Cyprus Mail
Business Opinion

Shared economic crisis could help a Cyprus solution

By Dionysis Dionysiou

With the consolidation of the Bank of Cyprus completed at long last, and with our EU and International Monetary Fund lenders positively assessing our implementation of the terms of our bailout so far, the atmosphere of gloom and doom that had prevailed after the Eurogroup’s traumatic decisions in March has lightened.

President Nicos Anastasiades, exhibiting both persistence and patience, and aided by Central Bank Governor Panicos Demetriades, Finance Minister Harris Georgiades and a few technocrats, has managed to restore the situation to a manageable level.

Certainly no one could at this stage convincingly argue that we have successfully turned the corner yet, but it is obvious that the economic situation has improved to the extent that the government is now able to start dealing with the Cyprus problem more actively and seriously. We may recall that the president had cited August and September as the months for preparing for and October as the month for embarking on a new round of talks.

These talks take place amid a landscape that is vastly different from 2004 and the referendum on the Annan plan. The Republic labours under the bailout memorandum, with the troika of international lenders having the first and final say in the management of the economy.

For the Turkish Cypriots things have also changed. In 2004 they benefited from a regime of apparently lavish subsidies from Ankara, provided in an effort to bring the Turkish Cypriots’ living standards closer to those of the Greek Cypriots. Today, the Erdogan government has put the north under a peculiar Turkish memorandum of sorts. This has resulted in a public sector wage, leading to discomfort and resentment which in turn was reflected in the recent elections.

The upshot of all this is that the two communities now have to seek creative solutions through a shared regime of austerity. What could be described as the ‘memoranda’ on both sides could conceivably be an important factor in the solution effort. The changed economic landscape could act as a catalyst in the rationalisation and de-demonisation of the Cyprus problem which has been in some ways a distorting mirror twisting reality in our country for as long as most of us remember.

Should this logic prevail, and the sterile nationalism and the phobias of the past are replaced with rationalism which encompasses our new economic realities, this will be a positive development both for Greek and Turkish Cypriots for several reasons.

The iron-clad bailout memorandum binding the Greek Cypriots will compel them to think more seriously about how a future federation would be administered. When the Annan plan was being discussed – and in an exhibition of nouveau riche thinking – there was talk of 60,000 federal civil servants. Today, those numbers sound absurd when both communities need to make thousands of employees redundant so as not to sink government finances. The challenge today is to construct a small and efficient federal state, which through the principles of subsidiarity and proportionality will help both communities to grow more or less independently while they work in tandem and cooperate closely where it is for the benefit of the federal state to do so.

In 2004 everyone spoke of the inflow of billions from tenders by the EU and other donors for the reconstruction and maintenance of immovable property. Today, in the midst of austerity, we need a flexible regime which will move within the EU for fundraising-through-leverage processes of the European Development Bank, private build, operate and transfer agreements and other inducements.

In 2010 the Christofias-Talat negotiations led to an agreement on the chapter of the economy in which there was talk of one central bank with temporary branches in the two states. Today this chapter should naturally incorporate the establishment and operation of the European Stability Mechanism and the inclusion of all European banks under Frankfurt’s direct supervision.

The Republic’s inviolable commitments to the memorandum will compel the United Nations negotiating team to move away from the old-fashioned view of a power game playing out in Cyprus. Unreasonable demands of Turkey, even though a regional heavyweight, can not be imposed on a eurozone country if they fall outside the acquis communautaire. Nor, of course, can the internationally recognised status of the Republic deprive the Turkish Cypriots of the right to political equality.

The EU for its part cannot stand by its 2004 position that “anything decided by the two communities will be incorporated in the acquis communautaire” when the acquis imposed on Cyprus today is absolutely specific with its provisions and obligations measured in billions.

In brief, the full and complete integration of Cyprus through the eurozone’s tough memorandum will preclude the EU playing the role of just an observer in Cyprus. Instead, it will be a necessary requirement for the EU to engage actively and decisively to help resolve the Cyprus problem. In this context, the UN will also have to seriously engage in actively considering for the first time the real needs of the Turkish Cypriots and not just Turkey’s geopolitical interests.

The key word today for both communities, apart from rationalising the processes for a solution, is growth. Both communities have hit rock bottom financially, so it’s probably easier to reach a consensus on how best to escape the crisis. A solution is the safest route to be rid of the memoranda.

How can this be achieved?

The return and reconstruction of Varosha and Morphou, and the need to build new settlements for all Turkish Cypriots who move elsewhere as part of the solution, will re-establish construction as one of the engines driving the economy forward.

The reunification of the business market and boosted by the addition of 250,000 Turkish Cypriots – providing a total of one million consumers – will benefit all Cypriot companies.

Solving the Cyprus problem will also open up the market of Turkey’s 80 million inhabitants to Cypriot businessmen, while many Turkish grandees (analogous to the Russians) may prefer to have their base in a European country.

The stability and security resulting from a solution will attract serious investment and will provide an important new impetus to the growth of tourism.

Finally, a solution would mean Cyprus becomes the only state in the East Mediterranean region with zero problems with its neighbours, making it easy for Cyprus to become an energy centre for the sale of liquefied natural gas and also a hub for the transportation of gas via a pipeline system through Greece and Turkey.

In brief, the possibility of a solution today is clearer and significantly better than it was in 2004 when the Greek Cypriots, with their illusions of permanent economic power, fell prey to the manipulations and propaganda of self serving politicians and their myopic fellow travellers who controlled the Republic’s economy with disastrous consequences, even for those directly involved in these machinations.

Today, I have the impression that Greek Cypriots are much less naïve and far more astute to make the same mistake again.

Dionysis Dionysiou is executive editor of Politis newspaper

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