Here are the likely lessons future historians will draw from Cyprus’s sorry experience in the euro.
Any calm bought by the IMF-EU bailout package for Cyprus will be short-lived. Cyprus is all but certain to experience an economic collapse over the next two years, and the country will again question whether it should remain in the euro.
One can only hope global policymakers wake up to the risks of a strengthening euro before it is too late.
German Chancellor Merkel will want a quick resolution of the Cypriot economic and financial crisis so that a bailout does not become a domestic political issue ahead of her reelection bid.
Far from fading, it is all too probable that the European crisis will intensify over the course of the coming year.
A triumph of market forces rather than government planning.
Spain is the euro area’s fourth-largest economy. Bad government policy threatens the whole euro project and the global economy.
The Portuguese economy will be in for the roughest of rides in 2013 if the government goes forward with a proposal to change corporate social security contributions.
Developments in Athens suggest matters are spiraling out of control.
European policymakers have to be concerned that the half-life of their band-aids is getting shorter and shorter while resistance to these measures gets stronger and stronger.
At the upcoming summit, Europe’s northern countries will again reject southern countries’ proposed solutions to the European debt crisis, and the euro crisis will grind on, raising the very real risk of an eventual unraveling of the euro.
The election will just postpone Greece’s inevitable default on its official debt and its unavoidable euro exit by a month or two.
A relatively insignificant southern European country threatens the very survival of the euro in its present form. How did we get here, and what lessons does Greece hold for the rest of the European periphery?
Depending on what happens this weekend, Europe should start bracing itself for a renewed intensification of its sovereign debt crisis.
Two upcoming political events could usher in a new, worse phase of the European debt crisis.
Europe’s proposed financial firewall around Spain and Italy will likely prove as effective in protecting those countries from another market onslaught as was the Maginot Line in protecting France from Germany.
It is difficult to overstate how badly the Greeks were misled by the IMF and EU. Greece’s only path forward is to reintroduce its own currency.
Europe’s core countries should take preemptive action to form a smaller and more enduring currency union.
If past is prologue to the future, there is little reason to believe that Merkel will allow the ECB to provide unlimited support to the periphery.
European policymakers are clinging to the forlorn hope that the eurozone crisis can readily be defused by putting in place national unity governments in Greece and Italy.