PPaar­rt­ti­it­ti­ioonn wwoou­ulldd bbee wwoorrssee ffoorr tth­hee eec­coon­noom­myy tth­haann uun­ni­if­fi­ic­caat­ti­ioonn

Financial Mirror (Cyprus) - - FRONT PAGE -

With peo­ple start­ing to say that maybe par­ti­tion is the an­swer, it is worth com­par­ing par­ti­tion to re­uni­fi­ca­tion in terms of its im­pact on the econ­omy.

There are a num­ber of rea­sons why par­ti­tion would be a costlier ex­er­cise than re­uni­fi­ca­tion and worse for the econ­omy in gen­eral:

First and fore­most is the prop­erty is­sue, the cost of which would be con­sid­er­ably higher with­out a so­lu­tion than with one be­cause no one would get their prop­erty back.

Ac­cord­ing to the re­port to the UN Se­cu­rity Coun­cil in May 2004, the An­nan Plan would have al­lowed for “the re­turn of most dis­placed per­sons to their homes (in­clud­ing a majority, some 120,000, un­der Greek Cypriot ad­min­is­tra­tion)”.

As­sum­ing that the pro­vi­sions are sim­i­lar in any new plan, then this would au­to­mat­i­cally cut the com­pen­sa­tion bill.

Ac­cord­ing to my own cal­cu­la­tions, de­tails of which should be pub­lished by PRIO in the new year, a so­lu­tion of the Cyprus prob­lem that in­volved a mix­ture of ter­ri­to­rial adjustment, ex­change and re­in­state­ment could cut the com­pen­sa­tion bill by 80%.

With­out it the com­pen­sa­tion bill would be con­sid­er­ably big­ger than all-is­land GDP.

De­pend­ing on val­u­a­tions and so on, one might be able to cut the no-so­lu­tion com­pen­sa­tion bill by up to 30% by ex­chang­ing prop­erty with Turk­ish Cypriot land in the south. But it would still be con­sid­er­ably higher than the bill one could achieve with re­uni­fi­ca­tion.

More­over, in the case of a “vel­vet di­vorce”, one might ex­pect de­mands for com­pen­sa­tion to be higher than in the case of re­uni­fi­ca­tion, es­pe­cially if gas rev­enues are ex­pected to be used to com­pen­sate peo­ple.

Ex­pected gov­ern­ment tax rev­enues from gas are nowhere near what Greek Cypri­ots think their prop­erty is worth.

With a vel­vet di­vorce there would be fewer in­cen­tives for Greek Cypri­ots and Turk­ish Cypri­ots to work to­gether to do business with Turkey.

So, while business with Turkey would still open up for Greek Cypri­ots, with­out the help of Turk­ish Cypri­ots who know the lan­guage, the op­por­tu­ni­ties are likely to be fewer.

Just as im­por­tantly, a vel­vet di­vorce will cre­ate fewer op­por­tu­ni­ties for for­eign in­vestors. In­vest­ing on an is­land with one set of business rules is far more at­trac­tive than deal­ing with two dif­fer­ent regimes.

Par­ti­tion would make it less likely that the two sides of the is­land would work to­gether to im­prove economies of scale. This is par­tic­u­larly im­por­tant be­cause both sides of the is­lands suf­fer from com­pet­i­tive­ness prob­lems, which ham­per growth prospects and keep un­em­ploy­ment high.

One area in which this prob­lem is most crit­i­cal is en­ergy, with high elec­tric­ity costs on both sides.

But with par­ti­tion, we are more likely to have two sep­a­rate elec­tric­ity providers, with low economies of scale and high prices keep­ing com­pet­i­tive­ness low.

If Cyprus re­uni­fied, then it can mar­ket it­self as the peace cen­tre of the re­gion, with all the ac­com­pa­ny­ing con­fer­ences, sem­i­nars and ed­u­ca­tion cen­tres and tourism rev­enues that go with it.

It is also more likely to at­tract some re­wards in terms of EU funds.

One can­not imag­ine coun­tries like Spain sup­port­ing any re­ward for de­cid­ing on par­ti­tion. EU mem­bers are likely to be far more gen­er­ous to a coun­try that can stick it­self back to­gether again than one which de­cided to split, even if peace­fully.

In sum, while all so­lu­tions carry eco­nomic risks that need to be ad­dressed, par­ti­tion is a costly ex­er­cise with few of the spin-off ef­fects that would come from re­uni­fy­ing the is­land.

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