Logic dictates Cyprus should quit euro, but how?

Megan Greene has a great column on Cyprus and the euro. In short, there are costs and benefits to leaving the euro — but the costs are going to be borne anyway, which means that, at the margin, devaluation is likely to be good for the country.

Among the greatest costs of a euro-area exit would be bank defaults on liabilities, capital controls and a sovereign default. Cyprus has experienced the first two and will most likely see the latter in the next year or two if it stays in the euro area.

So, if Cyprus is going to incur some of the worst costs of abandoning the euro anyhow, it might as well print its own currency and benefit from a devaluation and the ensuing boost in competitiveness.