Either Way It’s Lose-Lose for Cyprus and EU
The events in Cyprus have gotten even more tedious. Russia declined a request to bail Cyprus out so Cypriot politicians went back begging to to the EU. Now the European Union is telling Cyprus take a bank levy as part of a bailout or leave the Euro. If Cyprus takes the bailout there not only will Cypriots and Russians pull their money out, the island will also lose it’s position as a tax haven. If Cyprus refuses the bailout or negotiations break down where there is no resolution then massive bank withdraws will still happen since the result will be the collapse of the country’s economy.
As much as I hate to say it the best scenario is the latter since Cyprus files bankruptcy and the economy and right itself faster like what happened in Iceland. However, whatever happens in Cyprus will result in turmoil if not disintegration of the EU as well.
The next country that will face problems will most likely be Japan. The country’s debt levels dwarf those of Cyprus or even the U.S. and the incoming Prime Minister has decided to inflate the country out of it. If there was going to be a crisis due to Japan’s debt, the incoming government will be putting the country on a quicker path to a more painful outcome.
Instead of stimulus, Estonia curbed spending drastically and is now on a road to recovery. Estonia chose short term pain coupled with long term gain and is in a good position to pull itself up from its bootstraps. A precedent every country considering or using stimulus should replicate.