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The Social and Economic Impact on North Cyprus of Accession to the European Union
Eastern Mediterranean University
Turkish Republic of Northern Cyprus
Thomas Diez (Ed.), The EU and the Cyprus: Modern Conflict, Postmodern
Union, Manchester University Press, early 2002, ISBN 0-7190-6079-6
You can contact the authors by email at firstname.lastname@example.org or
The Social and Economic Impact on North Cyprus of Accession to the European Union
By Fatma Güven-Lisaniler and Leopoldo Rodriguez*
Eastern Mediterranean University
The conflict between the Turkish and Greek communities of Cyprus can be traced back at least to the Greek Cypriot mobilization for enosis in the 1950s. Diverse solutions have been proposed over the years including double enosis, taksim (partition), and the 1960 Republic. Third parties have always been actively involved in the negotiation, implementation and, at times, imposition of solutions. The dispute has been so intractable that it qualifies in the literature of conflict resolution as a protracted conflict. (Mandell 1992, Farr) Since the Turkish intervention of 1974 the two main parties to the conflict have achieved a non-optimal static equilibrium position. The island has been divided in two territories; the South inhabited by Greek Cypriots and the North by Turkish Cypriots. Regardless of the legal status of these states, or their recognition by the international community, the fact is that both governments enjoy legitimacy in the eyes of their respective communities. Neither side considers the situation ideal, but as unhappy as they may be with particular aspects of the status quo; their governments have found conditions acceptable, or at least better, than the outcomes of possible compromises. A movement away from this non-optimal equilibrium would require a change in the benefits and costs accrued to the Greek and Turkish Cypriot communities.
The European Union (EU) has the opportunity to play a constructive role in the resolution of the Cyprus conflict. On July 4, 1990, the government of the Republic of Cyprus applied for membership in the European Union. Since then substantial legislative and economic reforms have been undertaken in South Cyprus to conform more closely to the requirements of the EU. There are clear indications that accession to full membership may be granted as soon as the year 2004. (EC 2000:1, HEC 1999) The government of North Cyprus has harshly criticized EU candidacy and the prospect of accession because the application was filed, and has been negotiated in its entirety, by the government of South Cyprus. However, the prospect of EU membership makes a resolution to the conflict attractive to some groups of Turkish Cypriots. Some argue that within the EU the human rights of Turkish Cypriots will be better protected than before, and that the economic benefits from accession will offset any losses resulting from a resolution. If the EU were able to reinforce these views and strengthen the position of those groups that sustain it, a resolution to the conflict in the near future would be more likely.
In this paper we set out to discuss the social and economic impact that accession to the EU would have on North Cyprus. We understand as social the institutions and practices that tie the Turkish Cypriot community together, understood in a broad sense to include issues of identity, the role of the state, immigration and emigration, and employment. We define as economic those variables related primarily with the wealth and income of the Turkish Cypriot community, including the impact on their productive capacity, prospects for foreign direct investment and the inflow of foreign aid and subsidies. We find it unavoidable to include a discussion of the political cleavages that exist within the Turkish Cypriot community in order to address social and economic issues.
We begin our discussion with an analysis of the nature of the conflict with South Cyprus as seen through the eyes of different sectors of the Turkish Cypriot community. In this section we will discuss the complexity of Turkish Cypriots identity and the fears and interests of diverse groups with respect to a resolution. Second we analyze the social and economic impact of a resolution under different scenarios excluding possible accession to the EU. In our discussion we consider three scenarios: 1. The continuation of the status quo, 2. a strong federation along the lines envisioned by South Cyprus, and 3. a loose federation more in line with the ideas of North Cyprus. Third, we analyze how the social and economic impact of a resolution would change in the event of accession to the EU. We conclude with a discussion of the effect that EU accession would have on particular fears and interests of different groups within the Turkish Cypriot community.
It would be disingenuous to argue this paper as if we were detached emotionally and intellectually from the issue. We do not claim to speak with a fully objective voice, untainted by our geographic location, academic position, cultural perceptions, professional interests and ethnic identity. Instead we wish to make the sources of our biases clear. Both of us are assistant professors of economics at Eastern Mediterranean University, located in Famagusta (Gazimagusa), a few kilometers North of the line that divides Cyprus into two territories. Fatma Guven-Lisaniler is a Turkish Cypriot born under British rule. She saw the birth of the Republic in 1960 and experienced its destruction between 1963-1974 as she grew up in the Turkish Cypriot enclave of Nicosia. Guven-Lisaniler conducted undergraduate and doctoral studies in Istanbul, Turkey. She has participated in bi-communal activities aimed at bringing both sides closer together. Leopoldo Rodriguez is a citizen of Argentina who grew up in Mexico and studied in the United States. He has lived in North Cyprus for two years. Both authors favor a resolution to the conflict that provides guarantees to the physical and social integrity of the Turkish Cypriot community.
The conflict through Turkish Cypriot eyes
The conflict in Cyprus originates in differences over the national designs of the two largest communities of the island. Religious and linguistic differences between Greek and Turkish Cypriots did not lead to inter-communal violence over the course of approximately 400 years (Volkan 1980, Farr). Serious problems only arose as recently as the 1950s, when Pan-Hellenistic nationalist feelings among the Greek Cypriots erupted into a struggle for union with Greece or enosis. We do not feel that it is necessary to discuss the 1960 constitution, the Akritas plan, or the Turkish intervention of 1974, because an extensive literature on the Cyprus issue has thoroughly analysed the events that have taken place since. Instead, we focus on Turkish Cypriot identity and the interests and concerns of the community.
Turkish Cypriot identity
Turkish Cypriot identity is the ground of contention. Two competing interpretations of what constitutes a Turkish Cypriot are proposed; one based on ethnic background; the other, a rather more complex interpretation, based on several factors including linguistic, historical and cultural practices. The first tends to emphasize Turkish roots and links to mainland Turkey, and considers the Turkish Republic as some sort of guardian of the Turkish Cypriot community; the mother land. The latter emphasize the differences between mainland Turks and Turkish Cypriots, paying particular attention to cultural and linguistic similarities with Greek Cypriots. Needless to say, adhesion to one or the other of these proposals is highly politicized.
