I while back I wagered that the euro would not make it to May of this year. I am now conceding defeat. Why? Not because the clock ran out. No, because Cyprus is staying in.
Back then, I worried that things would get so bad that a country would have no reason not to ditch the euro. If the banks closed, I argued, then the costs of switching would no longer apply. At that point no rational government that wanted to win re-election would stay in; everything would be upside.
Well, Cyprus has reached that point. The banks are closed, capital controls are imposed, the and the debt-GDP ratio is set to explode since the Germans insisted, insanely, that the E.U. bailout be channeled through the island’s government. So there is no worry about bank runs and no worries about driving banks to insolvency. And there should not be a worry about sovereign default: Cyprus is now going to have to default or raise taxes to truly eye-popping levels.
Yet the Cypriot government shows no sign of abandoning the single currency.
OK, then. Past performance does not predict future results: should Spain reach that point their government might behave differently. But it might not. I am given pause by the sight of Cyprus happily plunging right into a depression with no promise of aid from the rest of Europe and a very easy out right there.
And so, I proclaim error ... but stand astounded that European governments are willing to sacrifice their people to an E.U. that seems so unwilling to do anything in return.