A taste of history
The island of Cyprus has changed hands many times in history due to its strategic location in the Mediterranean, having been occupied by the Egyptians, the Roman Empire and ancient Greece under Alexander the Great.
The ties between Cyprus and Turkey are ancient as well, the island falling under Ottoman rule in 1570. Uprisings took place in the 19th century, although none were successful.
In the aftermath of the Russian-Turkish war (1877-‘78), which Turkey lost, Cyprus was leased to the British Empire, although it remained de jure Ottoman territory. The island attained independence in 1960, with the UK retaining two military bases.
On 15 July 1974, the Greek military junta in Cyprus carried out a coup d’état to unite the island with Greece. In response, on 20 July the Turkish army invaded the island.
Despite repeated efforts under the auspices of the UN to bring the leaders of the Greek and Turkish Cypriot communities to the negotiating table, the island has remained divided, its northern part remaining under Turkish control.
Hopes were raised in 2002 when UN Secretary-General Kofi Annan presented a reunification plan, suggesting a two-part federation with a rotating presidency.
In April 2004, on the eve of the Cyprus EU accession, the Greek Cypriots rejected – and the Turkish Cypriots approved by referendum – a UN-sponsored unity plan known as the Annan Plan. The plan's failure disappointed EU officials, who had agreed to allow Cyprus to join the EU that year partly in the hope that doing so would encourage a solution to the dispute.
On 1 May 2004, the Republic of Cyprus became a member of the EU.
At their December 2004 summit, EU leaders agreed to open accession talks with Turkey on 3 October 2005. One of the conditions specified was for Ankara to extend a 1963 association agreement with the EU's predecessor, the European Economic Community, to the Union's 10 new member states (EU-10). This group includes the Republic of Cyprus, which is not recognised by Turkey.
In July 2005, Turkey signed the so-called Ankara protocol, extending its customs union to the EU-10 states, but at the same time it issued a declaration saying that its signature did not mean it had recognised the Republic of Cyprus. Turkey also refused to open its ports and airports to Cyprus, as it claims the EU has fallen short of a commitment to trade directly with the unrecognised northern part of the island.
Reunification talks are discretely ongoing between the president of the Republic of Cyprus Demetris Christofias and the leader of the Turkish Cyprus community Derviş Eroğlu, under the watch of Alexander Downer, the UN's special advisor on Cyprus and a former Australian foreign minister.
However, since the hard-line Eroğlu took over from Mehmet Ali Talat in 2010, the talks made no significant progress. In April 2012, UN Secretary-General Ban Ki-moon said progress in the talks was insufficient to call an international conference. The statement appeared to put an end to hopes that Cyprus' upcoming EU presidency could be a catalyst for the resolution of the Cyprus problem.
Turkey’s accession talks are largely paralysed because of the Cyprus issue. So far, only one accession chapter (on science and research) has been provisionally closed. Eleven more have been opened, but eight remain blocked over Turkey's failure to implement the 2005 Ankara protocol.
Bad economy, good prospects?
In the recent period, Cyprus suffered both from the eurozone crisis and its exposure to Greece, as well from a major blast that destroyed the island's largest power station on 11 July 2011. The country’s credit rating has been successively downgraded - Moody’s downgraded the country’s debt on 13 June 2012 to Ba3 from Ba1, pushing Cyprus further into junk territory.
The recent Commission “in-depth reviews” of the EU members’ economies singled out Cyprus as one of the problem countries. Among the recommendations made to Nicosia are measures to keep tight control over expenditures and fighting tax evasion.
Cyprus is expected to seek and obtain a €6 billion-bailout from Russia. This would not be the first time that the island country turned to Moscow – last year Russia gave Nicosia a €2.5 billion loan. At that time, the authorities said there were no political strings attached. Asked to comment on the possible new Russian loan, the European Commission said the EU countries had the right to seek financing on the world market.