President Rauf Denktas is the best known adherent to the ethnic based interpretation of Turkish Cypriot identity. Asked his opinion about Cypriot identity he replied: 'The only true Cypriots are the wild donkeys of the Karpas peninsula.' (Kibris 2000a) In a recent interview he declared: 'There is no "Cypriot nation." Turkish Cypriots on Cyprus have established a state. It cannot be a nation-state, because there is no Turkish Cypriot nation.' He added
A Turkish Cypriot is the extension of Turkey in Cyprus. So we are Turks, of Cyprus. Journalists ask us, are you a Turk first or a Cypriot?The answer is: are you a Londoner first, or an Englishman? One is geography, the other is nation. We are Turks, as Turks of Anatolia are; but because our geography is Cyprus, we are Turkish Cypriots. If you were to organize Turkey on a geographical basis you would call a Turk from Erzurum an "Erzurum Turk." (Pillai 1999:26-27)
Right-of-center political parties have adopted the ethnic based interpretation of Turkish Cypriot identity. In its program, the National Unity Party (UBP), founded by President Denktas and the dominant political force in North Cyprus, states: 'Turkish Cypriot people are an indivisible part of the Turkish nation. We share Turkish history, culture, language, religion and scientific heritage. The relation with Turkey, as always, will develop based on brotherhood and will be given priority.' (UBP p. 32) In this vision of Turkish Cypriot identity, the only Cypriot element appears to be geography. Cultural and linguistic differences are considered irrelevant.
Following 1974, large numbers of Anatolian Turks became permanent residents of North Cyprus, Turkish media became widely available to Turkish Cypriots, and North Cyprus adopted the school curriculae of Turkey. Increased contact with Anatolian Turks and mainland Turkish culture has made differences more apparent, and at times has created tensions between Turkish immigrants and native Turkish Cypriots. Some Turkish Cypriots consider the large presence of Anatolian settlers and temporary immigrants a real threat to Turkish Cypriot societal security. In order to retain a separate Turkish Cypriot identity that goes beyond geography, they emphasize linguistic, historic and cultural differences.
Linguistic differences are among the most important distinctions between Turkish Cypriots and mainland Turks. The Turkish spoken in North Cyprus differs from mainland Turkish in grammar, vocabulary, and pronunciation. (Saracoglu 1992, Boztas 1991 and Vanci 1990) The differences are sufficiently pronounced that a Turkish speaker familiar with the Turkish Cypriot variety of Turkish can easily tell a member of the community from one who is not. The choice of Turkish dialect becomes one possible way for Turkish Cypriots who wish to distinguish themselves from other Turks and affirm a separate identity. Many Turkish Cypriots command standard Turkish as well, but choose to use their own variety in particular contexts to affirm their separateness. Most commonly these differences are in pronunciation, but they extend to lexicon and grammatical structures as well. There are many words used by Turkish Cypriots that originate in the particular historic circumstances of the island and therefore have no precedent in standard Turkish. A few of these words originate in English language and are a leftover from colonial times. Many have their origins in Greek language. However, some words are only used by Turkish Cypriots and Greek Cypriots, and do not have precedent in any other known language, making them authentically Cypriot.
Perhaps more obvious to outside observers, and of even greater relevance to Turkish Cypriots, are cultural differences with mainland Turks. Turkish Cypriots are generally very secular. Religious practices are kept to a minimum and are considered a matter of individual choice. For the most part, Turkish Cypriot women do not cover their heads, in sharp contrast to most Turkish settler women who do. Although the call to prayer can be heard across the country, few Turkish Cypriots attend to it. In Turkish Cypriot politics there is absolutely no discussion of reinstating sheriat. Although openly dating remains taboo among most Turkish Cypriots, premarital sex and cohabitation is often sanctioned once a couple gets engaged, a practice with no precedent in Turkey. There are also some cultural elements in common with Greek Cypriots such as drahoma, a marriage practice in sharp contrast with Turkish traditions.
An interesting example of the ongoing struggle over Turkish Cypriot identity is the manipulation of folk dance to reshape identity. The government has historically supported the establishment of folk dance organizations that place emphasis on dance figures similar to those considered of Turkish origin. Independent folk dance organizations often use different figures that resemble Greek and Greek Cypriot figures. In the past they have had to struggle to have their troupes recognized by the government in order to compete and go on tour.
The complexity of Turkish Cypriot identity is reflected in the results of a recent survey. Asked to list their sources of identity in order of importance 46.5 percent of respondents ranked Turkish as their first identity. (METU/EMU 1999) Cypriot, Muslim and European received 29.3 percent, 18.1 percent and 6percent respectively as first identity. Turkish identity was considered first or second by 79.9 percent of respondents, while Cypriot identity was first or second for 59.6 percent. Turkish first and Cypriot second received the highest percentage of responses with 23 percent. Second was Turkish first and Muslim second with 21 percent, followed closely by Cypriot first and Turkish second with 19.5 percent. Muslim first, Turkish second was a distant 12.9 percent.
Clearly, Turkish and Cypriot sources of identity are the strongest, but Muslim identity is high. The combination Turkish/Cypriot in any order was by far the most popular with 42.5 percent, but Turkish/Muslim was also very common with 34.4 percent. In contrast, the results for European in combination with any other were low, with the highest for European/Cypriot at 7.3 percent.
When we analyze the data by place of birth, we find significant differences in identity between Cypriot born and Turkey born respondents. Among Cypriot born respondents, 45 percent replied Turkish first, 34 percent Cypriot first and only 14.5 percent Muslim first. In the case of Turkey born respondents Turkish first had 58.4 percent of responses, Muslim first 36.4 percent, while Cypriot first received only 4 percent.
Turkish Cypriot interests and internal politics
Concern over the physical security of Turkish Cypriots underpins the demand for sovereignty in negotiations. As a result of the torturous years lived during the period 1963-1974, physical security remains a primary concern of the Turkish Cypriot community. Memories of Greek Cypriot civil guards attacking civilians, precarious conditions in refugee camps in Turkish Cypriot enclaves, and the unresponsiveness of British and United Nations troops during inter-communal bloodshed, remain fresh in the minds of most who lived through the events. Younger generations are reminded of this history in school, national holidays, monuments and museums. As a result, many consider the physical separation of the two communities necessary to prevent a recurrence of Greek Cypriot attacks on the civilian population. Asked to choose a just model for a resolution, 46 percent of respondents favored two independent states, 34.2 percent wanted a federated bi-zonal state and third was integration with Turkey with 15.8 percent. All of these imply some degree of physical separation from Greek Cypriots. A return to conditions prevalent before 1974, implying a reintegration of Turkish and Greek Cypriot communities, received only 1.5 percent of responses. (METU/EMU 1999)
Physical separation, with or without sovereignty, is not considered sufficient though. Many Turkish Cypriots believe that the only guarantee of the physical integrity of the community is the presence of Turkish troops on the island, or at the very least a treaty of guarantee providing Turkey the right to intervene. In the METU/EMU survey, 74percent of respondents considered Turkish guarantee a necessity for a resolution. Three of the four largest parties, the National Unity Party (UBP), the Democratic Party (DP) and the Communal Liberation Party (TKP), do as well. (UBP p. 32, DP 1998 and TKP 1998)
Intimately related to the question of sovereignty is the issue of territory and property rights. The Turkish Cypriot community demands sovereignty rights over a territory sufficiently large to have a viable state. The extent of such territory is unclear. Presently, North Cyprus occupies about 34 percent of the surface area of the island, which is considered by Greek Cypriots to be out of proportion to the share of Turkish Cypriot population. Turkish Cypriots may be inclined to some territorial concessions in order to arrive at a resolution. Territorial concessions could aid in reducing Greek Cypriot demands for property restitution. Property within the Varosha area of Famagusta is ideal for restitution because it has remained vacant since 1974. However, most property owned by Greek Cypriots before 1974 in what now constitutes North Cypriot territory has been reassigned to Turkish Cypriots and Turkish settlers, and in some cases property titles have been granted. Restitution of such property to the original owners will face opposition from those who have cared and improved it for the past 26 years.
