Cyprus’s future: Is euro membership viable?

[…] as long as it remains in the single currency, Cyprus – like the rest of southern Europe – cannot gain a cheap international price advantage by devaluing its currency.

That puts it at a permanent disadvantage as a holiday destination to nearby Turkey, for example.

[…]

Another drawback of being in the euro is that you do not control your own central bank.

Whereas the UK and US governments can rely on their central banks to buy up a lot of their debts through their quantitative easingprogrammes, the countries in the eurozone face much harder budget constraints.

Cyprus – like all other governments seeking a bailout – has been told to impose spending cuts and tax rises.

As the IMF recently pointed out, imposing austerity in the middle of an economic depression – an increasingly common practice throughout the industrialised world since 2008 – has turned out to be much more damaging for those countries’ economies than policymakers (though not many economists) had anticipated.

[…]

All of this is fairly rotten for a government that – like the Spanish and Irish – actually had modest and falling debts before 2008.

BBC News – Cyprus’s future: Is euro membership viable?.

 

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