Troubles Ahead

Turkey

Economic News

22 Jul 2010
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Despite a last-minute hiccup which threatened to derail the whole process, Turkey began formal accession negotiations with the EU at a summit in Luxembourg on June 12. Ankara was in no mood to celebrate as the spectre of troubles to come loomed over the gathering.



As expected, the issue of contention was regarding Cyprus. The Greek Cypriot government threatened to block the negotiations on science and technology, the first of the 35 chapters in the accession process. It claimed that Turkey had failed to live up to its obligation to open its ports and airports to traffic from Cyprus and recognise and normalise relations with the Greek Cypriot administration.



Even though Turkey agreed to extend its 1995 customs union with the EU to the bloc's 10 newest member states in July 2005 under the Ankara protocol, the Turkish government has continued to insist that this move was not equivalent to diplomatic recognition of the Greek Cypriot government. They further insisted that it did not obligate Turkey to open its ports and airports to Cypriot traffic. As Volkan Bozkir, Turkey's ambassador to the EU, explained, the issue is a political one, not simply a matter of implementing a trade agreement. "Unless political circumstances are altered, it will be difficult for any move on that particular field," he added.



After several hours of intense negotiations at the summit, members of the Cypriot delegation finally dropped their opposition. Their compliance came only after the other EU member states agreed to insert language into the chapter report reminding Turkey of its obligations towards Cyprus as a part of the accession process stating "failure to implement its obligations in full will affect the overall progress in the negotiations". Having won a partial victory, Cypriot Foreign Minister George Iacovou described the whole affair as a "good, loud and clear warning shot".



Commenting on the situation, Foreign Ministry spokesperson Namik Tan said that Turkey is "determined to move forward during our EU process through mutual compromises and in the necessary tempo in the upcoming period". He went on to add that, "it is meaningless to link the whole process to the Cyprus issue".



With one chapter down and 34 more to go in the accession process, this political drama may well become something of a reoccurrence for both Turkish and EU negotiators. As Austrian Foreign Minister Ursula Plassnik, whose country currently holds the rotating EU presidency, noted at the end of the summit, "We've made a start. It's the first step along a path where every step will have to be approved by every EU member."



Turkey faces the risk of delaying or derailing negotiations with the EU if it does not normalise relations with the Greek Cypriot administration by the end-of-year deadline.



Meanwhile, the country faces another, even closer hurdle: the annual compliance review for its customs union agreement with the EU, due in the autumn. Unless Turkey moves to open its ports and markets to Cyprus before then, it may fail the review.



However, Turkey will continue to hold out, demanding that the EU must first take steps to end the isolation of the Turkish Republic of Northern Cyprus (TRNC) by allowing direct trade between the EU and the TRNC. But for Greek Cypriots trade ties would equate to diplomatic recognition of the TRNC, something they refuse to accept.



Many political analysts believe that the Greek Cypriot administration is trying to use the negotiations to shift talks on the island's final status from the UN, where a middle of the road compromise would be inevitable, to the EU, where it can extract greater concessions by wielding its veto power over Turkey's membership bid.



However, this is not to say that the outlook appears entirely bleak. There have in fact been recent signs of progress. The EU finally authorised 139m euros ($166m) in aid for the TRNC last month, a move that had been blocked by the Greek Cypriot government since it joined the bloc in 2004. This step may signal a gradually loosening of the rigid positions adopted by both sides in this politically-charged dispute.



Regardless, with the steep depreciation of the Turkish lira and the decline of the Istanbul Stock Exchange over the past two months, Turkey's economic hopes are pinned ever more tightly to the EU. Nearly two-thirds of shares on the bourse are now owned by foreign investors, many of whom are banking on the success of Turkey's EU bid, and any suspension of negotiations would likely undermine investor confidence and could have disastrous consequences for the economy.

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