Many Turkish Cypriots want a state that would retain authority to limit the movement, residency and property ownership of Greek Cypriots. Beside the potential threats that these freedoms represent to the physical security of Turkish Cypriots, an additional concern is over the economic and societal security of the community. Currently, the Greek Cypriot community is far wealthier than its Turkish Cypriot counterpart. As a result, the indiscriminate freedom of ownership could result in a vast and rapid transfer of property to the hands of Greek Cypriots severely undermining the viability and vitality of the Turkish Cypriots as a distinct community on the island. Constraints on the freedom of ownership and residency of Greek Cypriots imply that the vast majority of property restitution that would take place would have to occur in the form of territorial concessions.
Some Turkish Cypriots are concerned about the societal security of their community, not at the hands of Greek Cypriots in the event of a resolution, but rather at the hands of Anatolian immigrants, if a resolution continues to evade the island. Many consider that North Cyprus is under siege by the large inflow of mainland Turks who have immigrated in search for better employment opportunities and higher wages. In clear reference to Turkish immigration, the party program of the Turkish Republican Party (CTP) states that 'the inflow of foreigners prevents the shaping of a Turkish Cypriot will and threatens their existence.' (CTP 1998:13) Some Turkish Cypriots go so far as to consider the massive flow of Anatolian Turks a bloodless form of ethnic cleansing.
Estimates on the number of non-Cypriot Turks living in North Cyprus vary widely and are generally unreliable. According to the Census of 1996, 200,000 people live in North Cyprus, of whom 164,000 are North Cyprus citizens. (SPO 1999) Approximately 32,000 non-citizens were born in Turkey, including 11,000 students of Turkish nationality. (SPO 1998a and 1999) In addition, the census indicates that 24,000 North Cyprus citizens were originally born in Turkey. We presume that the vast majority of these are settlers who arrived after 1974. In total, the census finds that 28 percent of the total population of North Cyprus is composed of Turks born in Turkey. Many locals and external observers consider the official statistics highly inaccurate. A common perception among Turkish Cypriots is that half of the population of North Cyprus is composed of a combination of Anatolian Turks who settled legally after 1974, and undocumented immigrants. The official numbers may be deflated on two counts. First, the census count may not include many undocumented workers because many of them do not have a permanent address. Second, the offspring of Anatolian settlers may generally feel closer to their Anatolian roots than to their Cypriot homeland in terms of language, religion and cultural practices. Because they are citizens of North Cyprus by birth, they cannot be distinguished from Turkish Cypriots in the statistics, but are considered settlers by many Turkish Cypriots due to cultural and linguistic differences.
Anatolian settlers and their Cyprus born offspring currently constitute an important political force that cannot be ignored in by the politicians of North Cyprus. As noted above, many see themselves primarily as Turk and Muslim, not Cypriot, and even less European. They favor two separate states or integration with Turkey in much larger proportions than Turkish Cypriots, and are basically not interested in a federal solution. Anatolian settlers who have become North Cypriot citizens are organized politically and have exercised their electoral rights successfully, placing their own representatives in government and at the helm of unions and other organizations. It is commonly assumed that settlers support President Denktas, the UBP, and perhaps the Democratic Party (DP), because these parties have embraced Anatolian immigration and present a harsher stand on negotiations with South Cyprus. Opposition parties often argue that both President Denktas and the UBP rely heavily on the vote from nationalized Anatolian settlers to win elections. Two left-of-center parties, the CTP and the Communal Liberation Party (TKP), have denounced the use of nationalized immigrants for electoral purposes. (CTP 1998, TKP 1998)
The modern vs. the post-modern in Turkish Cypriot visions
As stated earlier, the origins of the conflict in Cyprus can be traced back to divergent national projects of the two main communities of the island. Their respective national projects were the product of modern conceptions of the nation-state, where ethnic, linguistic and religious characteristics of the population were considered defining elements. The 1960 Constitution was a failed attempt to patch together into one nation the two divergent conceptions of the communities' future. The events that followed have resulted in a deep sense of mutual distrust. However, 26 years of stalemate in negotiations are perhaps bearing fruits as post-modern conceptions of national identity and sovereignty begin to emerge. Turkish Cypriots are increasingly aware that their community is the product of an incredibly complex history that ties them to diverse cultures. As such, its national project cannot be subordinated to the 'mother-country' or to a primarily Turkish identity. Turkish Cypriots increasingly recognize that they are bound to their Greek Cypriot neighbors as much as to their Turkish origins, and that in this context new proposals for sharing territory, governance and future must be considered. It is perhaps in the present impasse of two modern national projects that a post-modern project, with creative proposals for sovereignty, citizenship and identity, could be forged.
Resolution scenarios and their social and economic impact
We have simplified a variety of possible scenarios for North Cyprus into three basic categories: a. scenarios that essentially amount to the status quo, b. scenarios equivalent to a loose federation, c. scenarios closer to a strong federation or unitary state. We consider that under current international conditions recognition of two separate states is not feasible and consequently omitted it as a scenario. Further economic and political integration with Turkey would be the natural progression of the status quo in the long run and therefore do not include it as a separate scenario either.
