The Price of Failure If talks on the reunification of the island do not end in agreement, Cyprus and Turkey will face massive financial and economic costs Interview by John Vickers
O
n 18 March this year, Cypriot President Demetris Christofias took part in his 100th meeting since April 2008 with the representative of the Turkish Cypriot community (currently Dervis Eroglu, previously Mehmet Ali Talat) in UN-sponsored talks aimed at reuniting the island. Since reaching that particular milestone the talks have continued and UN Secretary-General Ban Ki-moon is urging the two sides to push for an agreement by the autumn. The European Union would clearly like to see a united Cyprus taking over the EU presidency on 1 July 2012. Gold spoke to Alexander Downer, Special Adviser to the UN Secretary-General on Cyprus, about the economic cost of failure to reach an agreement and the opportunities that will arise in case of a successful conclusion to the negotiations.
Gold: You have said in the past that if the Cyprus talks fail, billions of euros will have to be paid by the Greek Cypriots and Turkey. What did you mean by this? Alexander Downer: The biggest single expense in the end is going to be compensation for the loss of property and Turkey will end up by getting a lot of the bills, though not just Turkey. So unless they can negotiate an agreement here, all of these claims will be litigated - that will itself cost money too - and the payouts could cost Turkey anything up to €25 billion while for the Turkish Cypriot properties in the south it could cost the Greek Cypriots anything up to €15 billion. There is a very real and a very heavy direct financial cost for failing to reach an agreement and I don’t think people always understand this.
Gold: Others say that if agreement is reached, the cost of compensation will be the same. In this sense, it could be argued that there is no financial gain attached to reaching an agreement. A.D.: It is true that reaching an agreement will, inter alia, involve compensation but with an agreement, other things can happen: some cases can be resolved though exchange; in some, compensation will have to be paid; and in others the owners of the properties will be able to have them reinstated. Regarding exchange, conceivably all of the Turkish Cypriot property in the south of the island could be exchanged for Greek Cypriot property in the north. If it were all exchanged - which isn’t necessarily what would happen, of course - the costs in terms of 28
compensation would be near to zero. In some cases, compensation will have to be paid, it’s true. It is also true that there is a cost to reinstatement. Don’t forget that 75% of the land in the north of Cyprus is owned by Greek Cypriots but if there is what we call a ‘current user’ on the property, that person will have to be rehoused so that the owner can have the property reinstated. But while there is no denying that there will be costs to any agreement, they will be a fraction of what will have to be paid without one. It is really important to understand that.
Cyprus has every imaginable advantage and a fantastic opportunity to become a regional financial centre Gold: How accurate are the sums you’re talking about? A.D.: They should be regarded merely as illustrative. The numbers need to be understood for what they are. If you made an estimate of the value of all this ‘disputed property’ and you allocated that estimate between the Greek Cypriots and the Turkish Cypriots, these (€25 billion and €15 billion respectively) are the sort of values you’d be talking about. At present they are all ‘back of the envelope’ numbers and the actual cost of an agreement would depend on the distribution between exchange and compensation. Without an agreement it might not end up costing Turkey as much as the estimated €25 billion because the Immovable Property Commission in the north would decide how much compensation has to be paid. My point is that with an agreement there can be a very big saving and the costs can be massively reduced. Money will still have to be raised. The Greek Cypriots say there should be a donors’ conference, somebody may put some money directly in and also money will have to be borrowed.
Gold: What do you say to those who argue that the cost of the reconstruction of Famagusta, for example, would be prohibitive? A.D.: It’s not a net cost but a gross cost. If you build an apartment block in Famagusta, you’re not going to use every single apartment for yourself. If you are the owner of an apartment block in Famagusta, presumably you will sell some of the apartments. People own all those buildings but they have degraded beyond
the international investment, business & finance magazine of cyprus
gold_28-31_inn.indd 28
8/31/11 12:00:49 PM