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20.04.2017 - 08: 46

What will happen with Cyprus if Greece returns to the drachma?

Economic commentary of current events.

In Greece again at the government level discussions began to withdraw from the euro zone and return to the drachma. Cypriot and Greek economies are closely linked and interdependent. Therefore, what is happening requires close attention.


Recently, the media published a letter written by a group of economists, including Nobel laureate Cyprus Christoforos Pissaridis, who currently directs the Laboratory of research of economic growth in the St. Petersburg State University.

The letter is written in the genre of an economic thriller. Scientists are extremely skeptical about the prospects for Greece in the case of restoration of the drachma. With a weak economy, the new drachma quickly devalues. Deposits in the course of conversion will lose more than half of their value. About loans in international capital markets will have to be forgotten. There is a shortage of fuel, food and medicine. Outside the eurozone and without the control of European institutions, the country will lose its last chance for the necessary fundamental economic reforms. As a result, Europe's tenth economy will turn into a poor and closed-off reservation with a high level of corruption and lawlessness.

Similar prospects could expect and Cyprus, where 2013 year amid difficult negotiations with the EU and IMF-right parties are thrown into the public field, the idea of ​​a return to the pound. It is noteworthy that the authors of the letter are sure that the new US administration led by Donald Trump intends to contribute to a weakening of the euro zone and the EU, and therefore urges the Greek government and the population (the main treatment of recipients) to the consolidation of the euro area, rather than to escape from it.

The fact of new discussions about drachma and the corresponding appeal of economists is very revealing. Against the backdrop of migration problems, the success of right-wing and populist parties, the crisis of existence in general, the EU is in the weakest state ever. Not surprisingly, the relapse of ideas of a return to national currencies becomes a systemic phenomenon. In Spain there are discussions about the peset, Italians are nostalgic for the lyre, in February four political parties immediately made a statement about the prospects of Italexit. The leader of the "National Front" of France, Marin Le Pen urges to destroy the eurozone (the euro-element of blackmail!), And Cyprus mentions among the first countries that, following France, should leave the eurozone.

There are many studies of the consequences of the exit of individual countries and entire groups from the euro area. Most are superficial, but there are also very serious economic models. Interested readers can recommend research under the guidance of the famous British economist Roger Butla from the consulting company Capital Economics.1 Despite the fact that the report is almost five years old, many forecasts are relevant in the light of today's events. New-old discussions about the return of national currencies are explained, at least, by two reasons: macroeconomic and political-psychological.


Euro is a unique experiment in the economic history of mankind. However, for 18 years of coexistence in a single currency zone, Europeans still can not understand: is it good or not? National elites controlled by the European bureaucracy respond positively to the question. Opposition parties and ordinary citizens, especially in the countries of the Mediterranean periphery, are sure of the opposite. Economists are working hard on both camps, citing their arguments for and against. The first, of course, have more opportunities, but the latter turn directly to the people and find understanding, and this is always appreciated highly, even in the era of great disappointment in democracy.

Textual arguments in favor of the eurozone are logical to look at the pages of textbooks on macroeconomics. Harmonization of monetary and credit policies of the states, alignment of prices within the single market, zero transaction costs (mutual currency conversions). During the existence of the euro area, statistics clearly record and a significant reduction in inflation in it. Today, economists fear rather deflation (in Cyprus - for the last three years), which carries with it risks of a different nature. Mentioned above Marin Le Pen, speaking at pre-election rallies that "where there are euros, prices, taxes and unemployment have risen there, salaries and pensions have decreased," is very creatively managed with economic statistics.

In addition, the architects of the euro area one of the main positive effects for the participating countries considered the possibility of attracting external money at low rates. Indeed, if you are in the same currency with 18 other countries, the ratio of creditors will be different than to a single country. Whatever they say, the common currency raises the level of credit trust. Outside the eurozone, countries with such a high level of public debt relative to GDP, like Greece, Spain, Portugal, could not get access to relatively inexpensive external loans. The catch is that the level of debt would not be so high if the countries kept their currencies. A characteristic example of complex casuistry in the form of a vicious circle in economic discussions.

Euro opponents believe that its very existence is a mistake, as a result of which a large part of the economic sovereignty in the hands of a bureaucratic superstructure (EU) with the quasi-status. States made it impossible to control the rate of their currencies to solve their own problems. In particular, the deliberate weakening of the incentive for producers in the country.

