Analysis: At last EU has Cyprus leverage, but will it use it?

PARIS Mon Feb 4, 2013 1:54am EST

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PARIS (Reuters) - For the first time since Cyprus joined the European Union nearly a decade ago, its partners have financial leverage to press for a settlement of the island's almost 40-year division.

Yet there is no sign that Brussels is preparing to use its advantage to achieve a reunification that narrowly eluded negotiators when the Mediterranean island joined the EU in 2004.

Indeed the most powerful member states, Germany and France, may be content to see the frozen Cyprus conflict fester rather than deal with the potential consequences of a resolution that would bring Turkey closer to EU membership.

The Republic of Cyprus, run by the 800,000 Greek Cypriots, is broke. Heavily exposed to Greece's debt crisis and its own banks' misadventures, the government says it may run out of money in April without a European bailout.

Nicosia desperately needs around 17 billion euros from its euro zone partners, equivalent to a whole year's economic output. That amounts to 19,722 euros ($26,800) for every man, woman and child in the Greek Cypriot part of the island.

This ought to give Brussels a crowbar to pry the Greek Cypriots into cooperating with the Turkish Cypriots in the north of the island on a loose bi-zonal federation of the kind proposed by then U.N. Secretary-General Kofi Annan in 2004.

At the time, the Turkish Cypriots voted in favor of the Annan plan, encouraged by Turkey, which has about 30,000 troops in northern Cyprus, most of whom would have gone home by 2018.

Turkey invaded northern Cyprus in 1974 in response to a brief Greek-backed coup in Nicosia by Greek Cypriot hardliners seeking union with Athens. The island has been divided ever since.

Safe in the knowledge that they would be admitted to the EU even if they spurned the reunification blueprint, the Greek Cypriots rejected the Annan plan in a referendum a week before they entered the Union.

EU officials and especially Guenter Verheugen, the bloc's enlargement commissioner at the time, felt betrayed.

"The understanding was quite clear when we gave Turkey candidate status in 1999 and even clearer when we concluded negotiations with Cyprus in 2002: the Greek Cypriots would not allow the peace plan to fail, and if it failed due to the Turkish Cypriots, then Cyprus could join," Verheugen told Reuters in an interview.

"We came very close. The problem was that in the end, we didn't have any leverage over the Greek Cypriots any more since they knew they would join anyway," said Verheugen, now honorary professor of European governance at the Europe University in Frankfurt-an-der-Oder in Germany.

LOSERS

The big losers were the Turkish Cypriots, who remain economically isolated and excluded from the EU. The Greek Cypriots went on to use their membership to obstruct Turkey's accession negotiations with the 27-nation bloc at every twist.

At the time, Brussels released some money pledged to the Turkish Cypriots for economic development and promised to allow them to export their produce directly to the EU. But the Greek Cypriots blocked direct trade, while Turkey refused access for Greek Cypriot traffic to its ports and airports.

At the very least, the EU could use a financial rescue for Nicosia to try to secure direct trade access for the Turkish Cypriots that might prompt the Turks to lift the blockade.

The favorite to win a February 17 Cypriot presidential election, conservative Nicos Anastasiades, voted for the Annan plan. The United Nations is reviewing the state of play in the talks and U.N. special representative Alexander Downer is expected back on the island in March.

Yet some EU diplomats say it would be politically dangerous to apply diplomatic pressure by exploiting Cyprus's economic plight. Any linkage could backfire and benefit hardline nationalists on both sides, they warn.

Skeptics say it suits Berlin and Paris just fine to keep the Cyprus problem in long-term stalemate, because that prevents Turkey advancing towards the EU's door.

"Europe itself is divided on the Cyprus issue. There are several countries that have no interest whatsoever in solving the problem because Turkish accession would be moved forward," said a former mediator on the island, who spoke on condition of anonymity because he is still involved in diplomacy.

The United States used to be actively engaged in trying to settle the Cyprus dispute, which it saw as a potential flashpoint for instability in the eastern Mediterranean.

