The future of Cyprus: A troubled island story

The Economist

Its bail-out may keep Cyprus in the single currency, but at a high cost

DREAD was mixed with anger. Cypriots feared that deposits in the two largest banks, Bank of Cyprus and Laiki Bank, might be taxed or converted into worthless equity—and worried about the economic effects. The glum mood in the shops and cafés of Nicosia was little improved when the terms of their country’s €10 billion ($13 billion) bail-out emerged on March 25th. The deal will close Laiki Bank, restructure Bank of Cyprus and impose big losses in both institutions on deposits above €100,000.

Many anxious Cypriots queued patiently to draw cash out of ATMs. Others protested angrily in the streets, waved Russian flags and talked about leaving the euro. They had hoped that joining the European Union (in 2004) and the euro (in 2008) meant solidarity from their fellows. The troubles of the two banks were caused, some believe, by a decision to buy Greek government bonds that were then restructured. They feel they are being punished by the EU for no fault of their own.

Victimhood is hardly new in Cyprus: the island’s troubles are routinely blamed on outsiders like Turkey, Greece, Britain or (now) Russia. What stuck in the craw was being told that the Cypriot business model had to change. Not all agree: speaking at a conference organised by The Economist in Nicosia on March 22nd, Chris Pissarides, a Nobel-prize-winning economist, argued that relying on business services and tourism in an economy with no manufacturing tradition was quite sensible.

Turkey ready to negotiate two-state solution for Cyprus: Turkish FM

Turkey is ready to negotiate a two-state solution to the Cyprus problem, if reunification talks between two sides fail and no agreement is reached over the establishment of a joint commission on gas resources on the island, Foreign Minister Ahmet Davutoğlu has said.

Davutoğlu criticized the Greek Cypriot plan to use oil and gas exploration rights around the eastern Mediterranean island as collateral for an international bailout package that it desperately needs to protect its economy from going bankrupt. “As Turkey, we want negotiations to start between both sides on the island and between Turkey and Greece, and we want a result, eventually. But Greek Cyprus unilaterally enacted a law that ignores the rights of Turkish Cypriots over the resources around Cyprus,” daily Habertürk quoted Davutoğlu as saying.

“We have three paths ahead … The U.N. mission should be accelerated and the sides should talk on a comprehensive solution and the resources should belong to a united Cyprus. A new state, which Turks are a part of, should be able to use them,” he added.

Turkey gas move piles pressure on Cyprus

Daniel Dombey       The Financial Times
 
Turkey is seeking to ratchet up the pressure on Cyprus as the island battles with financial crisis by taking action against energy groups that collaborate with the Cypriot government over offshore gas.

Taner Yildiz, Turkish energy minister, announced on Wednesday that Eni, the Italian energy giant, would be barred from current and future projects in Turkey if it proceeded with a licence it won in January to explore gas off the Cyprus coast.

Turkey which invaded the island in 1974 to forestall a union with Greece, has no diplomatic relations with the internationally recognised Greek Cypriot government in the south of the island.

“We have decided not to work with Eni in Turkey, including halting their current projects,” Mr Yildiz said. Eni, which has limited activity in Turkey, expressed its hope it could reach an agreement with Ankara “and return to our usual good relations”.

Turkey’s uncompromising move comes as Cyprus is seeking to capitalise on offshore natural gas deposits that could total 200bn cubic metres and looks for alternative sources of growth to its stricken banking sector.