Cyprus will be on the world agenda this year. Turkey, as ever, will maintain a considerable influence on any reunification negotiations.
Hopes of reunification increased in November when Nicos Anastasiades, president of the Republic of Cyprus, and Mustafa Akinci, leader of the Turkish-Cypriot community and president of Northern Cyprus, met in Switzerland to discuss territory adjustments and security issues.
The two leaders came close to a settlement, the closest any had come since the rejection of the United Nations’ Annan Plan. But, as before, observers underestimated the formidable influence of Ankara.
Following the November meeting another, held in Geneva, took place in early January. These discussions began positively, though well-known and long-held divergent positions meant that both sides toned down expectations.
The false optimism regarding the prospects of reunification is based on a misconception: that the Turkish-Cypriot side, residing in the occupied part of the island since the 1974 Turkish invasion, is able to negotiate on its own, without following whatever position Ankara seeks to advocate. This is wishful thinking. When Turkey appeared adamant in maintaining its security role in whatever deal was achieved, the January talks reached an impasse.
Negotiations are likely to continue this year. Economically, reunification would have an enormous and lasting impact on the island. The occupied part of the island stands to benefit the most. Northern Cyprus is completely dependent on Turkey, the only country to recognise the state, for both subsidies and trade.
With the Republic of Cyprus developing its strength in financial and computer services, the increase in foreign direct investment will help to improve GDP growth. Tourist arrivals exceeded 3m in 2016, and that number could easily double if Cyprus reunified. The quarter of Varosha, occupied by the Turkish Armed Forces since 1974, in the city of Famagusta on the eastern coast of the island was a top tourism destination prior to the invasion.
The maritime industry is another sector which would benefit significantly from an agreement. Ships under a Cyprus flag are not allowed to enter Turkish ports. In the case of reunification, this embargo would be lifted, opening huge prospects for shipping. With Cyprus ranking in the top three countries in the European Union and 10th worldwide in terms of size of fleet even under the embargo, the possibilities for growth would be tremendous following reunification.
Cyprus, which grew at close to 3% in 2016, will likewise be able to take advantage of heightened opportunities for its professional services sectors. These will be able to provide accounting, banking, legal and fiduciary services to Turkey, the largest and fastest growing regional market. John Hourican, the chief executive of the Bank of Cyprus, has remarked in the past that ‘the dividend for the banking system for supporting a recovered unification will be substantial’.
Most importantly, the prospects of the nascent oil and gas industry on the island will be even brighter in the case of reunification. Newly-discovered gas deposits in the exclusive economic zone of Cyprus will benefit from a pipeline leading to Turkey and, from there, the EU.
Politically, reunification will improve stability in region, further raising Cyprus’ high standing among its neighbours and setting a precedent on how disputes can be resolved. Reunification will also be beneficial for Cyprus’ peers, as it will further extend the EU’s reach in the Eastern Mediterranean.
Regardless of how significant the political and economic benefits would be, producing a sustainable solution has been and always will be the first priority when reaching an agreement. A reunification deal which goes bad shortly after its signing will be worse than no deal at all, as it would probably sever ties permanently. This is the time for Turkey to determine whether it really wants to negotiate, or leave the talks at a stalemate.
Nektarios Michail is Head of Macroeconomic Research at Cyprus-based Economic Policy Advisers.