The eruption of crises on the eurozone periphery starting some time after the 2008 Minsky Moment led to a lot of whooping and jumping up and down by mostly US-based economists of varying ideologies who have forecast that the euro is doomed since before it was ever even adopted. They were right! It is no good! It is doomed! Among the most prominent of these are Martin Feldstein among more conservative voices and Paul Krugman among more liberal voices. But, they are wrong about it being doomed. It is not going away, and they need to deal with it.
Now, let us be clear. This does not mean that the euro is wonderful. Since 2008 we have had all kinds of examples of pain and suffering among the euro peripheral countries, the PIIGS, now to have Cyprus definitely added to their lot along with maybe Slovenia as well. Their crises have led to enforced austerity along with very high interest rates, the latter undoing the main source of gain that most of them got during the period of 2001-07 when things were more or less hunky-dory after the full introduction of the euro. Nations that had previously suffered from having high risk premia built into their interest rates saw those largely disappear. Many of the nations now suffering greatly saw substantial booms driven by easy credit during that period.
Also, the criticisms by Feldstein and Krugman and others that the Eurozone does not clearly constitute an optimum currency zone based on the longstanding literature on this topic have substantial validity. There is clearly not macroeconomic coordination. There is no unified or central fiscal policy, including a lack of zone-wide social safety nets that automatically redistribute funds from better off to worse off areas as we have in the US. Most importantly, despite the Schengen zone treaty, labor migration remains low due to linguistic and cultural barriers. The whole business is not helped by the lack of a central financial regulator as well, despite moves to make the ECB such an entity. And the outcome of all this has indeed been the pain and suffering of the deficit nations, unable to escape their recessions by devaluing.
However, for better or for worse, it is increasingly clear that the nations who use the euro are not at all likely to exit from the zone, and the leading nations and institutions of the zone are clearly set on doing what is needed to cut the deals needed to keep those who might be wanting to exit from doing so. The latest Cyprus deal is the clearest example yet, given that this tiny nation's exit from the euro probably would entail little damage to the rest of the zone. Cyprus is not Spain or Italy.
Nevertheless, those in charge of the euro have done it again, yet another muddle through, even if as is likely it will need further adjustment down the road, possibly quite soon. The trick of imposing much of the short term cost on Russians suspected of being criminals or at least shady has just made it all that much easier. Now, of course, there will almost certainly be a sharp decline in Cypriot GDP, just as in Greece and other victims. But Cyprus will not leave, and the euro will continue.
Oh, and for all those claiming that the Cypriot euro is now a different euro, that Cyprus has in effect "already left the eurozone," sorry, not so. Yes, sure, the capital controls mean that nobody in their right mind who is not a Cypriot will put any money into Cyrpiot banks. But, if one has a euro coin that was minted in Cyprus (and I note that one can identify the national origin of euro coins by the images on them), there will be no problem whatsoever in using it in Germany to buy goods there at full value. Cyprus is still on the euro, and will stay there, muddling through and all that.