Some more thoughts on the Euro

I was thinking more about what Cyprus. I don’t understand the legalities of this, but with restrictions on capital transfers, is the next step for Cyprus to print more Euros? It seems to me the next “logical” step. By printing more Euros, Cyprus will effectively devalue their currency, but it wont affect the rest of Europe due to the capital controls. So you would end up with a situation where everything would cost a lot more in Cyprus in nominal Euros. At some point the Germans will recognise a need to relinquish capital controls, but I foresee that it wont do it at parity – irrespective of the fact that it contradicts the whole idea of a common currency.

This idea might not be as far-fetched as one might suppose. The clue comes from an article posted on May 17 2012 about Greece:

it would seem reasonable and (crucially) perhaps legal for the Greek central bank to start printing euro notes even if the ECB disavows this action.

So there we have it. Cyprus would be well-motivated to start the printing presses, and provided capital restrictions were in force, the Germans wouldn’t “care” that this was done.

Perhaps others might comment about whether such a thing would be possible.

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About mcturra2000

Computer programmer living in Scotland.
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