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How to fund the Cyprus settlement?

18 September 2015

UN Secretary-General’s Special Advisor Espen Barth Eide has been tasked with securing funding for a Cyprus settlement. On Tuesday he said that he would now focus on securing economic support for a settlement. While in New York, over the next few weeks, he would have many meetings aimed at “building willingness to help build that fund relatively quickly, because the more we succeed on that front I think some of the crucial issues will be easier to solve”, he said.

While it is generally agreed that a solution to the Cyprus problem would bring foreign investment to the island, there has been little detail given as to how a settlement would be funded. It could cost a few billion euros to compensate property owners, re-housing and costly infrastructure would be needed.

Prior to the last referendum in 2004, no detailed study had been made on the funding of a settlement, which gave munitions to the ‘no’ camp to dispense misinformation and create alarm about a settlement, over-inflating costs and forecasting a big fall in property values.

Before the 2004 referendum, the EU estimated Cyprus would need $2.4bn in aid over the following five years, the Turkish Cypriots estimated the amount required to be  $3.8bn while the Papadopoulos government’s calculations put the cost at $13.3bn. A donors’ conference held at the time raised less than a billion dollars.

South Cyprus government spokesman Nicos Christodoulides, said that the financing of the solution needed to be established before a referendum. The Greek Cypriots would need to know whether or not re-unification was financially viable before voting on it.

It is absolutely vital that this time the financial requirements for a settlement are properly calculated by experts. For instance, there should be a financial model developed for the property issue – at what real estate values would property owners be compensated, how and when would they be compensated (in cash, government bonds, with land?) and how would the project be funded? This is work for specialists and it should not be left to civil servants who have neither the experience nor the expertise.

There is also a major problem regarding the North’s public finances, which are as bad as those of the South before the EU assistance programme. The North also has a bloated public sector and receives a billion dollars in financial assistance from Turkey every year to make ends meet. Would the Greek Cypriot taxpayer have to fund the deficit, would Turkey carry on covering it or should the troika be invited to help the North put its public finances in order?

There are many more unanswered questions regarding the economic arrangements of a settlement and unless there are convincing answers for all of them, it might be difficult securing approval for a deal.

Cyprus Mail

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