We understand the status quo as the social, economic and political division of the island into two territories where the Greek Cypriot and Turkish Cypriot communities are governed by separate authorities that view each other as illegitimate, uncooperative, and a security threat. Under this scenario the Turkish Republic of Northern Cyprus remains unrecognized, and the Republic of Cyprus continues to receive international recognition as the only legitimate government of Cyprus. Within the parameters of this scenario there could be a loosening of the economic embargo on North Cyprus, or perhaps greater international pressure bearing on the government of North Cyprus and Turkey to find a compromise. As long as the Greek and Turkish Cypriot communities remain separated by a militarized buffer zone and recognize separate governments as their legitimate authorities, we consider that the status quo has not been altered.
Although the status quo in itself does not denote a resolution to the conflict, it provides Turkish Cypriots with several advantages. One of the primary concerns of Turkish Cypriots, physical security, is adequately addressed by the status quo. The complete physical and political separation of the two communities and Turkey's military presence have put a stop to the inter-communal violence that sporadically broke out between 1963 and 1974, bringing to Turkish Cypriots a sense of peace. Current arrangements provide the Turkish Cypriot community more physical security than any other arrangement imaginable. However, as previously discussed, the inflow of Anatolian immigrants is perceived by some as a threat to societal security.
In political terms, the status quo is equivalent to taksim. Many Turkish Cypriots continue to see partition as the achievement of their national objectives and the best possible political arrangement. However, without international recognition, North Cyprus remains extremely dependent on Turkey. Interference by Turkey in external and internal affairs has created mounting tensions. In July 2000, thousands of demonstrators took to the streets under the slogan 'this country is ours' to protest the subordination of the fire and police departments to the commander of the Turkish Cypriot defense forces, a general appointed by Turkey. The slogan has turned into an organization that brings together forty one unions and other groups of civil society in opposition to an economic reform package largely designed by Ankara. In October, This Country is Ours called for a one day strike that summoned ten thousand strikers for a meeting in Lefkosa. (Cyprus Today 2000:1) The prolongation of the status quo is likely to result in further political tensions with Turkey unless the North Cyprus government is given freer range of decisions, an unlikely event.
Perhaps the least satisfying aspect of the status quo for Turkish Cypriots is the economy. The economic embargo, depriving the country of most sources of foreign investment, aid and export markets, has taken a toll on infrastructure and productivity. As a result, growth rates and per capita income lag far behind South Cyprus. Tourism and university students have become two of the largest sources of foreign exchange and promise to continue expanding. Turkish Cypriots enjoy a relatively comfortable standard of living, even if it remains significantly below that of Greek Cypriots. However, the continuation of the status quo would almost inevitably result in the further widening of the economic gap between the two communities. Although Turkey has attempted to fill in the gap produced by a lack of foreign direct investment and loans to North Cyprus, it is unable to carry out a more aggressive investment strategy, particularly when it is undergoing deep economic adjustments itself.
If the status quo were to be sustained in the long term, North Cyprus would become increasingly integrated to Turkey economically and culturally. Turkish nationalist designs of taksim for the island would become a permanent reality. If South Cyprus acceded to the EU, the Hellenistic dream of enosis would also be partially fulfilled. In other words, modern visions of the destiny of the island and its communities would be fulfilled, separating Cypriots according to ethnic, linguistic and religious characteristics rather than building a multiethnic society built on postmodern concepts of statehood.
Strong Federal Republic
In 1977, President Makarios and community leader Dentkas agreed on a resolution based on a bi-zonal, bi-communal federal republic. Makarios died before the details of such federation could be worked out. In 1992, UN Secretary General Boutros Boutros-Ghali presented a 'set of ideas' about the specifics of the federation and progress was again made in negotiations. Starting from the principle of a bi-zonal, bi-communal federation, Ghali proposed 'a State of Cyprus with a single sovereignty and international personality and a single citizenship, with its independence and territorial integrity safeguarded, and comprising two politically equal communities.' (quoted in Stavrinides 1999:53) The Ghali Set of Ideas provides a blueprint for what could be a resolution based on a strong federal state, which is the model favored by Greek Cypriots. (Theophanous 1996 and Coufoudakis 1992). It provided control over foreign affairs, the federal budget and taxation, customs and international trade, and immigration and citizenship to the federal government. It also advocated the implementation of the freedom of mobility immediately after a settlement was reached, and the expedient implementation of the freedoms of settlement and property.
The original Set of Ideas met with several objections from Turkish Cypriots including the character of federal sovereignty, the ratio of communal representation in the ministries, the electoral formula for President and Vice-President, the extension of the three freedoms, and property restitution. (Stavrinides 1999) A compromise is conceivable over communal representation in the federal government and the election of federal authorities, but Turkish Cypriot opposition to a strong federal state stems primarily from a concern over the physical and societal security of the community.
As noted above, Turkish Cypriots fear the full reinstatement of the three freedoms and property restitution because these would represent a threat to communal security. Members from both communities recognize the dangers that the three freedoms and property restitution represent to the physical security of one or another community. For example, Stavrinides (1999:66) admits that 'the forcible creation of mixed villages [by a policy of free settlement and property restitution to original owners] could cause violent, and even fatal incidents, in which case neither the Greek Cypriot police in the South, nor UNFICYP could afford Greek Cypriots any protection.' He also claims that Turkish Cypriots could conceivably become a minority in the Turkish Cypriot state if all displaced Greek Cypriots chose to return to their properties and Anatolian settlers were repatriated, something that is obviously unacceptable to Turkish Cypriots on grounds of physical and societal security.
In a strong federal state with the three freedoms, Turkish Cypriots would not enjoy the desired security, but could rip greater benefits in the economic arena. (Theophanus 1996) It is generally recognized that a resolution would require considerable transfers of resources from South Cyprus and abroad to North Cyprus, enhancing its appeal to Turkish Cypriots. The faster and deeper the political, legal and economic union of North and South into a federation with a strong state, the larger and faster would be the movement of domestic and foreign, public and private investment to the North. Greater economic integration could result in the faster convergence of the incomes of both communities. However, Turkish Cypriots fear that it could also result in the domination by Greek Cypriots of the North Cyprus economy through the purchase and control of the main productive activities and sources of employment. Turkish Cypriots are wary that in the context of a strong federal state, the economic strength of Greek Cypriots would result in the erosion on the economic interests of their community, undermining its viability.