But cash-strapped Cyprus may be sitting on a mountain of gold. Large gas fields have been identified in its territorial waters and, in September 2011, President Christofias announced that a US firm, Noble Energy, would begin exploratory drilling to confirm deposits beneath the sea bed off Cyprus' southern coast.
The Cypriot press reported that the drilling rig took place in the Republic of Cyprus' Exclusive Economic Zone, under the watchful eye of Turkey's naval and air forces. Turkish EU Minister Egemen Bağış said if the EU thought it could reach these sources in disputed waters bypassing Turkey, it was “mistaken”.
Turkish news media reported that there was a massive natural gas reserve of 3 trillion cubic meters in the region. This could put Cyprus very high in the world list of countries with important gas reserves. The total proven gas reserves for the European Union is of 2 trillion cubic meters.
Noble Energy was planning to start drilling in the second half of this year. Gas is not expected to generate economic benefits before 2018, given that storage and condensing facilities still need to be established in the Republic of Cyprus.
Modest, but ‘relevant’ agenda
Regarding the diplomatic "style" of the Cyprus presidency, officials said they would provide leadership to the Union but “not in the traditional way”.
Nicosia has already sent some 200 diplomats and civil servants to Brussels to prepare for the presidency, shifting the bulk of the country’s administrative resources to Belgium. Diplomats called this a “Brussels-based presidency” – a novelty.
The distance to Brussels appears to have weighed heavily in the decision as Nicosia is the EU capital which is the most distant from the Belgian city.
As a small country of barely 1 million people, Cyprus aims to act as an “honest broker” in the Union. Precisely because of the country's small size and difficult diplomatic situation, Nicosia wants to keep its presidency agenda modest, but also "relevant".
According to Cypriot diplomats, Nicosia prefers the term "relevant" to "strong" or "stronger", which they see as too controversial. This is why the motto of the Cyprus presidency is: “Better Europe”, one that is more relevant to its citizens and the world. Worldwide, Cyprus plans to promote Europe as a “filoxenos topos”, a hospitable place.
Stemming from its modest ambitions, Cyprus wants to concentrate on a limited set of priorities. The biggest one will be to make progress on the Multiannual Financial Framework (MFF) – the EU's long-term budget for the period 2014-2020.
But while the MFF tops the priority list, Nicosia understands that such a major issue will be handled primarily by European Council President Herman Van Rompuy. Under a national perspective, Cyprus attaches special importance to the Common agricultural and fisheries policy, as well as Cohesion policy and Research and Innovation policy.
Cyprus admits that it would not be realistic to expect a final agreement on the MFF during its term, but at least a “political agreement”, leaving the final work for the Irish EU presidency in January 2013. A “negotiating box” on future MFF talks is been prepared by the Danish presidency and at the EU summit 28-29 June it was decided that an agreement on MFF should be reached by the end of 2012.
MFF will be on the agenda of the General Affairs Council on 24 July, Deputy Minister Andreas Mavroyannis said on June 2. Then, at the end of August, an informal gathering in Cyprus of the European affairs ministers would be entirely devoted to discussing the long-term budget, also including a session with the negotiating team of the European Parliament.
"We want this to be a moment of truth, when we are going to compare positions and try to come closer a deal," he told reporters as Cyprus took over the presidency.
Then, in September, for the first time, the Cyprus presidency may “try to test some figures”. The Danish presidency had the same ambition, but it proved “not possible” from such an early stage, the diplomat explained.
The aim, Mavroyannis said, is to have before the EU summit on 18-19 October the main elements to move forward, those being a political understanding amongst member countries and “at least” an implicit understanding with the European Parliament “on how, when and what”.
This implies not only the expenditure side, but also the revenue side, the so-called “own resources”. Partly problematic is the decision-making process, which could prove tricky on the revenue side, as ratification by member states could be required if new resources are added - such as a financial transaction tax (FTT).
Countries’ positions on this topic were “very entrenched”, the diplomat said, adding that “own resources don’t need to be essentially an FTT”.
