Cypriot election: The political problem and the financial crisis

  
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Cyprus' economic adjustment programme and banking sector reforms should be seen as a catalyst that will reinforce macroeconomic and financial stability in the country. Over the longer term, the exploitation of natural gas discoveries should substantially boost growth prospects and help lower debt, writes Stavros Papagianneas.

Stavros Papagianneas is senior communications consultant at STP Communications.

"Cypriot presidential candidate Nicos Anastasiades will reach out to the EU heads of state and government and opposition leaders of the European People's Party (EPP) for solidarity regarding the division of Cyprus and the financial crisis during an extraordinary EPP Summit in Limassol on Friday 11 January.

Anastasiades, who convened the meeting, said that the summit is taking place at a particularly crucial time both for the EU and Cyprus. The meeting will include discussions on the EU multi-annual financial framework for 2014-2020 and the preparations for the 2014 European elections.

Anastasiades, of the Christian-Democratic party DISY, leads state broadcaster CYBC's latest poll on the 17 February presidential election with 37.1%, compared to the Communist party (AKEL) candidate Stavros Malas at 23.1% and the Socialist (EDEK) party-backed George Lillikas at 20.4%.

If no candidate obtains 50% of the vote from the first round, a second round would follow on 24 February. In a second round between Anastasiades and Malas, 43.7% will vote Anastasiades and 29.6% Malas.

A second round between Anastasiades and Lillikas reveals the following results: Anastasiades gets 39.6%, Lillikas 31.6%.

The DISY leader was one the most fervent supporters of the Annan Plan for Cyprus, the UN proposal to resolve the Cyprus dispute with Turkey back in 2004, even though a large majority of his party voted it down.

On his official website, he underlines his support for Cyprus to accede to the NATO’s Partnership for Peace, a programme of bilateral and security cooperation between individual countries and NATO.

In February 2011, the Cyrpriot House of Representatives voted to join the Partnership for Peace, the final step for Cyprus to join NATO. Anastasiades warmly supported the resolution, in hopes of giving Cyprus a bigger role in EU-NATO co-operation, thus boosting efforts to reunify the island.

However, current president of the Republic of Cyprus, ​Demetris Christofias vetoed it, stating that such membership was not in line with his vow to achieve a peace deal with Turkish Cypriots.

Nevertheless, Turkey, a full member of NATO, is likely to veto any attempt by Cyprus to engage with NATO. Ankara prevents high-level formal meetings between NATO and EU’s Political and Security Committee (PSC) by stating that Cyprus does not have any security clearance from NATO.

Because each NATO member has a veto, Turkey can stop discussions between NATO and the EU over military operations and intelligence issues.

Ankara is systematically vetoing Cypriot membership in international organisations like for example: the Organisation for Economic Co-operation and Development (OECD); the Organisation of the Black Sea Economic Cooperation (BSEC); the European Centre for Medium–Range Weather Forecasts (ECMWF); the European Organisation for the Exploitation of Meteorological Satellites (EUMETSAT); the International Transport Forum (ITF).

Before his election, Christofias said he would be a one-term president, unless a solution to the island’s decades-old conflict was in sight. Fresh reunification talks between the two sides were launched after his election in 2008, but have failed to break the impasse in place for decades.

His proposals for a federal state included the rotation of the presidency between the two communities on the island. In February 2010, the Socialist EDEK party withdrew from the coalition government, criticising the president for making unilateral concessions in reference to the proposed rotation.

The negotiations made slow progress over property rights and territorial limits, then stalled after the April 2010 elections in the northern occupied part of Cyprus, in which Dervis Eroglu of the pro-independence National Unity Party was elected.

During a meeting with Commission President José Manuel Barroso in June 2012, Anastasiades said that negotiations between Greek Cypriots and Turk Cypriots need to find a way out from the deadlock. The DISY leader noted that the negotiating process needs to be enlarged and include the EU and Turkey.

Anastasiades added that Ankara will then assume its responsibilities and contribute in a constructive way to a Cyprus solution.

Christofias, once the island’s most popular politician, announced that he will not be seeking re-election. He has seen his ratings plunge on the back of the worst recession in 40 years, and the bungled handling of Cyprus’s worst peace-time disaster when nearly 100 containers of confiscated Iranian explosives accidentally blew up the island’s largest power station at Mari in July 2011.

Some months later the results of an official investigation were released to the public, placing the blame for the incident mainly on Christofias, holding him “personally and institutionally responsible” for the blast that killed 13 people.

Christofias rejected the results of the investigation and denied any personal responsibility for the tragedy. The economic impact of the explosion was estimated at €2.4 billion, representing 13.8% of the Cyprus GDP, according to estimates by Credit Suisse.

After Nicosia's access to international capital markets was cut off because of high yields on its traded debt, the Cypriot president turned to Russia for help, resulting in a €2.5 billion loan from Moscow.

For the Russians, it was probably a way to stabilise a country with millions of euros in Russian bank deposits and real estate investments. For Christofias, it was a way to get funds and avoid having a Greek style bailout with Troika supervision. A second Cypriot request for a €5 billion loan from Russia has so far gone unanswered.

Nicosia sought financial aid from the European Commission, International Monetary Fund and European Central Bank in June 2012 after its banks were battered by their exposure to the Greek crisis and the destruction a year earlier of its most important power station.

In December, Nicosia and the Troika of lenders have agreed on the terms of a bailout estimated at around €17 billion. Up to €10 billion could be allocated for the recapitalisation of the banks, €6 billion for debt refinancing, and €1 billion to cover government spending.

Christofias defended his economic policy and blamed banks and the capitalist system for the global crisis.

In absolute terms, €17 billion is not so much compared to the bailouts for Greece, Portugal and Ireland. But in relation to Cyprus' economic output, it is a considerable amount, equal to its annual GDP.

However, the economic adjustment programme and banking sector reforms should be seen as a catalyst that will reinforce macroeconomic and financial stability in the country. Over the longer term, the exploitation of natural gas discoveries should substantially boost growth prospects and help lower debt.  

With the United States estimating the region holds about 122 trillion cubic feet of gas, Nicosia would be able to repay the Troika quite smoothly. Petroleum wealth could even change the political picture on the island in the years to come. In late January, Eurogroup finance ministers will present their position on the assistance request."

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