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Cyprus and the Euro

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By William Mills

Easter weekend reports of the Cyprus banking fiasco are showing a worsening situation rather than the usual stories of; ‘it’s business as usual’ so beloved of the EU authorities.

The Euro is in fact two currencies. The non transferrable unwanted Cypriot version, and the other available in the rest of the Euro nations.

It’s a similar situation to before the modern era when gold was the principle medium of exchange and  common currency. It worked until a country encountering adverse balance of payments from its trade deficit diluted its currency by melting down their coins and substituting the gold with heavier and cheaper base metals like lead.

However as soon as this happened its coins were refused in favour of others containing pure gold such as the well respected English Sovereign. With time coins were withdrawn and paper notes issued in their place. The value of the different nations’ notes reflected the international community’s belief that the various currencies were backed by solid assets.

This trust isn’t present any more in Cyprus’s euros. They have debased the common coinage.

A City trader said; “The euro is finished. The Germans will keep bailing the others out until they need a bailout themselves. Then it’s over.”

Lord David Howell

Lord David Howell, special advisor to the British Foreign Secretary and former cabinet minister added the following comment:-

‘It is possible that for a while the Cyprus damage will be patched over.
But the Euro remains a currency which is basically  chronically sick. It will continue to have bouts of fever and catch frequent illnesses. It will require constant – and very expensive -care to keep it alive and held together.
This is because the Eurozone is a divided house. The same fixed exchange rate can not work properly for two so very different sets of economies as the Northern Europeans and the southerners,the Club Med.
Ironically, while the European leadership talks about a ‘two tier’ Europe divided between the supposed core Eurozone and the non-Euro countries such as the UK, the real divide is between the stronger and the weaker Eurozone members within this so-called core.

Greeks and Italians will never ever become Germans. That is Europe’s most dangerous fault line’.

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