Cyprus: An Optimum Optimorum?

Michael Artis

Cyprus Economic Policy Review, 2008, vol. 2, issue 1, 25-31

Abstract: Cyprus joined the European Union in the 2004 wave, shortly thereafter qualified for admission to the EuroArea, and has in fact been a full member of the EuroArea since the beginning of this year. The case for a country to join a currency union has traditionally been seen as one in which there is a trade-off between gains from trade (as membership of the currency union implies a reduction in trade-related transactions costs) and efficient stabilization policy (as joining the currency area implies the abandonment of a separate monetary policy). By this criterion Cyprus is exceptionally well-placed to benefit from joining the EuroArea. Economists are known for denying the existence of a free lunch, so we must scrutinize more carefully whether this is indeed so. Cyprus certainly faces some economic problems, but the most prominent of these are not obviously exacerbated (and probably the contrary) by membership of the EuroArea.

Keywords: Cyprus; Capital Inflow; Feldstein-Horioka; Monetary Union (search for similar items in EconPapers)
Date: 2008
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