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FINANCIAL TIMES-WORLD REPORT:CYPRUS, OCTOBER 9, 2002
2002-10-09 23:03:41

Overview: Pushing hard for EU membership
By Kerin Hope
Published: October 9 2002

Drive past a checkpoint flying the blue-and-white United Nations flag and a huddle of single-story buildings, and you come to the former passenger terminal at what until 1974 was Nicosia's international airport. This is where Alvaro de Soto, the UN special envoy, has been holding twice-weekly talks since January with the Greek and Turkish Cypriot leaders.

The aim is to reach agreement at least on the basic outlines of a peace settlement before the European Union summit on December 13-14, when the EU leaders are expected to approve the accession of 10 new member-states - among them, Cyprus.

But time is running short. Glafcos Clerides, the island's only internationally recognised president, and Rauf Denktash, head of a self- declared republic in the north, recognised only by Turkey, have already missed a June deadline. After heart surgery in the US, Mr Denktash will be out of action for several weeks.

Greek Cypriot officials say Mr Denktash has refused to come up with specific proposals on the critical issues of how much territory to hand back, or on the constitutional arrangements of a reunified Cyprus and the measures required to ensure security for both communities.
Yannakis Cassoulides, the foreign minister, says: "Mr Denktash takes a theoretical approach to the talks. He speaks at length about the past and he doesn't want to discuss the practicalities of a settlement."

Mr Denktash refuses to participate in the EU accession process and has left the Greek Cypriots to negotiate the acquis communautaire on behalf of both halves of the island. He has threatened that if Cyprus is accepted as an EU member, the north of the island will become part of Turkey.

However, Kofi Annan, the UN secretary general, says he is still hopeful of agreement on the core issues by December. That would give enough time to work out the details, and for each side to hold a separate referendum on the settlement, so that a re-united Cyprus could join the EU on January 1, 2004 alongside the other new member-states.

Diplomats in Nicosia say Cyprus will join the European Union in the first wave of enlargement, even without an agreement. "It's not fair that the Turks should exercise a veto on Cypriot membership," one says. But without a deal, only the Greek Cypriot south would participate, leaving the impoverished north in dire straits.

The south of the island would have few problems fitting into the Union. Its per capita income amounts to 83 per cent of the EU average, higher than Greece and Portugal - the poorest member-states - and strong potential for economic growth, especially in the service sector. While there have been delays with reforming shipping legislation and launching liberalisation of the telecoms sector, the government has achieved compliance with most EU directives ahead of schedule.

Concern remains, however, about the strength of financial supervision, given Cyprus's ambition to expand its role as a financial services centre in the eastern Mediterranean. The small and poorly regulated Nicosia stock exchange is still struggling to recover from the collapse of a bubble market two years ago. Commercial banks have sharply increased provisions for loans taken out by small investors to play the market.

The central bank has tightened regulations covering the activities of thousands of offshore companies registered on Cyprus. In line with EU requirements, the bank has become independent of the government. But it is headed by a politician from the governing political party and lacks a strong team of professional managers with international experience.

Popular opinion on both sides of the island is overwhelmingly in favour of EU membership. Several thousand Turkish Cypriots, anxious to secure the benefits of membership, have ignored Mr Denktash's warnings and quietly acquired the Republic of Cyprus passports to which they are still entitled.

With per capita income in the north only one-fifth that of the south and few job opportunities, there are plenty of incentives for young Turkish Cypriots to head for Europe.

Yet the politicians are far apart. For the Greek Cypriots, territory is a key issue. Mr Clerides has offered to make concessions on security and constitutional issues with the aim of persuading Mr Denktash to hand over about 12 per cent of the 37 per cent of the island's territory under his control as part of a settlement. Apart from Famagusta, once the island's biggest commercial port, this would include the citrus-growing district of Morphou, formerly the richest agricultural district.

The Greek Cypriots may be resigned to losing the northern port of Kyrenia, the island's most attractive town. But unless he can offer the former residents of Morphou the opportunity of returning to their homes, Mr Clerides may have difficulty winning support for a settlement in a referendum.

With an eye to the future development of tourism, the island's largest industry, the Greeks also insist they should have control of a bigger percentage of the coastline.

A settlement would provide for Cyprus to be de-militarised - although the two British military bases on the island would remain - with a force of UN peacekeepers left in place to help ease friction as the Greek and Turkish Cypriot communities adjust to re-unification.

Mr Clerides has offered to make available funds equivalent to the defence budget, estimated at about $200m yearly, to help upgrade infrastructure in the north. The Turkish Cypriots would also be eligible for ?278m in grants from the European Union in the first three years of membership to help bridge the income gap between north and south.

However, security remains the overriding concern of the Turkish Cypriots, who still recall how they were forced to live in ghetto-like conditions in villages without adequate communications or water supplies, after the Greek Cypriots unilaterally unpicked the power-sharing agreement established when Cyprus became independent from Britain in 1960.

The two communities have lived in complete isolation from each other since 1974 when Turkey staged a military intervention in response to an Athens-inspired coup aimed at uniting Cyprus with Greece.

Mr Denktash insists that a new, equal partnership between the two communities is needed to ensure they can live together peacefully. To this end, he wants the Greek Cypriots to recognise, if only briefly, his state in the north before signing up to a deal - a demand that Mr Clerides firmly rejects.

Mr de Soto plans to present the leaders next month with a draft settlement that contains detailed proposals on territory and security arrangements, as well as a blueprint for the central government of a new federal Cyprus.

Meanwhile, the UN is still optimistic about finding a form of words on the issue of recognition that would allow Mr Clerides and Mr Denktash to sign off on a deal before the EU summit.

It will be up to the new Turkish government that emerges from the November 3 election to exert pressure if Mr Denktash proves reluctant to accept a deal. But if, as expected, the Turkish election fails to produce a clear winner, talks on forming a coalition government may take several weeks.

"The timing may be a real squeeze. There could be only a few days between the new Turkish government taking office and the enlargement decision at the Copenhagen summit," says a European diplomat.

Whatever the outcome, the Greek Cypriots know they cannot afford to relax their efforts for a solution. Pressure will mount as the January 1, 2004 accession date approaches.

Mr Cassoulides says: "We have a window of opportunity to get a settlement. But if it doesn't happen in December, we are prepared to keep talking until it does."

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