Tags: Morici | Cyprus | withdraw | euro

Peter Morici: Cyprus Should Withdraw From Euro

Monday, 25 Mar 2013 01:31 PM

By Dan Weil

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While most analysts have shown at least mild support for the bailout agreed upon for Cyprus, Peter Morici, professor of international business at the University of Maryland, disagrees.

“Cyprus would be better off to leave the euro than accept the terms of the bailout imposed by the European Union, International Monetary Fund and European Central Bank,” he writes on the university’s website.

In exchange for 10 billion euros (about $12.9 billion) in aid, Cyprus agreed to shut its second largest bank – Cyprus Popular Bank. Depositors there above the insured limit of 100,000 euros will take a hit, as will bondholders.

Economist Predicts 'Unthinkable' for 2013 

Accepting the bailout terms will lead to massive unemployment and a plunge in GDP and tax revenue, Morici says. Eurozone limits on budget deficits will require severe austerity measure in Cyprus, worsening the economic meltdown.

“Cyprus could turn down aid from the EU, IMF and ECB, take its large banks through bankruptcy, and withdraw from the euro altogether,” Morici writes.

“That would also impose big losses on depositors and equally catastrophic consequences for confidence in the single currency. However, its comparative advantage as a portal into Eastern Europe and Asia would remain.”

Cyprus could take Iceland as its model, Morici says.

“Iceland is also a financial center but having its own currency, recovered rather quickly from a similar financial crisis.”

Mohamed El-Erian, CEO of Pimco, expresses cautious optimism for the bailout. “It avoids an immediate and disorderly financial implosion, with potentially negative contagion effects for other European countries,” he writes on CNBC.com.

But, “Europeans still need to find a way to combine immediate financial relief for Cyprus with realistic prospects for growth and job creation.”

Video: Economist Predicts 'Unthinkable' for 2013 

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