Cyprus. (Developments in 2012). Political Data Yearbook

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Journal Code: EPDY Article No: EPDY12005 Page Extent: 8

Proofreader: Mony Delivery date: 28 Nov 2013

European Journal of Political Research Political Data Yearbook 52: ••–••, 2014

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doi: 10.1111/2047-8852.12005

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Cyprus

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HUBERT FAUSTMANN1 & EROL KAYMAK2

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University of Nicosia, Cyprus; 2Eastern Mediterranean University, Cyprus

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Table 1. Cabinet composition of Christofias I

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For the composition of Christofias I on 1 January 2012, see Kaymak & Faustmann (2009: 927; 2010: 925; 2012: 65); Faustmann & Kaymak (2011: 934).

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Changes in 2012: Minister of Finance/Υπουργο´ ς Οικονομικω´ ν: Kikis Kazamias (1951, male, AKEL) resigned on 16 March and was replaced by Vassos Shiarly (1948, male, Ind) on 23 March Minister of Commerce, Industry and Tourism/Υπουργο´ ς Εμπορι´ου Bιομηχανι´ας και Τουρισμου´ : Praxoulla Antoniadou Kyriacou (1958, female, United Democrats) resigned on 19 March and was replaced by Neoclis Sylkiotis (1959 male, AKEL) on 20 March ´ ν κ. Νεοκλη´ ς Συλικιω ´ της: Neoklis Sylikiotis (1959 male, Minister of Interior/Υπουργο´ ς Εσωτερικω AKEL) resigned on 19 March and was replaced by Eleni Mavrou (1961, female, AKEL) on 20 March Minister of Health/Υπoνργóς Υγει´ας: Stavros Malas (1967 male, EDI [United Democrats]) was replaced by Androulla Agrotou (1947 female, Ind) on 15 October

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Table 2. Cabinet composition of Küçük II

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For the composition of Küçük II on 1 January 2012, see Kaymak & Faustmann (2012: 64).

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Changes in cabinet: There were no changes during 2012 until the creation of Küçük III.

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Efforts to solve the Cyprus Problem

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In terms of the Cyprus issue 2012 was a year lost. No progress was made in the first months of the year and negotiations were suspended during the Cypriot European Union Presidency in the second half of the year. The current round of negotiations concerning reunification of the island started in 2008. The Turkish side had repeatedly tried to set a fixed timeframe for the negotiations. Ankara also insisted the talks needed to be completed before the beginning of the Cypriot EU Presidency on 1 July 2012 as Turkey does not recognise the Greek Cypriot-led Republic of Cyprus. Consequently, Turkey announced that EU–Turkey talks would be affected and it declared that it would unilaterally freeze relations with the EU for the duration of the Cypriot Presidency. Turkey’s stance prompted the United Nations-facilitated Cyprus talks to take on greater urgency. UN Secretary General Ban Ki Moon went so far as to declare that talks had entered an ‘end game’ stage. However, an international conference including the Cypriot © 2014 European Consortium for Political Research Published by John Wiley & Sons Ltd

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Table 3. Cabinet composition of Küçük III

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A. The party composition of Küçük III: Date of investiture: 19 September 2012

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Party

Number and percentage of parliamentary seats

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Ulusal Birlik Partisi – National Unity Party

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B. Cabinet members of Küçük II: Prime Minister/Bas¸bakan: I˙rsen Küçük (1940 male, UBP) Deputy Prime Minister and Minister for Foreign Affairs/Bas¸bakan Yardımcısı ve Dıs¸is¸leri Bakanı: Hüseyin Özgürgün (1965 male, UBP) Minister of Internal Affairs and Local Administrations/I˙çis¸leri ve Yerel Yönetimler Bakanı: Nazım Çavus¸og˘lu (1965 male, UBP) Minister of Finance/Maliye Bakanı: Ersin Tatar (1960 male, UBP) Minister of National Education,Youth and Sports/Milli Egˇitim, Gençlik ve Spor Bakanı: Mutlu Atasayan (1959 male, UBP) Minister of Public Works and Transportation/Bayındrılık ve Ulas¸tırma Bakanı: Ersan Hamza Saner (1966 male, UBP) Minister of Health/Sag˘lık Bakanı: Ertug˘rul Hasipog˘lu (1941 male, UBP) Minister of Labour and Social Security/Çalıs¸ma ve Sosyal Güvenlik Bakanı: S¸erife Ünverdi (1955 female, UBP) Minister of Tourism, Environment and Culture/Turizm, Çevre ve Kültür Bakanı: Ünal Üstel (1955 male, UBP) Ministry of Economy and Energy/Ekonomi ve Enerji Bakanı: Sunat Atun (1973 male, UBP) Ministry of Agriculture and Natural Resources/Tarım ve Dogˇal Kaynaklar Bakanı: Ali Çetin Amcaog˘lu (1952 male, UBP)

