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Cyprus partition: why it is suddenly on everyone’s lips 3 décembre 2014

Posted by Acturca in Economy / Economie, Energy / Energie, EU / UE, Middle East / Moyen Orient, Russia / Russie, South East Europe / Europe du Sud-Est, Turkey / Turquie.
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Financial Mirror (Cyprus) December 3-9, 2014, p. 6

By Fiona Mullen *

Three days after 24 April 2004, when the referendum on the Annan Plan was rejected by 76% of Greek Cypriots and accepted by 65% of Turkish Cypriots, I wrote the following in this newspaper about what might happen the next time there is a vote:

“Greek Cypriots could therefore be asked not just to choose between a solution and more of the Cyprus problem, but between a solution and the end of the Cyprus problem: legally recognised partition, with only compensation offered to those dispossessed of their land.”

My reasoning at the time was that the international community was extremely peeved with the Greek Cypriots (and vice versa, of course), so there would be little tolerance for just more status quo the next time there was a vote.

In the ten years since I wrote that I have often thought that I was wrong about that prediction. Thanks primarily to EU membership and UN Security Council Resolutions, to this day, there is still no call from any official quarters for partition.

But all of a sudden the word lips.

The International Crisis Group proposed it as an option in March, just after the talks got under way again the previous month, The Economist said it was a possibility in its article on 29 November, the New York Times asked if the Cyprus problem was “insoluble” on 1 December and the UN Special Advisor on Cyprus, Espen Barth Eide, warned several times during his most recent visit that the international community could give up on efforts to put the island back together.

“I hope I am the last one for good reasons – that we will end up with a solution – and not the last one because we will all give up and something very different would happen,” he told the state broadcaster CyBC on 27 November.

Perhaps more importantly, peacenik Greek Cypriots who have spent much of their lives working for a solution and being lambasted for it are now starting to say that partition is the answer. Some even believe that their own government is planning for this.

Cyprus as the faultine in the new world order

So, was I right after all? If I was, it will be because of the rapidly changing world around us: the fallout between the West and Russia over Ukraine, Turkey’s apparent drift away from the NATO alliance, renewed cooperation between Israel and Egypt, the threat posed by Islamic State (ISIS/ISIL) and last, but not least, the discovery of gas in the eastern Mediterranean.

The impact of these developments on traditional alliances is already being felt. Israel and Cyprus are planning to send gas by pipeline to Egypt, and on 20 November Israel suggested a long pipeline from Israel to Greece and Italy.

Such a long pipeline would essentially gobble up all of Israel’s spare gas and would thus push Turkey out of the regional gas picture.

But Turkey, with the help of Russia (Cyprus’ traditional ally), has already fought back. On 1 December, Russia pulled the plug on the South Stream gas pipeline from Russia to Bulgaria and said it will send it to Turkey instead.

Russia’s president, Vladimir Putin, said that if the pipeline does continue onto Europe, it will go through Greece.

A solution is now a « must-have » not « nice-to-have » for the big powers

So, it looks as though this part of the world is beginning to realign itself, with Russia and Turkey (and China and perhaps Iran) to the north, and Egypt and Israel (and the US and EU) to the south. Guess which country is in the middle? If this is indeed the new world order, then Cyprus could go two ways.

In the worst-case scenario, Cyprus, starting with the Exclusive Economic Zone (EEZ), becomes the place where the big powers fight it out, with damaging consequences for everyone involved.

But in the best-case scenario, Cyprus makes friends with all of its neighbours, including Turkey, and, like Switzerland, enjoys a lot of business in the process.

This, I believe, is why the word partition has reared ugly head.

In this rapidly changing world order, an unresolved Cyprus conflict along the new north-south fault line is suddenly a security threat to the big powers.

So a Cyprus solution-any Cyprus solution-becomes a “must have” rather than a “nice to have” for those with big interests in the region.

If my hunches are right, then the “Cypriot-owned” solution probably has only a few months left to run.

After that, if the Cypriots can’t decide to live together, then to remove a potential battleground between north and south, the big powers will force them to live apart. And I doubt there is anything the EU will be able to do about it.



Partion would be worse for the economy than unification

With people starting to say that maybe partition is the answer, it is worth comparing partition to reunification in terms of its impact on the economy.

There are a number of reasons why partition would be a costlier exercise than reunification and worse for the economy in general:

1. Property compensation would be up to 80 % higher  

First and foremost is the property issue, the cost of which would be considerably higher without a solution than with one because no one would get their property back.

According to the report to the UN Security Council in May 2004, the Annan Plan would have allowed for “the return of most displaced persons to their homes (including a majority, some 120,000, under Greek Cypriot administration)”.

Assuming that the provisions are similar in any new plan, then this would automatically cut the compensation bill.

According to my own calculations, details of which should be published by PRIO in the new year, a solution of the Cyprus problem that involved a mixture of territorial adjustment, exchange and reinstatement could cut the compensation bill by 80%.

Without it the compensation bill would be considerably bigger than all-island GDP.

Depending on valuations and so on, one might be able to cut the no-solution compensation bill by up to 30% by exchanging property with Turkish Cypriot land in the south. But it would still be considerably higher than the bill one could achieve with reunification.

Moreover, in the case of a “velvet divorce”, one might expect demands for compensation to be higher than in the case of reunification, especially if gas revenues are expected to be used to compensate people.

Expected government tax revenues from gas are nowhere near what Greek Cypriots think their property is worth.

2. Fewer Synergies with Turkey, less attractive in foreign investment   

With a velvet divorce there would be fewer incentives for Greek Cypriots and Turkish Cypriots to work together to do business with Turkey.

So, while business with Turkey would still open up for Greek Cypriots, without the help of Turkish Cypriots who know the language, the opportunities are likely to be fewer.

Just as importantly, a velvet divorce will create fewer opportunities for foreign investors. Investing on an island with one set of business rules is far more attractive than dealing with two different regimes.

3. No economies of scale   

Partition would make it less likely that the two sides of the island would work together to improve economies of scale. This is particularly important because both sides of the islands suffer from competitiveness problems, which hamper growth prospects and keep unemployment high.

One area in which this problem is most critical is energy, with high electricity costs on both sides.

4. No « feelgood factor » boost

But with partition, we are more likely to have two separate electricity providers, with low economies of scale and high prices keeping competitiveness low.

If Cyprus reunified, then it can market itself as the peace centre of the region, with all the accompanying conferences, seminars and education centres and tourism revenues that go with it.

It is also more likely to attract some rewards in terms of EU funds.

One cannot imagine countries like Spain supporting any reward for deciding on partition. EU members are likely to be far more generous to a country that can stick itself back together again than one which decided to split, even if peacefully.

In sum, while all solutions carry economic risks that need to be addressed, partition is a costly exercise with few of the spin-off effects that would come from reunifying the island.

* Director, Sapienta Economics Ltd.


1. 20kDB - 4 décembre 2014

« Expected government tax revenues from gas are nowhere near what Greek Cypriots think their property is worth. »
As for Turkish Cypriots !

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