True, there remained opportunities for issuing state bonds to attract loans. But here, too, everything is not all right. Attempts to finance the current budget deficit without currency regulation are a controversial issue of economic theories based on unsuccessful practices. Recall that the debt crisis in Europe in 2010-2013 began with the collapse of the Greek bond market. This crisis strengthened the positions of both sides. Critics of the euro are convinced: if the countries had their own currencies, coping with the difficulties would be much easier. The defenders pointed out that the low financial discipline of the burnt out countries and the habit of living beyond their means were to blame. Without a single regulator (ECB), somehow limiting appetite, the consequences of such a dolce vita could be much worse.

Subjunctive moods are not verified economically. Discussions "for" or "against" the euro are still relevant. This is debated in international forums, social networks and Cypriot taverns. But maybe this is the case when "nothing is more complicated than simple"? In fact, the whole economy is within the boundaries of the triangle of money-budget-taxes. The introduction of the euro took away from countries the function of currency regulation (money), leaving the budget and taxes in the hands of governments and national central banks. The problem is that all sides are one, and can not exist separately. The economic triangle has broken down, a chain of crises has started, including in Cyprus.

Weather forecast for eurooptimists disappointing. In the next decade, one-piece trilateral economic policy is not visible for Europe. On the transfer of the two remaining powers on budget and taxes in the supranational competence of Brussels will have to forget. At least, right-wing politicians, playing their cards to the voters, will do everything to prevent this from happen.

CTRESSOTERAPIYA against globalization

Psychological underlying reason for the return of the discussions to "their money" is no less interesting. Karl Marx once called the money "universal equivalent", meaning only the economic sense. But it turned out that this is an analogue of confidence, calmness and independence in a broad sense. Its currency is perceived not only as an economic unit, but also as a symbol of the state independence, a kind of talisman that brings together people, banks and the government.

Globalization is ruthless towards national states, especially lagging behind or completely falling out of it. People are worried about neoliberal fundamentalism, suffering from economic "freedom", which is usually illusory and generates a sense of loneliness and abandonment. They realize that they have sold a dream that they can never realize. Talk of a return to the drachma-pound-lyre-escudo is poorly justified economically. However, they have become a kind of stressor therapy against globalism, softening in the minds of people neoliberal ideas about the world as a set of rationally selfish individuals managed from one center of integration. Politicians perfectly understand this. There is a mutual interest: an early psychological help in attacks of the "neurosis of globalization" in exchange for the votes of voters.

Postcapitalism - it's about CYPRUS

While Europe went through various crises, most gambling policy called for desertion from the euro zone, the British journalist Pol Meyson wrote a book about postkapitalizm1, which quickly became a bestseller economic.

It is easy and affordable, using a clear economic analysis, the author shows the hopelessness of the further development of the society of global capitalism - the era in which his readers fell to live. Prospects for the future he sees in the new formation under the conventional name "postcapitalism." In order for this postcapitalism to come about, it is necessary to reconsider the practice of economic relations in favor of a number of industries developing under new rules. Green energy, IT-technologies, (based on open software codes and free copying of files), innovative and ecological medicine, non-profit tourism, time banks and wiki-technologies2 (especially in education).

Such a set is not accidental, as it can deprive the advantages of modern elites that protect the freedom of speculative capital, low salaries, militarism, intellectual property and carbon energy. As Mason writes, the bad news is that these elites control almost all governments in the world, the good news is that they do not have support and are unpopular among the absolute majority of the population. The main agents of future change are, of course, people. This is the basic social force that provides the transition to a new order. The author calls on his main audience - "the most educated generation in the history of mankind with a high level of interconnection". And Mason places special emphasis on traditional societies with strong socialist and class traditions.

Cyprus is mentioned in the book contextually, along with the supranational financial tyranny in 2013 (the "triad" of creditors) and withdrawal of deposits "in connection with the threat of the coming to power of movements opposing neoliberalism". But when reading the "most important book about the current state of the economy and society" (a quotation from one review), there is a strong feeling that the characteristics necessary for the transition to postcapitalism are well correlated with the structure and specialization of the Cypriot economy. High level of education, strong social ties, patriarchal (in a good sense) society, development of green economy, tourism and medicine - almost all the necessary "postcapitalistic" set is available. If we add the socialist traditions and the political weight of the corresponding forces popular with the population, then it can be said with certainty that postcapitalism is about Cyprus.

A source: Successful business

Author: Vladimir Izotov

Tags: Cyprus, Greece, Economy, Eurozone, EU Research