Spain, the tremendous cuts would harm the economy.

What is Cyprus to do then? They should leave the euro.

Because Cyprus lacks an independent currency, they cannot do what the U.S. has the capacity to enact: Keynesian stimulus. Cyprus cannot purchase its own bonds if investors refuse to spend, and the island nation lacks the capacity to invest in areas of the economy to create jobs.

Unfortunately, the European Union has consistently required harsh austerity as a punishment of receiving aid. Therefore, although an economic restructure, as well as a potential drop in its post-euro currency, would be necessary for Cyprus in the short-term, they would be able to maintain a strong economy in the long-term.

Professor Peter Morici of the University of Maryland compared a potential Cyprus recovery to that of a similar island nation: Iceland. They had a big fall, but because they were able to determine their own solutions, they witnessed a remarkable recovery.

 

Paul Krugman, a Nobel Prize-winning economist, notes in his 2012 book “End This Depression Now!” that the European obsession with debt as the root to all their problems is the “big delusion.” The idea that austerity is the solution is ludicrous, and because Germany fails to realize this crucial fact, an exit is the most viable alternative.

President Nicos Anastasiades of Cyprus declared that they were not going to leave the euro. For the best interests of his country, though, he should reconsider — the well-being of Cyprus depends on it.