It must be noted that enormous animosity and mistrust continue to characterize relations between the Greek Cypriot and Turkish Cypriot communities. A strong federation will require a lot of political, cultural and physical interaction between the two communities. The larger the number of issues on which joint decisions will be necessary, the greater the potential tension, stalemate and likelihood of failure of a federal experiment. Theophanus warns: 'a "strong" federal model may lead to a higher frequency of friction than a "loose" federal model a viable and functional federal arrangement would be that which institutionally tends to reduce the possible causes or sources of friction between the two communities.' (Theophanous 1996:147)
Under a strong federal state North Cyprus would gain autonomy from Turkey. The cultural ties between the Turkish Cypriot state and Turkey would remain strong, but the Turkish Cypriot community would find itself in an infinitely superior material and political position to develop independent cultural and educational projects reflecting the uniqueness of the Turkish Cypriot community. The inflow of Anatolian immigrants (permanent settlers or temporary workers) would no longer be a threat to the societal security of Turkish Cypriots because the federal government would have authority over immigration and Greek Cypriots would most certainly find the current state of affairs unacceptable.
A strong Cypriot state based on a bi-zonal, bi-communal federation would require important compromises of the nationalist visions of both communities. Greek Cypriots would be challenged to share the government of Cyprus and accept the Turkish Cypriot community as a political equal, something they rejected once before with the destruction of the 1960 Constitution. Turkish Cypriots would have to accept sharing their territory and sovereignty with Greek Cypriots, something that poses a danger to their security and stops short of taksim. The system of shared communal representation in the federal government would challenge modern notions of state legitimacy and proportional representation. However, it must be remembered that ratio-based communal representation already failed once before. A modern conception of the state would prevail through single citizenship and a traditional conception of sovereignty resting on the federal government.
Loose Federal Republic
A loose federation is closer to the vision put forward by North Cypriot negotiators when they speak of confederation. It implies that sovereignty emanates from the federated states, investing on the federal government a limited number of powers. The federal state would enjoy sovereignty only in so far the federated states granted their powers to it. The Turkish Cypriot state would reserve the legal right to seek a separate international personality (international recognition independently of the other federal state), safeguarding the Turkish Cypriot community from a repetition of the current state of affairs, where their state lacks international legal authority. President Denktas explains that the main purpose of keeping sovereignty in the communal states is to protect the security of Turkish Cypriots: 'My rights are based on my statehood. If you [Greek Cypriots] destroy the new agreement again, you will not be able to use the excuse "this is an internal matter, don't interfere." Everybody will know that this is an aggression from one state against the other.' (Pillai 1999:21) Precisely what authority would be vested on the federal state is not clear. We can presume that Turkish Cypriots would initially accept a limited number of powers transferred to the federation, primarily in those areas where their security is least threatened, or where they have the most to gain.
The federal government could gain control over foreign affairs and monetary policy. Federal powers in matters of fiscal policy, investment laws, labor immigration and the freedoms of movement, ownership and residency, are bound to be controversial. Primarily for security reasons, Turkish Cypriots would favor the greatest amount of autonomy for the federated states, while Greek Cypriots, confident that a federal state would be dominated by their interests, would press for a federal government with wide powers. Turkish Cypriots will insist on placing limits on the freedoms of settlement and property ownership of Greek Cypriots in the Turkish Cypriot state. Restrictions on ownership could take the form of requirements on the percentage of proprietorship in firms. Residency restrictions could be implemented through restrictions on the share of non-Turkish Cypriots allowed to settle in a village or city, possibly setting a cap on the total share of non-Turkish Cypriot residents in North Cyprus. The choice of residency would also be limited by the granting of professional licenses by the state authority. Property restitution would have to be severely limited or fully discarded; otherwise pockets of Greek Cypriot population would appear at the center of the Turkish Cypriot state with dangerous consequences.
Turkish Cypriots are also likely to demand that control over most fiscal matters remain in the federated states. Property taxes and sales taxes would remain under the control of the federated states, guaranteeing the Turkish Cypriot state important sources of revenue to sustain their own social, cultural and economic projects. The federal government could gain control of trade tariffs, social security and progressive income taxes as long as these are allocated between the two states according to a pre-agreed formula. Initially, federal revenue could be directed to public investment in infrastructure and human capital in the Turkish Cypriot state in order to diminish the income gap between the two communities.
Limits on the residency and property rights of Greek Cypriots, and dual fiscal systems meant to safeguard the physical and societal security of Turkish Cypriots, would result in slower economic gains. The greater the social and economic integration of the two communities, the faster would be the growth in economic opportunities available to Turkish Cypriots, both in terms of employment and investment. As trust builds between the communities, the potential for greater economic gains could bring the two states into closer cooperation and greater social and economic integration.
A loose federal state would require the adoption of a flexible conception of sovereignty. The federal government would control foreign relations and some fiscal issues, but a great deal of autonomy would remain in the hands of the communal states. Under this arrangement, two sovereign states would have a single international personality, posing a challenge to modern conceptions of the state.
Social and economic impact of accession to the EU
It appears almost certain that, with or without a resolution, South Cyprus will be admitted to the EU in a few years. (Nugent 2000, HEC 1999) Given the stalemate in negotiations since the collapse of the Ghali Set of Ideas in 1992, the international community has placed its hopes for a resolution on the catalytic effects of South Cyprus' application to the EU. However, as accession draws closer, the two parties appear to be further from one another than ever before, with North Cyprus demanding a confederation and South Cyprus insisting on a strong federal state. The catalyst potential of accession to the EU largely depends on the costs and benefits that both communities would incur by entering into a strong federation, a loose federation or refusing to enter into a compromise. The impact of EU membership on North Cyprus will depend on the form of settlement with South Cyprus. Failing to achieve one, a common future for both communities could become more elusive than ever before.
EU accession negotiations and the chances of a resolution
Until recently, the EU chose to ignore the presence of a Turkish Cypriot state on the island as its strategy regarding South Cyprus' application. Turkish Cypriots were told to enter the negotiations as part of the representation of the Republic of Cyprus. This would have amounted to recognizing the government of South Cyprus as the legitimate authority over the entire island, so Turkish Cypriots refused. After the Helsinki Summit, the EU has slightly changed strategies. It is now attempting to entice Turkish Cypriot civil society to break with their government in return for economic benefits, and warns that refusal would result on a missed golden opportunity. (Verheugen 2000) The EU policy has shifted from neglecting Turkish Cypriots to the use of a carrot and stick to bring a resolution prior to the completion of accession negotiations.
The EU must recognize that regardless of the legal status of North Cyprus, Turkish Cypriots have very legitimate concerns regarding the treaty of accession being negotiated on their behalf by Greek Cypriots. In order to address the security concerns of Turkish Cypriots the accession treaty would have to grant some exemptions, perhaps only temporary, to the acquis communautaire. Speaking about European integration, Zetterholm (1994:6) states: 'The greater the mental distance and mistrust between the actors, the more legal guarantees and formal organisational and decision making roles must be institutionalised in order to compensate artificially for relations of mistrust.' If conditions of mistrust between peaceful neighbors have at times hampered European integration, the trust gap dividing the Greek and Turkish Cypriot communities must be acknowledged and accommodated by the EU. It must accept that integration of North and South Cyprus cannot be accelerated beyond the capacity of the two communities to trust each other.