Former colonial power Britain retains sovereign bases on the island that are a vital listening post for the Middle East and were useful when the U.S. led invasions of Iraq and Afghanistan.

But U.S. interest in twisting arms seems to have waned since Cyprus found large amounts of natural gas beneath its waters and began working cooperatively with Israel, Washington's biggest regional ally, to tap the offshore wealth.

SEABED BONANZA

The seabed bonanza may eventually help Nicosia out of its bailout problems. One way of paying off rescue loans may be to borrow against future gas revenues due to start flowing in 2019.

At that point, any incentive to reach a settlement with the Turkish Cypriots may evaporate in a haze of gas. So if European countries want to wield some influence, it's now or never.

While Brussels may temporarily have more leverage over the Greek Cypriots, its sway over Turkey has shrunk, and the Turkish Cypriots elected hardliner Dervis Eroglu as president in 2010. He favors independence for the self-styled Turkish Republic of Northern Cyprus.

"Turkey is in no way as willing to compromise as it was in 2004," the former mediator said.

This is partly because few Turks believe the EU will ever admit their country, and hence two-thirds now oppose membership, but also because Ankara has been so economically successful in the last decade that it has much less need to join the bloc.

Deputy Prime Minister Ali Babacan says the EU accession process has helped Turkey to implement democratic and economic reforms and strengthen the rule of law, underpinning a decade-long economic boom in which GDP per capita has tripled.

"EU membership is a strategic target for us," Babacan told reporters in Davos, Switzerland. "We have been working for this target since 1959... It seems we are still going to take a long time to reach it, if it (ever) happens."

While the EU process had been very effective in drawing in investment, full membership "is less of a target for us now because some of things being done in the EU we don't agree with too much," Babacan said, citing what he called choking labor market regulation.

Cyprus, one of the smallest euro zone economies, applied for financial aid from the EU and the International Monetary Fund last June after its banks were badly hurt by an EU-sanctioned writedown of Greek debt held by private investors.

EU officials are demanding that Cyprus shrinks its banking sector, privatizes state companies and makes economic reforms as conditions for assistance. German lawmakers have raised concerns over alleged money laundering, which the Cypriot government hotly denies.

But so far no one has linked a bailout to a diplomatic settlement. Possibly the last chance of a Cyprus settlement may go begging for lack of European interest.

($1 = 0.7367 euros)

(Additional reporting by Michele Kambas in Nicosia; Writing by Paul Taylor; editing by David Stamp)

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Comments (5)
I think what your reporter fails to realize its that Greek Cypriots are more than ready for a solution but this has to be the right solution, not a apartheit style solution. Furthermore your reporter possibly does not know that one of the reasons Greek Cypriots ovewelmingly gave a no vote to the Annan plan is that only 24 hours before the referendum 10,000 pages of anexes of the Anan plan were released on the UN website. Its an insult to any human being to be expected to vote under such circumstances and an even bigger insult the suggestion that now its a golden opportunity to force us when we are in need.
What happened to EU solidarity? Why should any tax payer in Europe have to pay for the games and irresponsibility banks have displayed? Why should anyone have to be forced to sign off their future with a gun to their heads? Greek Cypriots are not subhumans and should not be treated so.

