In the presentation I gave last month on potential euro breakup scenarios, I flagged the introduction of capital controls in a euro-area member as an important step along the road to a potential breakup. Well, they are here in full today in Cyprus. Thoughts here.
My reaction to the final agreement on Cyprus including a link to an op-ed I wrote for the Irish Times.
Following Landon Thomas Jr’s New York Times report “For Euro Zone, a Cyprus Exit Would Have Little Impact”, we’ve been assessing the impact of an exit from the dollar zone of Vermont.
A former staffer at the International Musing Fund told us “There have been too many bailouts in the United States; it’s time to remove the air bags and we need to start with Vermont.” He favoured a plan in which Vermonters would see their bank deposits redenominated into a new currency to be known as the maple (with smaller denominations known as Vermont coppers). Currency controls would be introduced that would prevent them from moving their money out of Vermont.
“This is not a Lehman,” the former staffer mused, when asked about the impact on the rest of the U.S. economy. “I mean, Vermont accounts for barely 0.2 percent of U.S. GDP. To be honest, unless you lived in Vermont, you’d barely notice this new currency thingy.”
Others worry not so much about the effect on the rest of the US of Vermexit (as it has become known) but about the effect on the citizens of Vermont itself. “I guess they’d still have skiing and stuff but you would see genuine poverty in a US state,” said Angelo Gabrielo, an analyst at Humanix, an investment bank.
Unconfirmed reports suggest the Governor of Vermont is in Ottawa for emergency talks with the Canadian government. Asked about the existence of plans to toss Vermont out of the dollar zone, a Canadian government spokesman said “I have no idea what you’re talking aboot, eh?”. Federal Reserve and U.S. Treasury spokespeople said “No comment”.
My latest thoughts: Is Draghi really going to save the euro after this week’s events.
I’ve updated my TARGET2 paper. Here is a post with a link to the new paper and a discussion relating to a potential exit of Cyprus from the euro.
Despite the absence of any panic today at European banks or in financial markets, I believe this weekend’s decision on Cyprus may cause serious trouble in the coming weeks and months. Comments here.
A quick reaction to the Cyprus deposit levy here.