The presence of the Turkish Cypriot community in accession negotiations is therefore essential if the EU expects to play a positive role in the settlement of the conflict. The EU should not only encourage negotiations between the communities, but must be willing to grant exemptions and commit financial assistance to make a resolution palatable to Turkish Cypriots. Once economic benefits and security become more tangible, the government of North Cyprus may be more easily encouraged to arrive at a resolution.
In the event of accession by South Cyprus prior to a negotiated settlement, a resolution to the conflict would become harder to attain. The accession treaty would bind all of Cyprus, including the Turkish Cypriot community, to provisions that are contrary to their interests and concerns. The acquis communautaire guarantees the three freedoms to all citizens of EU member states. Unless necessary exceptions are made in the treaty of accession, Greek Cypriots and Greek citizens would be entitled to these freedoms in North Cyprus in the event of a post-accession resolution. This would be unacceptable to Turkish Cypriots on security grounds. As a result, it would be harder to arrive at a settlement after accession.
South Cyprus accession without a resolution
If the status quo were to prevail, acceptance of the Republic of Cyprus to the EU would necessarily imply the exclusion of the Turkish Cypriot community. The accession of South Cyprus would result in the further widening of the social, political and economic gaps that already exist between the Turkish and Greek communities of Cyprus. The sense of alienation from the international community already prevalent among Turkish Cypriots, and mistrust between the two peoples, would be reinforced. The position of political groups and individuals that favor greater integration with Turkey and a hard line towards South Cyprus would be reinforced.
In the economic arena, the exclusive accession of the South would make North Cyprus ever more dependent on Turkey. Economic activity in North Cyprus is highly dependent on government expenditures and public investment. In 1997, government expenditures were 42.5 percent of GDP. A considerable budget deficit of 13 percent of GDP was primarily financed by aid from Turkey. (SPO 1998b:262-263) The international embargo on North Cypriot products, and other difficulties arising from non-recognition, has made the private sector particularly weak. The embargo on exports to the EU would continue and could conceivably be strengthened, leaving Turkey as practically the only door for North Cypriot products to foreign markets. Much needed foreign exchange would be supplied by university students and tourist, both groups primarily from Turkey. Turkey would remain practically the only source of foreign investment, loans and financial aid. Grants from Turkey totaled 24 percent of government expenditures in 1997. Loans by Turkey totaled 6.9 percent of government expenditures the same year. Foreign aid from sources other than Turkey was less than half percent of total expenditures. (SPO 1998b:262-263) Although the economy would not remain stagnant, growth would certainly lag behind that of South Cyprus, and far behind the growth rates that could be achieved if a resolution had been attained before accession. The end result would be the further widening of the gap in income per capita between North and South Cyprus, currently estimated at 4 to 1. Without a resolution or accession, Turkish Cypriots would have no alternative but to accept further integration with Turkey.
The status quo would also result in the strengthening of social and cultural ties with Turkey, as North Cyprus would remain cut off from Europe. Under current laws, entrance to North Cyprus by Turkish citizens only requires a national identification card. Significantly higher wages in North Cyprus act as a strong motivation for many Anatolian low skilled workers who arrive to the island seeking employment, primarily in the construction and service sectors. Although all foreigners, including Turkish nationals, are required to obtain a work permit to be legally employed, the labor office has ceased to enforce this regulation. The laws, their enforcement, and the wage differential are not likely to change in the event of a continuation of the status quo. In contrast, Greek Cypriots would establish closer relations with European nations, including Greece, which is already an EU member. Under the acquis communautaire, Greek nationals would be free to settle in South Cyprus and seek employment. Under these conditions a cultural rapprochement between the communities would become significantly more difficult.
EU accession of a strong federation
A strong federation would leave most matters of governance in the hands of the federal government. Accession to the EU would take place without exemptions to the acquis communautaire, implying the free movement, settlement and property ownership of all European citizens including Greeks and Greek Cypriots in North Cyprus.
Although the economy of North Cyprus would benefit the most from a strong federation, this could prove costly to some groups of Turkish Cypriots. A bloated public sector would have to implement drastic cuts in personnel and expenditures for two reasons. First, the transition of authority to a federal government would require the elimination of many public positions in the Turkish Cypriot state bureaucracy, many more than would open in a federal government shared with Greek Cypriots. Second, the Maastricht Treaty requires that the budget deficit of a member state should not exceed 3 percent of GDP. North Cyprus currently runs a 13 percent deficit.
A federal solution would put an end to the international embargo on North Cyprus allowing for the expansion of exports. Accession to the EU would open a vast market for North Cypriot agricultural products, injecting life to the North Cyprus economy. Traditional agricultural and agribusiness exports would regain access to their natural markets in Europe. The impact would be largest on citrus, potatoes, and orange juice, products that enjoyed great success in the EU market prior to the 1994 embargo. Other agricultural products with great potential are grapes and winter vegetables. In manufacturing the textile sector would benefit from open access to a European market where Asian, and even Turkish textiles, are subject to tariffs and quotas. Womens intimate apparel and leather products are two areas in which North Cyprus could readily compete in the EU. Service exports would also enjoy great potential, primarily in tourism. Recognition would allow direct flights from Europe, Africa and Asia, as well as calls to port by cruises. Peace and the free promotion of the unspoiled attractions of North Cyprus would result in a rapid rise in tourism income. However, considerable investment in irrigation, transport and tourism infrastructure would be necessary prior to the expansion of production and exports of goods and services.
A resolution and EU membership would also open the doors to foreign investment, loans and aid, all of which are greatly needed to improve productivity and increase the standard of living of Turkish Cypriots. However, in a strong federation, the Turkish Cypriot economy would run the risk of being overrun by the much deeper pockets of the Greek Cypriot community. The process would be hastened by the restitution of property in North Cyprus to pre-1974, Greek Cypriot owners. The result could be a two tiered society where practically all the wealthiest people belong to the Greek Cypriot community while Turkish Cypriots predominantly occupy the middle and low-income strata. If the North Cypriot economy became increasingly controlled by Greek and Greek Cypriot capital, Turkish Cypriots may seek opportunities in the labor markets of Europe resulting in further emigration and deeper demographic imbalance between the two communities.
