A loose confederation is not the solution

By Les Manison

In attempting to find mutually agreed arrangements on the Cyprus problem at the forthcoming meeting chaired by the United Nations many issues are likely to be raised

It is reported that the Greek Cypriot President Nicos Anastasiades will opt for a bizonal, bicommunal federation to unite the government-controlled and Turkish-occupied areas of Cyprus, while the Turkish Cypriot community leader, Ersin Tatar, will propose a two-state solution involving a formal partitioning of the island.

These two “initial” proposals are obviously far apart and there is the question of whether the United Nations would propose some sort of in-between arrangement. And would the Greek Cypriot and Turkish Cypriot leaders have a Plan B or fallback position? It is possible that some type of confederation arrangement could be proposed as a compromise. Indeed, President Anastasiades earlier this year suggested “a loose confederation” as “a viable solution”.

But there are many questions on the key elements and implications relating to the type of confederation that could be agreed upon. A confederation is a union of sovereign groups or states united for purposes of common action. In a confederation the central government is accountable to the constituent states, while in a federation the federal government holds the ultimate authority and the constituent states are subordinate to it.

And generally a prominent feature of confederations is that member states have sovereignty and, accordingly, have an implicit right of secession.

If the Greek Cypriot and Turkish Cypriot leaders opt for a confederation, what type of relationship should there be between the member states and the central or general government and what powers should be distributed between them? In practice, the less powers vested in the central government the looser the confederation.  However, there are limits in constraining the powers of a central government in order for a confederation to function effectively.  At a minimum, policies with respect to activities that have an international or interstate character such as defence, foreign affairs including relations with the EU, national transportation and the macro-economy, should be the responsibility of the central government.

In particular in ratifying decisions of the European Union the new Cyprus union would need to adopt a decision-making process similar to those in federations whereby the central government would not need the consent of the constituent states in approving the deliberations of the European Union. It would not seem appropriate to have a situation where EU leaders representing their central governments agree, for example, on imposing sanctions on a certain country, yet one of the constituent states of the Cyprus confederation has the right to oppose ratification of this decision. It is noted that in the Annan Plan, which admittedly proposed a federation for reunifying Cyprus, under its proposed “Federal Law on Conduct of European Union Affairs” stated that “in respect of European Union matters which fall, exclusively or predominantly, into an area of competence of the federal government, the federal government shall determine the position that Cyprus adopts within the institutions and organs of the Union”.

Also for the effecting of decisions on the macro-economy such as those relating to tax rates on production and trade, on external borrowing, and on important parameters for banks in a unified system, ultimate authority should be the province of the central government. Indeed, one constituent state might undertake policies including engaging in harmful tax competition to gain an advantage over the other constituent state and distort the efficient allocation of resources within Cyprus. And, moreover, the collection of most taxes and raising of foreign loans should be assigned to the central government as it should not be dependent on the constituent states for handouts.  Furthermore, constituent state budgets should be financed mainly by grants from the central government.

While the above arguments do not rule out unifying Cyprus through a confederation, the need for strict rules giving the central government ultimate authority in specific areas resembling federal systems means that the formation of a loose or weak confederation should not be pursued. Thus, it is the view here that only a strong confederation with a central government having considerable powers in certain key areas such as in implementing EU policies can bring about a “viable solution” for Cyprus.

Especially in the context of being a member of the European Union a weak confederation with its consensus decision-making process is likely to prove unworkable and given the right of member states to implicitly secede from a confederation, Cyprus could again end up with the same divisions as currently exist.

Leslie G Manison is an economist and financial analyst. He is a former senior economist at the International Monetary Fund, an ex-advisor in the Cyprus finance ministry and a former senior advisor at the Central Bank of Cyprus