Tags: Cyprus | euro | Germany | dismantle

UK Telegraph: Euro Must Be ‘Dismantled’

By Michael Kling   |   Friday, 29 Mar 2013 07:48 AM

The Cyprus debacle has shown that the euro is a threat to stability and must be “dismantled before it destroys Europe’s post-War order,” argues the U.K.-based Telegraph in a scathing attack.

For one thing, capital controls imposed as part of the Cyprus bailout — if you call it a bailout — smashes the concept of monetary union.

“A Cypriot euro is no longer a core euro,” writes Ambrose Evans-Pritchard, international business editor for The Daily Telegraph. “We wait to hear the first stories of shops across Europe refusing to accept euro notes issued by Cyprus, with a G in the serial number.”

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The original plan for a levy on bank deposits creates a suspicion that euro officials will impose a similar tax in other countries, he says, equating the levy with theft.

“Monetary union has become a danger to property.”

EU officials maintain that Cyprus is a special case, but Eurogroup chief Jeroen Dijsselbloem noted that the terms will be a template for future bailouts.

The Cyprus deal is a huge deception, a trick on everyone involved, including savers, creditors, Cypriots and Germans, Evans-Pritchard alleges.

Creditor countries, like Germany, are supposed to be protected against future losses, but “hey have simply switched the cost of the new credit line for Cyprus to the European Central Bank,” he explains.

The European Central Bank will have to counter bank runs in Cyprus, and those funds will show up on the balance sheet of the German Bundesbank.

“Chancellor Angela Merkel will do anything before the elections in September to disguise the true cost of the [European Monetary Union] project.”

Many experts predict a depression for Cyprus. It lost its major industry, banking, and has almost nothing to replace it. Its manufacturing sector is tiny, and it’s too expensive for tourists due to the euro, Evans-Pritchard maintains.

Devaluation could save the country if it had its own currency. However, as in Greece, internal devaluation within the eurozone means economic depression, he says.

“The denouement will arrive when the democracies of southern Europe conclude that recovery is a false promise and that the only way to end mass unemployment is to break free of EMU’s contractionary regime.”

The International Monetary Fund (IMF) says the agreement will help Cyprus improve its economy over the long run.

“The adjustment that the plan will entail as the financial sector downsizes and the economy adjusts accordingly will be a difficult process for the Cypriot people over some period of time — we are mindful of that,” Gerry Rice, the IMF’s director of external affairs, tells Bloomberg. “But it will ultimately result in an economic model that is more sustainable and growth promoting.”

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