Budget talks require extraordinary summit
European Ministers of Foreign Affairs met in the Cypriot capital Nicosia on August 30 to hold informal talks with leading lawmakers in order to smooth the decision process with the European Parliament, which is co-legislator on budgetary matters.
Also present were European Commission Vice-President Maroš Šefčovič, responsible for inter-institutional relations, and Commissioner Janusz Lewandowski, in charge of financial programming and budget at the EU executive.
“This is a watershed moment for the negotiations,” said Andreas D. Mavroyiannis, the Cypriot deputy minister for EU Affairs who chaired the meeting.
Mavroyiannis reported on the bilateral consultations which Cyprus has held with the remaining 26 EU members and Croatia, which is expected to join on 1 July 2013, collecting their “wish lists” for the next long-term budget, called Multiannual Financial Framework (MFF) in EU jargon.
On 3 September, President of the European Council Herman van Rompuy announced a special summit on 22-23 November which will focus on the European Union budget for 2014-2020.
That summit ended without a firm agreement, which meant that the MFF negotiations had to carry over into 2013.
Another big priority is the Commission's proposal for an Integrated Maritime Policy, which the EU executive hopes to revive during the Cyprus EU presidency. As Nicosia sees it, a coherent approach could help, for example, off-shore wind farms to co-exist with shipping, which in turn could affect ports. A high-level conference on maritime policy is planned in Cyprus in October, with the participation of Commission President José Manuel Barroso, who is a big supporter of the project.
Cyprus is also keen to deliver on the EU common asylum policy, which the Commission hopes to close before 2013. Cyprus, itself affected by migration flows from Africa, is concerned by the stand-off between the European Parliament and Council over the rules governing the EU's border-free Schengen area, which member states want to re-write unilaterally.
On foreign relations, Cyprus attaches special importance to the Southern Dimension of the European Neighbourhood policy, by promoting relations in its Mediterranean environment. According to Cyprus diplomats, the EU has been taken by surprise by the Arab Spring, because Brussels had no contacts with civil society groups in the region. Nicosia says it will support programmes involving civil society, promoting respect for human rights and protecting ethnic minorities.
On enlargement, Cyprus said it wanted to make progress on EU accession talks with the Western Balkans, Iceland, and also Turkey. A more European Turkey would be in the interest not only of Cyprus, it would be in the interest of the European Union, Cypriot diplomats said, adding that it would be in the interest of Turkey as well. But they added that for this to happen, Turkey “should play by the rules of the game”.
Plan B to spoil the party?
Relations with Turkey indeed appear to be the biggest challenge for Cyprus.
While Turkey has EU candidate status, it doesn’t recognise the government in Nicosia.
Turkish officials have stepped up the pressure on Nicosia ahead of its presidency, stating Ankara would boycott the Cyprus presidency, or freeze relations with the EU. It even warned that it could annex Northern Cyprus if no agreement was reached on the reunification talks.
Ankara's plan is to change the name of the Turkish Republic of Northern Cyprus and replace it with “Cyprus Turkish Republic”, Turkish media have reported. This would imply the same degree of statehood to both parts of the divided island. Reportedly, passports on the northern part of the island will be replaced with a new mention of nationality: “Cypriot Turk”.
An unnamed Turkish official quoted by the Turkish daily Milliyet said ‘Plan B’ would take effect after 1 July.
On a visit to both sides of the divided island on 19 June, EU Commissioner for enlargement Štefan Füle spoke in strong terms, warning of the “worrying situation in the settlement process and the upcoming Cypriot presidency of the Council of the European Union.”
In what can be seen as a message that reunification talks should not take a break during the six months of the Cypriot presidency, Füle said that “the worst thing to happen would be to stop talking to each other”.
In what can be seen as an attempt to keep Turkey interested in the EU process, the European Commission signalled that it could finally give the green light to visa liberalisation with Turkey. According to the liberalisation process, journalists, businesspeople, artists and athletes would get multiple visas valid for 2 to 5 years.