Krugman's Advice to Cyprus: 'Leave the Euro. Now.'
Economist says best thing nation coud do is save itself the pain by making immediate exit from the EurozoneAsked to put aside the obstacles of political reality or feasibility and simply offer his unadulterated advice to the nation of Cyprus, Nobel-winning economist Paul Krugman spoke bluntly and plainly by agreeing to say what he would do if it was up to him.
"Cyprus should leave the euro. Now," Krugman said on Tuesday.
As the banks in Cyprus remain closed and public opposition to the bailout deal being orchestrated grows, Krugman explained why he (and many others) support the idea of an exit.
"The reason is straightforward," He continued. "Staying in the euro means an incredibly severe depression, which will last for many years while Cyprus tries to build a new export sector. Leaving the euro, and letting the new currency fall sharply, would greatly accelerate that rebuilding."
The exit plan itself would be murky, admits Krugman—acknowledging "it all sounds kind of desperate and improvised"—but such actions would be appropriate given the situation.
"We’re talking about Greek-level austerity or worse in an economy whose fundamentals, thanks to the implosion of offshore banking, are much worse than Greece’s ever were," he said.
And Krugman's not alone in his assessment. As the crises unfolded last week, economist Robert Kuttner, writing at the American Prospect, suggested that Cyprus (and other countries as well) should also leave the Eurozone—or at least make serious threats to do so—as a way to put pressure on the Troika (the EU, ECB, and the IMF) to bend in the severity of their demands.