Conference proceedings Economic Perspectives in Cyprus: The path towards reunification

Report – other

Mullen, Fiona (ed.) (2006) Conference proceedings Economic Perspectives in Cyprus: The path towards reunification. PRIO Cuprus Centre.

Executive summary

The fast pace of growth in the part of Cyprus north of the dividing line since 2002, the partial convergence of property prices and per capita incomes on both sides of the divide, and the current operating conditions for product and services markets raise important questions about economic policy management in the path towards reunification of the island. These issues were the subject of the 2nd Annual Conference of the Cyprus Centre of the International Peace Research Institute, Oslo (PRIO) held in cooperation with MFC S.Platis, at the Holiday Inn, Nicosia on 22nd November 2006. The conference was held under the auspices of the Finnish EU Presidency and was supported by the British High Commission, the Embassy of Sweden, the Embassy of Denmark and the Embassy of Switzerland, with Phileleftheros newspaper as media partner. Speakers included the Minister of Finance, Dr Michalis Sarris, economists and monetary policy experts and business representatives from both sides of the divide. The Conference Co-ordinator was Dr Tim Potier, Assistant Professor of International Law & Human Rights, Intercollege, Nicosia.

Delegates were also presented with the paper by S.Platis ECONOMIC RESEARCH, the economic research unit of MFC S.Platis, published in November 2006 by the PRIO Cyprus Centre: The Property Regime in a Cyprus Settlement: A reassessment of the solution proposed under the Annan Plan, given the performance of the property markets in Cyprus, 2003-2006.

Delegates discussed the recent performance of the economic and property markets on both sides of the divide and the conditions under which such growth could be sustained, both today and in a future reunified island. The pros and cons of a "unilateral" adoption of the euro in the north on the same day as in the south (1st January 2008) were also discussed, with the consensus view leaning towards the notion that switching to the euro would benefit Turkish Cypriots and help reunification. Delegates learned that economic growth north of the dividing line has averaged 10-11% in the past three years, compared with an average of just 3% in the south, and that both incomes and property prices are converging rapidly. It was argued that this rapid convergence would help to reduce the costs to Greek Cypriot taxpayers of reunification—something which was a big issues in the run-up to the referenda on the UN-backed "Annan Plan" in 2004. However, it was also stressed that convergence seems to be happening through the obvious development of two different institutional infrastructures, that are drifting apart, and may be difficult to reconcile under a solution. The Minister of Finance expressed optimism about the economy's ability to manage reunification from a fiscal point of view, though noted that outside help would be needed.

It was also argued that primarily as a result of the European Court of Justice decision in 1994, the economy in the north has shifted from being an open market economy primarily trading with European countries to a more closed economy that still depends very heavily on public spending to grow and depends on Turkey to fund the very large budget deficit (30% of GDP) and debt (more than 100% of GDP). Green Line trade also faces a range of obstacles, the most serious being on the issue of VAT, where the European Commission has sole jurisdiction and has so far not been willing to consider Cyprus as a special case.

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