By Tim Worstall, Contributor Paul Krugman points out today that one potential solution to the Cypriot problems is to “do an Iceland“. Let the banks go bust, honor the deposit insurance and let everyone else go hang. Oh, and bring back the Cypriot Pound of course: So then what? As a number of people have pointed out, Cyprus is arguably better positioned than Iceland to do an Iceland, because devaluing a reintroduced Cypriot currency could bring in a lot of tourism. But will the Cypriots — who haven’t even reconciled themselves to the end of their round-tripping business — be willing to go there? Matt Yglesias makes much the same point: The key reason not to leave the eurozone is that doing so would destroy the Cypriot banking system and wipe out lots of people’s savings. But if ELA is withdrawn, the Cypriot banking system will die anyway and everyone’s savings will be lost anyway. Having already lived through the downside, the only path to recovery will be to introduce a new currency. And if that were to happen, then even though Cyprus is small it would be a historic event with reverberations in much larger and more important countries. They’re both correct, so far as they go. And they don’t go quite far enough. For they’ve not quite grasped the religious fervor with which the euro itself is viewed in certain European political quarters (what we might politely call “federast” quarters). …read more
Source: FULL ARTICLE at Forbes Latest