Feb 04, 2013 5:05pm EST  --  Report as abuse
AntonGemini wrote:
Paul, my mate. Though understandable why the US and GB want to help Turkey with her aspirations, it amazes me that someone can call themselves a reporter and write a one-sided and uneducated article like this.
First, did you ever think to yourself, how come the north voted overwhelmingly for the Annan plan and the south overwhelmingly against it? Did you think maybe to read the plan and see if maybe it was heavily unfavorable to the Greek side? That it was being shoved down their throats? That it was basically solidifying the division for nothing in return? Did you read the amendments GB and Turkey made to the plan before it was put up for referendum and ask yourself if anyone in their right mind would want it?
Among other things, GB added an amendment to the plan just a few days before the referendum, that gave GB ownership of the territorial waters of Cyprus. Yep. Crazy I know. But they did. You see, all this talk about natural gas and oil in the Cyprus waters? It’s been going on for a while. So GB thought, with everyone so eager to find a solution, why don’t we throw this in the last minute, you never know, these idiots may just sign away the rights to their waters to us.
And Turkey. Among other things, they added an amendment that would keep troops there for 15 years and allow all the Turkish settlers to stay for ever. Yep. And what about the refugees? Would anyone get to go back? Nope. Only a few villages got to go back. Would anyone get to get their property back? Some, and only if they lived under Turkish rule. Would anyone get to be compensated for their loss of property? Yes. In 1972 prices though, not today’s prices. And who got to reimburse the people for their lost properties, even in 1972 prices? The Cyprus government. So the tax payers, the people themselves would get to pay themselves back for their losses. Wonderful.
Let me ask you Paul, my mate. I presume you’re a Brit. If a third of your island was occupied and you lost your home and property and loved ones, would you be willing to sign a contract that made it all official for your occupier to keep what they occupy? For what? For the sake of saying you agreed to a solution? And would you also be willing to give up your island’s rights to its territorial waters?
How much would you be willing to give up?
Please go read the plan and its amendments, and do humanity a favor and come back and write an unbiased article.
But the worst part is the audacity with which you presume that EU can treat the Greek Cypriots like pawns, like they have no rights. To put a gun to their head and force them to sign everything away?
It’s because they had the wisdom and courage to vote NO to that plan that now they have access to their territorial waters and good prospects to be able to pay back their debt and hopefully have a better future.
I’m sure you grew up feeling entitled to all the colonies, but the truth mate, nothing was ever yours because you never had any right to any of them in the first place. And neither did Turkey. You need to let it go and respect the people of Cyprus and leave them be.
Cheers.

Feb 04, 2013 11:01pm EST  --  Report as abuse
yPapa wrote:
Typically pro-Turkish “analysis” – your analyst is most probably British, no? I would SERIOUSLY recommend that he actually BOTHERS (if it’s not too much of an inconvenience, of course) to actually read the so-called solution proposed by the Lord Hannay (aka Annan) Plan and ask himself whether he would accept such terms for himself. Here’s some of the nicest touches:
(1) Limited rights of return to your ancestral homes
(2) Total acceptance of War Crimes, such as the 300,000-odd illegal settlers brought to Cyprus by your friends the Turks;
(3) Having the Turkish Army “guaranteeing” our safety – MIA’s from 1974 with nice, round, bullet holes on the base of their skulls attest to the kind of ‘guarantees’ we can expect;
(4) Self-compensation for loss of property – that’s right: compensation to be handled by the “central” Cypriot government, financed to the tune of 90% by the greek Cypriots until “parity is reached between the economies of the two constituent states” with no measure of how this parity is measured – or how we are supposed the control the influx of even more Turkish settlers that will guarantee that parity is NEVER achieved;
(5) Apartheid-style segregation of the two communities, guaranteeing that no chance for developing a common basis for real peace will ever exist;
(6) Complete disarmament of Cypriots, so that the only arms in the area are essentially British, with Turkish arms only 60 miles from our coasts, thus making sure that then next time Turkey has a fit, we won’t be able to offer even token resistance. But then again, you analysts will probably blame us for standing in front of the bullets.
(7) Getting stuck with that last vestige of colonialism, the British Bases for all eternity;
(8) Ceding territorial waters and rights to our beloved protector, Britain, along with drilling rights to the continental shelf and the EEZ, right in the areas where the recent hydrocarbon discoveries were made (talk about a coincidence, huh?).
(9) Completely unworkable government making it impossible to have a functional state.

These are but a few of the clauses of this “wonderful” plan that we so evilly rejected.

So here’s a thought. If Britain agrees to apply the Annan plan as a solution to the current tensions it’s experiencing with the Scottish and Welsh minorities and if Turkey agrees to apply the Annan plan as a solution to the Kurdish problem, then the EU can pressure us all it wants to accept the Annan plan – or the similar but differently named plan that the UK and its buddies will be pushing in the next few months – as a solution for Cyprus. Sound fair?

Feb 05, 2013 5:12am EST  --  Report as abuse
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