With immigration policy resting in the federal government and the obligation to sustain European standards for entry requirements and work permits, North Cyprus would experience a sharp decline in the number of documented and undocumented immigrants from Turkey. Turkey is not a member of the EU and most likely will not gain access, if it ever does, for many years. Under a strong federal solution even Anatolian settlers who have resided in North Cyprus for over a quarter of a century and enjoy North Cyprus citizenship could be expelled. Limits to Turkish immigration could represent a severe constraint on the ability of North Cyprus to expand agricultural exports and tourism because the anticipated investment boom would significantly increase demand for low-skilled labor. In contrast, the freedoms of movement, residency and property guaranteed by the acquis communautaire, would allow the open entry of workers from EU members to North Cyprus. Greek labor, relatively inexpensive by European standards, would be attracted to the investment boom in North Cyprus. Needless to say, such development would not be attractive to Turkish Cypriots and could result in ethnic tension and violence. On the other hand, contact with European ideas, goods and people would prepare the ground for the absorption of cultural, commercial and political attitudes prevalent in Europe. We can imagine Turkish Cypriots studying European languages in preparation for a university degree abroad. Television, magazines, radio, newspapers, fashion and consumer goods of European origin would more easily access the Turkish Cypriot public. For better or worse, Turkish Cypriots, who are already rather Western in outlook, would become more integrated into the European mainstream. At the same time contrast with other European traditions could also strengthen the few cultural traits shared by both Cypriot communities.
EU accession of a loose federation
Under a loose federation, the Turkish Cypriot state would retain significant autonomy from the federal government. Restrictions to the freedoms of residency and property of Greek Cypriots in North Cyprus would be imposed. Membership in the EU would require significant exemptions to the acquis communautaire. There is precedent for exemptions to these freedoms in the EU. The Ahvenanmaa (Aland) islands in Finland received permanent exemptions to the freedoms of residency and ownership on the basis of an agreement existing between the government of Finland and the islands. The EU has also granted temporary exemptions to the freedom of ownership in environmentally sensitive regions of the Austrian Alps. Similar arrangement could arise from careful consideration of the very special situation of Turkish Cypriots. However, according to the principle of non-discrimination the restrictions would apply to all EU citizens that are not Turkish Cypriots, and would be limited to Greek Cypriots and Greek citizens.
Limits to the freedoms of residency and property could slow down the convergence of income between the two communities. Restrictions on ownership aimed at providing security for Turkish Cypriots would limit the influx of foreign direct investment, especially since the principle of non-discrimination would require its application to all European citizens. However, the small size of the Turkish Cypriot economy means that relatively modest investments and aid would result in rapid income growth. Sums that would be considered small amounts by international lenders and donors are very significant amounts given the small population of North Cyprus. Limits to growth are more likely to arise from the absorptive capacity of the Turkish Cypriot economy precisely because of the small size of its population and limited infrastructure. But fast growth would still take place, most likely at a higher pace than the South, leading towards convergence of incomes.
Since a highly autonomous Turkish Cypriot state would have an independent fiscal policy, Maastricht Treaty caps to the budget deficit could be applied independently of South Cyprus. North Cyprus would have to drastically reduce its budget deficit. Most likely a temporary exemption would have to be granted to provide enough time for the necessary adjustments in North Cypriot expenditures to take place. Large fiscal adjustments could harm public employees, but the opening of export markets should more than compensate for the loss of jobs in the public sector.
As previously noted, recognition and EU accession would terminate the international embargo and provide North Cypriot products and services access to the European and world markets. Besides expansion in the areas of agricultural, manufacturing and service exports noted above, North Cyprus could also increase exports in the rubric of higher education. Currently an estimated 20,000 students attend universities in North Cyprus. Of these, approximately 70percent are from Turkey and 6percent are from third countries. (SPO 1998a:56-57) Since ties with Turkey would remain stronger under a loose federation, the number of Turkish students would be less likely to decline and the potential exists for an increase in the number of students from neighboring Muslim countries.
In a loose federation foreign financial aid would be channeled directly to the Turkish Cypriot state. North Cyprus would be eligible for Objective 1 support from the EU, which implies substantial projects in the areas of communications infrastructure, human resources development and environmental protection, all of these areas in great need of assistance. Objective 1 aid has proven extremely successful in fostering growth in Ireland, Spain and Greece. (Honohan 1997 and RDS 1997, 1995) It can also be expected that wealthy nations and multilateral and private organizations will provide significant amounts of aid.
An investment boom would result in an increase in the demand for labor, particularly in construction, agriculture and services. These are areas where Turkish immigrants have traditionally supplied their labor. In a loose federation North Cyprus would retain authority over immigration policy. In order to avoid bottlenecks in the supply of low skilled labor and given the importance of family and cultural ties between Turkey and North Cyprus, a complete halt to Anatolian immigration is unthinkable. Accession would therefore require special arrangements with the EU to provide greater opportunities for entry of Turkish citizens than exist in other EU member states. However, Greek Cypriots and the EU would object to granting North Cyprus full independence on immigration policy. Immigration restrictions could be a combination of strict quotas, guarantees that immigrants will not be granted residence and short-term work permits. Conditions favoring the immigration of low skill labor from Turkey would necessarily be of a temporary nature, but the accession of Turkey to the EU could eventually solve this problem. Because of these special immigration arrangements, the border between the two states would not be fully erased. Freedom of movement between the two Cypriot states could be granted to all Cypriot citizens holding an identification card, but restricted for Turkish and Greek citizens according to the policies of the North and South Cypriot states, making checkpoints necessary along the border of the two federated states.
It must be pointed out that Greek citizens would enjoy full rights of settlement in South Cyprus. Without Turkey's accession to the EU this could further tip the demographic balance of the island against Turkish Cypriots. On the other hand, a booming economy controlled by the Turkish Cypriot community could result in the return of thousands of Turkish Cypriots who fled during the 1963-1974 period, or who have sought better economic opportunities abroad since then. They could make a significant contribution to boosting the Turkish Cypriot population and contribute to productivity in North Cyprus.
The near accession of South Cyprus to the EU has put the Turkish Cypriot community at a crossroads. In order to join the EU they must commit to negotiations that could result in a high degree of integration with the Greek Cypriot community. Alternatively Turkish Cypriots can choose to remain detached from South Cyprus, facing greater integration with Turkey. Both directions are fraught with uncertainty and dangers, primarily to the physical and societal security of the community, but also to its material welfare. Partially as a result of the choices that confront them, Turkish Cypriots are increasingly engaged in debates over their identity and their community's ties to Turkey.
