Why Cyprus should unite now more than ever
According to the Turkish Hurriyet Daily News, the case for a united Cyprus is stronger now more than ever. Apparently, a Cyprus reunification deal would be worth 20 billion Euros, which would provide serious relief for the recession-ridden island. A UN-brokered reunification deal may well raise per capita incomes by 12,000 Euros, expand the size of the Cypriot economy by this supposed 20 billion Euros and add an average of 2.8 points of real GDP growth every year for 20 years. A deal would be highly important in decreasing the per capita income disparity between the Turkish Cypriots and the relatively well off Greek Cypriots.
According to a report commissioned by Sweden, Denmark, Norway and Finland, “Both sides of the island would benefit from a ‘peace dividend’ that will come from two sources: recurring benefits from opening up the Turkish market of 74 million people to Greek Cypriots and the European Union market of 500 million people to Turkish Cypriots.” The report estimates that the all-island GDP at constant 2012 prices would rise from just under 20 billion Euros in 2016 to just under 45 billion by 2035, compared with around 25 billion without a solution.
So why don’t the two parts of Cyprus get over their differences and unite?
It stems from years of distrust between the minority Turkish Cypriots and the majority Greek Cypriots. Between 1960 when Cyprus became independent and 1964 when the Turkish invaded, there was serious in-fighting between the Turkish and Greek elements. Once the Turkish had secured the top third of Cyprus, they had displaced 150,000 Greek Cypriots from their homes and encouraged 50,000 Turkish Cypriots from the southern two thirds to migrate north, creating even greater disparity and disenchantment between the two sides.
And the problem is, in 2012 and 2013, Cyprus crashed. They were the fifth country to be affected by the Eurozone Crisis, and had to be bailed out in March 2013 by the Eurogroup, European Commission, European Central Bank and the International Monetary Fund. This 10 billion Euro bailout was announced in return for Cyprus’ second largest bank, Cyprus Popular Bank, being closed. Alongside this, the EU and IMF agreed that a one time bank deposit levy should be enacted on all domestic account holders, but the Cypriot parliament rejected these terms. Instead, an agreement was made that all uninsured deposits at the Cyprus Popular Bank should be levied instead, and levying 40% of uninsured deposits elsewhere, mostly wealthy Russians who used Cyprus as a tax haven. The revised agreement is expected to raise 4.2 billion Euros.
The Cypriot economy had gone into recession in 2009, with large falls in tourism and shipping which in turn increased unemployment. Economic growth in 2010 and 2011 was weak and failed to reach the pre-2009 levels. With a small population and modest economy, Cyprus relied on a large offshore banking industry. Compared to a nominal 19.6 billion Euro GDP, the banks had amassed a 22 billion Euro debt from overseas banking. The banks were then subject to a haircut of 50% in 2011, following the Greek government’s debt crisis. Cyprus, unable to raise liquidity from the markets in order to support the banks, applied for a bailout from the European Union.
In July this year, Cyprus slowly began to regain access to the private lending markets. They expected to regain complete access to the private lending markets in 2015, but this bailout has not been met by criticism from observers. Dr Jeffrey Stacey of Der Spiegel believes that this forced bank levy has pushed a potentially pro-Western Europe President, Nicos Anastasiades, into the arms of the Russian government. More importantly, Dr Stacey alleges that the likelihood of the introduction of the Annan Plan, which was tabled in 2004 as a proposal for the unification of Cyprus, which became more likely when Anastasiades was elected, is now highly unlikely.
The Annan Plan, which is the most recent serious proposal for unification, was developed over two years by members of the UN’s Special Mission to Cyprus, headed by veteran Peruvian diplomat Álvaro de Soto. When, eventually, the Annan Plan, which was named after UN Secretary General Kofi Annan, was brought to referendum in 2004, it was strongly rejected by the Greek Cypriots. A majority of 65% of Turkish Cypriots voted for the measure whereas only 24% of Greek Cypriots voted for it.
Meetings this year, between the Greek Cypriot President Nicos Anastasiades and the Turkish Cypriot President Dervis Eroglu resulted in them agreeing that the status quo was “unacceptable” and not much else. Hopefully, an agreement will be reached. Hopefully, these two leaders will notice how painful this disagreement is for their economies and how unifying is one of the best things they could do for their citizens. Hopefully.