US consultants say economy in north will flourish despite restrictions

LEADING US-based global investment banking firm Bear Sterns, which recently sent a delegation to the north, has warned that the Cyprus
government’s strategy to wear down the Turkish side may ultimately fail as the Turkish Cypriot economy continues to flourish despite restrictions.
According to its report, resulting from a visit to the island earlier this month, Bear Sterns said Turkey had posted real GNP growth of 9.9 per cent in 2004, and that the growth of the Turkish Cypriot economy appeared to at least equal that.

The report said that the current breakneck pace of reform in the north of the island from a low base and restricted trade and travel would ultimately put a cap on development but “the natural, cultural and human resource base in the self-declared TRNC, suggests to us that the north of the island has very considerable long-term development prospects”.

“Arguably, the danger for the current Republic of Cyprus (ROC) government strategy is that its policy of grinding down the north may ultimately fail, as development of the north happens irrespective of trade/travel restrictions,” said the report. “Interestingly, as the self-declared TRNC further develops, this could lead to a situation where the population of the self-declared TRNC becomes less willing to agree to a peace deal even on the basis of the existing Annan plan.”

The Bear Sterns report did not predict any veto by Cyprus on the start of Turkey’s EU accession talks in October saying it would turn Cyprus into a pariah state within the EU.

“In using the veto on Turkish accession negotiations, the ROC would expend scarce political capital, which it might want to deploy on other more important issues further down the line – for example, perhaps with regard to any future negotiations over the settlement of the Cyprus issue,” the report said, adding that the Cyprus government knew well that Turkey’s accession would bring a huge peace dividend to Cyprus, with reduced spending on security and a likely boon to trade and tourism.

“From a slightly different perspective, and as even Greek Cypriot politicians conceded to us during our visit, the prospect of casting Turkey off from the EU accession process presents a vision of a much more uncertain security position in the region. Arguably, such a scenario would risk fuelling nationalist fires in Turkey and make its actions even less predictable. Such a scenario would arguably also set back, indefinitely, the prospects of a final settlement to the Cyprus issue.”

The report also said that President Tassos Papadopoulos had a clear interest in keeping Turkey at the negotiating table. “Indeed, Papadopoulos’ entire strategy in the post-Annan plan environment has likely been to run a ‘war of attrition’, or play a long game with Turkey over Cyprus. Papadopoulos’ strategy appears to be to wear the Turkish side down and, step by step, to extract concessions that may lead to what many believe is his vision of a settlement based on a single unitary state, the ‘European solution’. Failure to commence accession negotiations with Turkey, would limit his ability to extract concessions with regard to the Cyprus issue.”

According to the report at the least, Papadopoulos was likely to be pressed to resume UN-brokered talks, which themselves would likely require that Cyprus “played ball” on October 3.

“The problem for the UN is whether to concede the resumption of talks to Papadopoulos, when they are less than convinced that he is serious about building a deal around the existing Annan plan,” Bear Sterns said. “Accordingly, the concern is that ultimately, in any talks involving the Papadopoulos administration, the UN Annan framework could likely fail. President Papadopoulos appears intent on dragging the whole negotiating process out as long as possible.”

It said Papadopoulos appeared to have little desire to support any agreement that revolves around the current Annan plan and by rigorously enforcing trade restrictions on the north “he aims to further this mission” to wear down the Turkish side and the international community.

“The key point, though, is that Turkish Cypriots are not going to wait indefinitely for the Greek Cypriot side to come around to an agreement on the Annan plan. They are considering other options. One obvious question in such a scenario (i.e. formal partition driven by the Turkish Cypriot side) would be how this would impact on the ROC’s stance with respect to Turkey’s EU accession. This is more difficult to predict. In the long term, we assume that the ROC would still want a stable Turkey in the EU, but in the short term it would likely create tensions and stall EU accession negotiations,” the report concluded.