Euro exit a deadly risk, say Cyprus economists

A Euro exit would pose deadly risks for Cyprus both financially and politically, a group of 23 economists and academics said Tuesday, in a document outlining six reasons to avoid a return to the Cyprus pound.
"An exit from the euro entails a deadly risk both financially and economically," the document said, as the government agreed on an adjustment programme with its international creditors containing austerity measures amounting to 7.1% of its GDP and a haircut on uninsured deposits of over 100,000.
An exit from the euro area and the introduction of a national currency and a consequent devaluation would favour export-oriented economies and countries with industrial output, which is not the case for Cyprus, a primarily import-oriented economy, which imports practically all raw materials and especially energy.
“Any devaluation would increase the cost of production, disproportionately resulting in the need for bigger reduction of wages so that the economy would be more competitive," said Marios Zahariades, deputy professor at the University of Cyprus.
The return to the Cyprus pound would entail a "horrifying reduction" of household and small business savings.
Yiannis Tirkides warned that following the exit from the Euro, Cyprus should link its currency with a stronger one, which would necessitate stricter monetary policy, higher interest rates and austerity measures more strict than those stipulated in the bailout plan agreed with the Troika.
Tirkides said if Cyprus decided to part ways with the Euro area and decided not to repay the ECB’s Emergency Liquidity Assistance of 9.2 bln euros to Popular Laiki Bank would create problems in the relations of Cyprus with the European Central Bank and the other Euro area member-states.