Sunday, March 31, 2013

Greece or Iceland? Cyprus Must Choose

Last year I examined here and here how Iceland who took a very different approach than Greece. The result has been that Iceland, after a short period of pain and economic disruption has resumed economic growth, reduced unemployment and once again has an investment grade bond rating. What was the primary difference?

Unlike the US and several countries in the Eurozone, Iceland allowed its banking system to fail in the global economic downturn and put the burden on the industry’s creditors rather than taxpayers.
 Today, Cyprus must decide, do they want to follow Greece or follow Iceland?

Yiannakis Omirou, Cypriot House of Representatives President seems to have seen the light.

From Zerohedge:

There is no other alternative but to free Cyprus from the bonds of the troika and the memorandum, House of Representatives President Yiannakis Omirou has said.

Omirou also expressed his conviction that no Attorney General would dream of not following through with the results of an investigation led by an independent committee to apportion blame on those responsible for bringing the country’s economy and banking sector near collapse.

Omirou talked about the troika demands, which according to him will multiply and will turn Cyprus to a colony of the worst possible type and warned “I would like to send a message to the Cyprus people that there is no other way, there is no alternative apart from freeing (the country) from the troika’s and the memorandum’s bonds”.

He noted that certainly, “this road will demand sacrifices”, adding that “by leaving the troika and the EMS behind us, we will ensure our national independence, our national sovereignty, our moral integrity and our economic independence”.

If we remain bound by the Troika and the memorandum Cyprus’ destiny is already foretold and there will be no future”, he pointed out.

One look at this graph would seem to show he's almost certainly right.

And the US could still learn this same lesson instead of muddling along with point four percent (.4%) GDP.

Murray Rothbard knew this back in 1983. Accept losses. Get through the tough economic reset quickly and resume growth.

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