Itching Isolation


Economic News

22 Jul 2010
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The resignation last week of the Turkish Cypriot government has added further uncertainty to the future status of the long-divided island. With this political shake up, and the Greek Cypriots' apparent quest to scupper the normalisation of trade between the EU and the Turkish Cypriots, the latter have reason to grimace. Yet, although promises of trade from Brussels have been slow in coming, there have been some economic benefits since Turkish Cypriots voted back in April in favour of the latest UN reunification plan.

How the political dice fall as the Turkish Cypriots' widely unrecognised Turkish Republic of Northern Cyprus (TRNC) scurries to form a new government is being scrutinised by economists and political analysts alike. The resignation of Prime Minister Mehmet Ali Talat and his socialist-liberal government was not unexpected, however. Months of failed efforts to form a majority government in a 50-member parliament had shown no signs of a breakthrough.

The alternative to the recently dissolved minority government looks no more promising though, with Dervis Eroglu, leader of the largest parliamentary grouping, the National Unity Party (UBP), asked by veteran TRNC President Rauf Denktas to form a new government. Analysts widely suspect that the UBP will be unable to muster the other seven seats it needs to gain a parliamentary majority over the coming weeks.

The alternative would be to hold fresh elections early in 2005 - the most realistic option. But at the same time, many members of parliament would prefer to avoid relinquishing their seats, particularly those who opposed the UN plan, as the trend amongst Turkish Cypriot voters has long been away from then and towards pro-reunification parties.

Meanwhile, the resignation of Talat - long the chief advocate of the island's reunification amongst Turkish Cypriots - leaves a big question mark over the future. In spite of his at-times caustic criticism of the Greek Cypriot leadership, Talat remains one of the best hopes for a settlement of the Cyprus issue. In contrast, Eroglu, while claiming to support EU membership, still rejected the UN plan for the reunification of the island.

Whoever eventually slips into the prime minister's shoes will also have to deal with the veteran TRNC president, Rauf Denktas, who is one of the island's most experienced political operators. He was also opposed to the UN plan, but has announced his intention not to stand for re-election next year. However, many observers are still wondering if this will really be the case, particularly after his recent comments advocating a presidential style system of government as a way out of the current parliamentary impasse.

Yet whoever finally holds the reins of power in the TRNC may make little difference in terms of finding a solution to the economic plight of northern Cyprus, given Greek Cypriot intransigence towards ending the north's economic isolation.

On the basis that trade with the TRNC would be tantamount to recognition of the Turkish "occupied territories", Nicosia has refused to allow the EU to push forward with the promises of economic normalisation it had made after the April referendum.
This has been despite continuous prodding from EU members Britain, Sweden and Germany.

With southern Cyprus holding an effective veto over EU decisions, TRNC frustrations have naturally been growing. The main demand of Turkish Cypriot businesses is that they be allowed to interact directly with the outside world. This is particularly the case with one of the TRNC's economic staples, tourism. At present, there are no direct flights to the north of the island, with all visitors having to transit via Turkish airports. Reopening a direct air route would be useful in attracting Middle Eastern tourists in particular, as currently, a half hour flight from Beirut, for example, must fly via Istanbul - adding a further three hours on the flight time.

Similarly, the TRNC's ports are still effectively blockaded, as vessels trading through them are denied entry at EU and other harbours for having entered Cyprus "illegally". Trade therefore has to go via a Turkish port first.

Ending this isolation was one of the main hopes following Turkish Cypriots' endorsement of the UN plan back in April, particularly as EU and US chiefs at the time expressed their exasperation with the Greek Cypriots, who rejected the plan.

Yet, with Greek Cypriot objections leading to EU plans to allow northern Cyprus to trade with the outside world being put on ice, northern Cyprus remains deprived of any major boost to the economy. This is not to deny the Greek Cypriots' recent endorsement of $321m in aid from Brussels to the TRNC. Yet even with this, the Greek Cypriots have slapped on certain conditions. EU aid, they insist, should only go to territory that was not owned by Greeks before 1974. This means that as little as 12-20% of the TRNC qualifies for EU assistance.

With Turkish Cypriot hackles raised, the EU Commission is now looking to channel money towards training schemes and grants in an effort to decouple land from the provision of aid. But this offers little compensation for the TRNC, the inhabitants of which feel largely cheated after EU promises to reward them for endorsing the UN plan.

Yet, in spite of its isolation, the TRNC has been able in some ways to benefit economically from its endorsement of the UN scheme.

"Although no serious action has been taken in Cyprus yet, our economy has expanded thanks to the 'yes' vote and the Green Line regulations," Talat said earlier this month, referring to the easing of passage for Turkish Cypriot goods and citizens across the island's ceasefire line.

Due to the positive message projected by the TRNC, and the free flow of individuals between the north and south of the island, per capita income has increased from $5000 to $7000, according to Talat. This is to a large extent attributed to an increase in the number of tourists crossing the Green Line - a trend that is likely to continue as confidence sores. In keeping with this mood, the UN announced it was cutting its peacekeeping forces in Cyprus by 30% in October. Nevertheless, such developments have failed to defuse Turkish Cypriot discontent.

The issue also continues to poison the larger picture of relations between Turkey and other European states. September, for example, saw stances taken on the Cyprus dispute leading to the cancellation of a proposed EU-Organisation of the Islamic Conference (OIC) meeting in Istanbul. The TRNC has an observer delegate to the OIC, which recently started referring to the Turkish Cypriot "state". This is anathema to the Greek Cypriots - now EU members - who refused any such recognition of Turkish Cypriot sovereignty. With no compromise possible on this issue of status, the meeting was abandoned.

Despite years of rapprochement, relations between the key big brothers in the Cyprus dispute - Ankara and Athens - have also experienced some friction recently, underscoring the continued absence of any concrete progress in a wider raft of differences between the two Aegean neighbours. The continuing lack of any agreement on the delineation of territorial limits in the Aegean led once again last week to Greek allegations that Turkish jets had violated its airspace.

Remarks by Greek Cypriot leader Tassos Papadopoulos this week have also caused concern. In comments published in the Greek daily Eleftheros Typos on October 25, he commented that regarding Turkey's accession to the EU, "Turkey has obligations toward the EU and the Republic of Cyprus which it must fulfil... This does not mean we will exercise a veto [on Turkish EU membership]; it does not mean we won't exercise a veto [either]."

In particular, the Greek Cypriots appear to be pushing for a full withdrawal of Turkish troops from the TRNC to be included in the requirements for accession talks to start.

Despite the commitment of many EU members to end the economic isolation of the Turkish Cypriots then, so long as the Greek Cypriots can place a spanner in the works by preventing direct trade with Europe, northern Cyprus will most likely continue to struggle economically. Not exactly a formula for good will across the Green Line.

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