A resolution is appealing on several grounds, but the appeal ultimately depends on the individual's position in the community and her identity. Almost automatic accession to the EU, with the economic benefits that this would imply, is clearly the primary benefit from achieving a resolution. The owners of small and medium sized businesses generally support a resolution because they perceive that EU membership will benefit them. The owners of large enterprises that have benefited from state contracts and monopolistic practices are a lot less enthusiastic or openly opposed. There is no doubt, however, that the economic opportunities available to the average Turkish Cypriot will increase in the event of a resolution, and explode with accession to the EU, particularly for young educated people, a rapidly growing number in North Cyprus.
A resolution and accession is also appealing to those who consider the Turkish Cypriot community to be under siege by Anatolian immigrants. Many of the people who feel that Turkish Cypriot identity and the integrity of the community are in danger of disappearing support a resolution and accession to the EU because it would bring Anatolian immigration to a stop, or at the very least, it would slow it down. Turkish settlers with and without citizenship are clearly threatened by a resolution, particularly if it includes the Greek Cypriot demand of repatriation for all Turkish immigrants who entered after 1974.
Whatever the appeal of accession to the EU, it has not been enough to push the balance in favor of a resolution because the level of uncertainty is very high. The outcome of negotiations could range from a very loose confederation to a highly centralized federation, with important implications for the physical and societal security of Turkish Cypriots. The perceived danger of a compromise can be gauged by the preference of a majority of Turkish Cypriots for two separate nations and for a resolution that preserves the Turkish guarantee (right to military intervention). (METU/EMU 1999) EU officials argue that within the EU, the physical security of Turkish Cypriots would enjoy greater guarantees than under present circumstances. (Verheugen 2000) The argument has been less than convincing to Turkish Cypriots. If inter-communal violence broke out in the context of a strong federation, the EU would have no authority to intervene in the internal affairs of a Cyprus with singular international personality. North Cyprus negotiators argue that only in a loose federation the physical and societal security of Turkish Cypriots can be guaranteed. Whether fears of renewed violence against Turkish Cypriots are realistic or not is largely irrelevant as long as the community perceives them to exist.
As long as Turkish Cypriots and their representatives remain unconvinced that the benefits of a resolution outweigh the costs, the status quo will be prolonged. Almost by default, North Cyprus would continue isolated from the international community and in a path of greater integration with Turkey. Those who fear the destruction of Turkish Cypriot identity will have little hope of turning the tide. The Turkish Cypriot economy would continue to depend on the support of Turkey and its tourists and university students, with no hope of catching up with the economic standards of South Cyprus. Because of the special situation of the Turkish Cypriot community and the exemptions that would be necessary in the treaty of accession, a resolution after the accession of South Cyprus to the EU would become much less likely. At that point, only the withdrawal of Turkish support to North Cyprus would force Turkish Cypriots to accept the conditions established in an accession treaty negotiated only by South Cyprus in the interest of Greek Cypriots.
The EU claims to be an outside observer in the dispute between North and South Cyprus. Nothing could be more disingenuous. By accepting the application of the Republic of Cyprus and allowing accession negotiations to reach the entrance door, the EU has become a strategic weapon in the hands of South Cyprus negotiators. If it truly wishes to act as a catalyst for a settlement that is fair and agreeable to both parties, it must gain the trust of the Turkish Cypriot community and provide the resources necessary, both material and diplomatic, to convince Turkish Cypriots that the risk will be worth it.
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*Fatma Güven-Lisaniler specializes in economic development and gender issues. Leopoldo Rodriguez specializes in political economy and development. They are grateful for the research assistant provided by Arzu Çagin and Mahmut Halkseven.
 The UBP even proposes to purify the Turkish spoken by Turkish Cypriots in order to pass it to future generations closer to its 'original form.' (UBP p. 26)
For a discussion of cultural elements in common between Greek and Turkish Cypriots see Guven-Lisaniler and Warner (1998).
 The survey was funded by Middle Eastern Technical University (METU) and implemented by academicians from Eastern Mediterranean University (EMU). The sample consisted of 521 registered voters. They were randomly chosen from the 5 districts of North Cyprus.
 About 85percent of respondents were born in Cyprus, with nearly 15percent born elsewhere, most of whom were born in Turkey. Those born in Turkey presumably are Turkish settlers who arrived after 1974 and were given North Cypriot citizenship afterwards. Of those born in Cyprus, many could be offspring of settlers.
When country of birth is considered, the order of the solutions changes. Turkey born respondents select integration with Turkey as their second choice rather than federation. The percentage of Cypriot born who choose integration with Turkey is 11.8 percent, whereas the share of Turkey born respondents is 37.2 percent. (METU/EMU 1999)
The four main parties demand as a minimum a resolution that is bi-zonal. They do not necessarily clarify the expected degree of sovereignty over this territory.
 See Stavrinides (1999) and Ergun Olgun (1999) for Greek Cypriot and Turkish Cypriot views on the problems and dangers of property restitution.
This constitutes 14.6percent of North Cypriot citizens, which is extremely close to the results of the METU/EMU survey, providing credibility to the accuracy of both statistics.
 Only 14 percent of Turkey born respondents to the METU/EMU survey prefer a federal solution in contrast to 38 percent of Cyprus born.
 A measure of the interference of Turkey in the domestic affairs of North Cyprus is given by the following case. Until recently, the Ministry of Labor had inspectors who verified the legal status of workers, and fined firms hiring undocumented workers. Upon a complaint made by the Turkish Embassy, the inspectors have not been sent back to the field.
The Ghali Set of Ideas speaks of 'a major programme of action to correct the economic imbalance and ensure economic equilibrium between the two communities.' (quoted by Stavrinides 1999:69) Mehmet (1992) discusses the fiscal implications of federalism for the transfer of resources between states.
 The Patriotic Union Movement (YBH), a new political party particularly concerned with a separate Turkish Cypriot identity, has endorsed the Ghali "Set of Ideas" and a strong federal state as the basis for a resolution.
 It should be noted that this is precisely the reason why Greek Cypriots oppose the Turkish Cypriot position. They fear that once sovereign rights are granted, the Turkish Cypriot state will seek a separate international identity.
 Denktas has also expressed that 'a confederation can later grow into a federation, if all goes well,' implying that the federal state could be granted greater power gradually. (Pillai 1999:20)
 Such a division of taxation powers between the federal government and constituent states prevails in the US, but the allocation of revenue is determined by an annual budget.
We assume that a strong federation would be based on the Ghali Set of Ideas.
For a detailed discussion of the impact of EU agricultural policies on the North Cypriot economy see Sertoglu (1997).
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