Paying for property compensation
The Cyprus problem negotiations are deep into the issue of property. This is one of the most complex issues of the negotiations for a number of reasons.
First, it is highly emotive, as it reignites memories of conflict and displacement for both communities. According to (sometimes conflicting) official sources, between 142,000 and 180,000 Greek Cypriots and 42,000 Turkish Cypriots were displaced in 1974. Around 25,000 Turkish Cypriots, 200 Greek Cypriots and 500 Armenians were displaced in 1963-64 and another 20,000 Greek Cypriots after 1974.
Second, there are the legal aspects. The European Court of Human Rights (ECHR), through the Loizidou case, has established the continuing ownership of those dispossessed. However, in the more recent Demopoulos judgment that upset many Greek Cypriots, it also put a dent in the notion that owning the property translates into a “blanket policy of restoring property to owners without taking into account the current use or occupation of the property in question”.
Third, and most tricky in practical terms, it involves economic and social challenges. If all Greek Cypriots who were displaced in 1974 moved back with their offspring to their original homes, what would you do with all the Turkish Cypriots and others displaced as a result of this? Do you send them back to Paphos? And if you do, are their homes still standing? What happens to their current jobs, their schooling and so on? Even in an Annan-style scenario with full reinstatement in territorial adjustment areas and partial reinstatement in the Turkish Cypriot constituent state, the housing need created could be very large. The UN estimated in 2003 that about 67,000 people would be dislocated through territorial adjustment and reinstatement. That’s just under one-third of the entire population at the time.
Are there enough places to house them? And what if the reinstated Greek Cypriots do not actually move in? Do we spend EUR 2 bln building 22,000 new homes for displaced Turkish Cypriots or do we incentivise reinstated Greek
Cypriots to rent or lease to them?
At the other extreme, if no Greek Cypriots get their property back, who will pay for the compensation? According to research by the University of Cyprus, Greek Cypriot privately held and Church property in the north was worth EUR 68 bln in 2009-2011. One can argue with the methodology: it is based on applying inflation rates to decades-old data. Anyone who has worked with long timeseries knows that this is likely to produce large statistical discrepancies.
Another way of estimating the compensation value of the property in the north is extrapolating from the compensation paid by the Immovable Property Commission (IPC). The ECHR declared in the Loizidou just satisfaction ruling that the amount that would have been offered by the IPC constituted a “fair basis”, which suggests that it is happy with the methodology. However, it is common for Greek Cypriots to say that the IPC is not paying enough.
Yet even at IPC rates, the bill is big. The IPC has to date paid compensation of GBP 208 mln for 15,380,508 square metres or 1,538 hectares. That’s about GBP 135,000 per hectare. There are 188,000 hectares of Greek Cypriot property in the north, so that puts a “compensation value” of Greek Cypriot private property in the north at GBP 25 bln. At today’s exchange rates that is well over EUR 30 bln.
You can cut this by around one-third by swapping the 54,000 hectares of Turkish Cypriot land in the south with a similar amount on the north. Through territorial adjustment and/or reinstatement you might cut it by another third.
But that still leaves us with EUR 10 bln, which is half of all-island GDP. We need to be honest with ourselves and admit that no country is going to get this kind of funding past their parliaments.
Remember that EU leaders were unwilling to fork out less than EUR 8 bln to recapitalise the banking sector in 2013, and insisted instead on the infamous haircut on bank deposits. Even if poorer east European members were prepared to pour that kind of money into wealthier Cypriot pockets, it would be highly inflationary, leading to a massive loss of competitiveness.
If compensation is not going to bust the state, therefore, the Property Commission will have to find innovative ways of raising finance from all the affected property on its books, and compensation will have to be paid out slowly, over time, and in mainly non-cash forms.
That is as much a political challenge as an economic one.