Banks in Cyprus are expected to reopen tomorrow after being closed for more than a week. However, according to one of Cyprus’ major newspapers even though Cypriot banks are expected to reopen tomorrow there will be strict capital controls in place that will limit how much money Cypriots will be able to access and what they can do with that money.
A list of the capital controls that could be put in place can be seen on Kathimerini’s website. The BBC is reporting that the central bank has responded to the report, saying that it is based on draft proposals.
Among the most striking of the possible capital controls are bans on checks being cashed and limits to the amount of cash that individuals can take out of the country and on the spending on credit cards abroad.
Under the bailout agreement depositors with more than 100,000 euros in Cypriot banks could lose up to 40 percent of their money. The Cypriot finance minister has said that wealthy clients of the Cyprus Popular Bank could see loses of 80 percent. While those with less than 100,000 euros will not be facing such dramatic loses the new capital controls will severely restrict their access and use of their money.
Given the situation in Cyprus is should not come as a surprise that Bitcoin has almost doubled in value in about two weeks. It is especially telling that Bitcoin has recently become more popular in Spain, where people are understandably concerned about the initial bailout plan for Cyprus that would have meant all depositors would have had to contribute to a bank levy.
So here it is: yes, Cyprus should leave the euro. Now.
The reason is straightforward: staying in the euro means an incredibly severe depression, which will last for many years while Cyprus tries to build a new export sector. Leaving the euro, and letting the new currency fall sharply, would greatly accelerate that rebuilding.
Yes, it all sounds kind of desperate and improvised. But desperation is appropriate! Otherwise, we’re talking about Greek-level austerity or worse in an economy whose fundamentals, thanks to the implosion of offshore banking, are much worse than Greece’s ever were.
My guess is that none of this will happen, at least not right away, that the country’s leadership will fear the leap into the unknown that would come from euro exit despite the obvious horror of trying to stay in. But as I said, I think euro exit is now the right thing to do.
A euro exit is not only unlikely because of the Cypriot government. Many politicians and officials from other eurozone members and the European Union have a vested political interest in the euro surviving. The capital controls that will be imposed on Cypriots are only the most recent example of how resistant the European political culture is to letting a country leave from the single currency.