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ESM can’t fund solution despite its ‘huge’ economic potential (updated)

File photo: European Stability Mechanism Managing Director Klaus Regling outside the presidential palace

The European Stability Mechanism’s (ESM) mandate would not allow for the financing of a Cyprus settlement without changing its treaty, its head said on Tuesday, but it was his belief that reunification would be good for the economy.

Speaking after a meeting with the president, ESM Managing Director Klaus Regling also said it was impossible at the moment to quantify the cost of a settlement.

“Personally, but also as a European, I hope very much that there will be success, that the talks next week in Switzerland are productive. We know there are many challenges to be met,” Regling said. “It will not be easy but Europe is looking to Cyprus to come to a positive conclusion here which will be good for the Cypriot economy”.

President Nicos Anastasiades and Turkish Cypriot leader Mustafa Akinci begin make-or-break talks in Mont Pelerin in Switzerland next week on the issue of territory, which if successful will lead to the final stretch for a solution by allowing a five-party conference on guarantees. Coming back without agreement on territory will be a huge setback at the very least.
Regling said there would be tremendous potential if the island was reunified, a good development for the EU and Europe if one of a number of unresolved political problems were to be resolved.

The ESM chief said financing the solution was one of the big issues though his organisation was restricted by its mandate from participating.

“But it is very hard to say before more details are known about the settlement, particularly on the property issue,” he said.
Regling added that it was impossible to quantify the cost at the moment but he was convinced that the economic potential in the long run was huge.

“At the moment our mandate will not allow that [financing]. The ESM is a crisis agency, a crisis fund, when the euro is at risk,” he said. “I don’t see that. At the moment that would not be possible without changing the ESM Treaty.”

Finance Minister Harris Georgiades, who attended the meeting, said the economic dimensions of reunification were extremely important. “We had a very useful discussion as regards these aspects, in view of a relevant discussion on the financial parameters of the Cyprus problem that will take place on Monday at the Eurogroup,” he said.

Earlier, addressing the Economist conference in Nicosia, Anastasiades said that a probable settlement of the Cyprus problem would be “the most important” economy-boosting structural reform in the coming decades, in addition to those proposed by the government.

“However, as well as the obvious advantages for the entire people of Cyprus, a solution will transform Cyprus into a model country of stability strengthening our role as security provider in one of the most turbulent areas of the world,” he told delegates.

Speaking later at the conference UN Special Adviser Espen Barth Eide referred to the trade potential following reunification, with the Greek Cypriot side being able to trade with Turkey and the Turkish Cypriot side with the EU.

He also spoke about the potential to turn Cyprus into a significant energy hub in the Eastern Mediterranean.

Speaking at the same event Foreign Minister Ioannis Kasoulides said revenue from natural gas exploitation is not expected before the next two to three years. He added that the prospect of income is just the collateral Cyprus needs to withstand economic difficulties in the first year after the settlement.

EU and IMF officials who also addressed the conference said a settlement would entail “tremendous” investment opportunities in the long term but would be accompanied by short-term challenges.

The IMF and the EC have been advising the two communities on the economic and financial aspect of a settlement.

“The potential is tremendous opportunity in terms of investments and trade in the long run,” Vicenzo Guzzo, the IMF’s Cyprus representative said. “Obviously what is required is a sustainable economic and financial basis which requires a lot of preparation and requires important economic policy decisions.”

Daniel Daco, head of the EC mission for Cyprus, also spoke of a tremendous opportunity in the long-term but with tremendous challenges in the short to medium term.

“And preparedness is very important and we are also in discussions with the two sides to see what can be done to make sure that if this occurs this will be a success and that we can cope with the challenges,” he said.

He underlined the need for continued reform as “the challenges Cyprus now faces will be magnified if reunification occurs.”

Undersecretary to the President, Constantinos Petrides said Cyprus should reflect on the cost of non-solution rather on the challenges of a solution.

“There is an opportunity cost. When we are talking about the short-term cost of reconstruction and solution which are the opportunities of non-solution for this country. Let’s all reflect on that,” he underlined.

“I don’t think that there is need to increase public spending for infrastructure projects such as in other cases. There will be some short-term cost, we will see how these are financed but we have to see the big picture,” he concluded.

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