Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Most people in the EU are not aware of it, but Cyprus is ruled by a relatively hard left communist party government under the presidency of Dimitris Christofias. Now Cyprus is a small country (the southern part has ~800.000 people IIRC) and politics is small scale. However the presence of a left government has led to an impressive differentiation with respect to austerity policies and the debt crisis: Despite a big deficit, a major catastrophe that crippled its energy production, and the hit that Cypriot banks have taken as a result of the Greek PSI, the country has had by EU standards no austerity to speak of and has chosen to take a loan from Russia instead of the EU or the "markets" (as many know Cyprus has a... special relationship with Russia).

Of course the Central Banker in Cyprus was not happy with this fiscal profligacy, and was creating problems and pressure for the government to stop the automatic inflation adjustment of wages and cut down on benefits and public investment. The Cypriot government insisted on its policy, so when Athanasios Orphanides term was up, he was not reappointed, despite a huge fuss and roar from the ECB itself and the Cypriot opposition.

The President of Cyprus and the government spokesman accused Orphanidis of playing a political anti-government role during his whole tenure and insisting on cuts for the weak, while ignoring the necessity to tax the richest, and accused him for failing in his regulatory role, by allowing Cyprus' banking system overexposure to Greek bonds...

If the ECB is not happy about Orphanides removal, they will be even less happy about his replacement: Panikos Demetriades, is a professor of financial economics at the University of Leicester in Britain, who has been critical of ECB policies over the past two years and has called for... Germany quitting the Euro:

Demetriades: a new Keynesian at the CB's helm:

Demetriades, a keen blogger, is a critic of the idea that stringent austerity measures alone can turn an economy around, espousing the view that austerity should be limited to an economy's absorption capacity without sinking it into recession.

Perhaps his most notable public intervention was his suggestion last year that Germany should re-adopt the mark currency to help weaker euro zone members. He argued that euro strength as a result of its link to the powerhouse German economy was an impediment to growth elsewhere in the bloc.

...Demetriades has also argued for more direct support to states finding it difficult to raise funds on markets.

In articles, he has questioned the ECB's "problematic" mandate of keeping inflation close to, or below, 2.0 per cent.

"The alternative would have as its primary target recovery and the achievement of healthy growth for Greece and the euro zone," Demetriades wrote in his blog last November... So instead of a 2.0 per cent inflation target, and ignoring everything else ... the primary target of economic policy should be increasing GDP by 2.0 to 3.0 per cent per annum, in real terms."

It will be interesting to see how he interacts with his new colleagues to say the least...

So Cyprus has sent a message that there exist other paths other than surrender to the markets and its oracles of societal doom. But elections are in and its likely that the electorate will swing back to the conservatives. And they'll live to regret it...

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Tue May 1st, 2012 at 01:36:36 PM EST

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