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sides and relevant external powers, including Turkey, did not materialise due to the failure of the ‘Greentree’ summit of January. Thereafter, in the spring of 2012, no substantial progress could be made to reach sufficient convergence over issues that divided the sides, including on governance and property. Hence, in April, the UN declared its decision to abandon the ‘unproductive’ direct talks of the two community representatives and pledged to only convene meetings if both sides made significant headway. The UN made it clear that there would not be an international conference before the Cypriot EU Presidency. The UN Good Offices remained committed to resuming the talks in 2013, so technical committees, designed to contribute to coordination and confidence building, continued to meet while substantial negotiations were suspended. Whereas the suspension was predicated on the six-month Cyprus EU Presidency, modalities for the resumption of talks were politically dependent on the outcome of the presidential elections in the south scheduled for February 2013. In June, Kudret Özersay, special advisor to Turkish Cypriot leader Dervis¸ Erog˘lu, resigned, which complicated the situation even further. Özersay, who played a central role on the Turkish Cypriot negotiation team, was replaced by Osman Ertug˘. Prior to the EU Presidency, there had been unofficial threats from Turkey and the Turkish Cypriots to implement a so-called ‘Plan B’ in the case of no solution. While no official plan was ever presented, it allegedly included the opening of the ghost city of © 2014 European Consortium for Political Research

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CYPRUS

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Varosha for Greek Cypriot refugees to return under the control of the Turkish Cypriot administration. The Turkish stance exhibited ambiguity as to whether failure in the short term to settle the Cyprus issue would be linked to an attempt to gain international recognition of the north. In this context, the Turkish minister for EU accession, Egemen Bagıs¸, even raised the specter of annexation to Turkey. In the end, nothing of significance transpired and the Cypriot EU Presidency passed without significant repercussions on the Cyprus question.

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Dispute about natural resources

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In 2011, the American company Noble Energy discovered significant gas deposits in block 12, off the southern shore of the island. Later, Noble Energy sold 30 per cent of its rights in block 12 to the Israeli company Delek, which exploits gas deposits in Israeli waters jointly with Noble Energy. This was seen as another step of establishing closer ties between the Republic of Cyprus and Israel. Moreover, for the first time in history an Israeli prime minister (Benjamin Netanyahu) visited the island in February 2012. The reason was an intended close energy partnership for joint exploitation and marketing of the rich fossil energy resources located off the shores of the two countries. Bilateral consultations continued on a ministerial level and Greece was included in the negotiations in order to explore possible cooperation of the three countries in the energy sector. Currently, exploitation is wholly in the hands of Greek Cypriots. This is very much to the annoyance of Turkish Cypriots and Turkey, who both make claims to the reserves and – although unsuccessfully so far – have started to search for oil and gas in the north. Greek Cypriots remained undeterred by Turkish retaliatory threats and invited tenders for test drillings in four more blocks. In response, Ankara announced that no company digging for oil or gas off the Cypriot shore should expect to be able to conduct business in Turkey. In October 2012, results of the second licensing round for exploratory drillings were published:

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• Block 2 and 3 were assigned to ENI (Italy) and KOGAS (South Korea). • Block 9 had originally been given to a consortium consisting of Total E&P Activities Petrolieres (France), NOVATEC (Russia) and GBP Global Resources BV (Russia). Later, however, Cyprus finally awarded this most desired block to ENI (Italy) and KOGAS (South Korea), too – allegedly because of the poor offer by the first consortium, though political considerations might have very well played a role here. • Block 11 was allocated to Total E&P Acitivities Petrolieres (France).

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Negotiations with all these companies have been opened, but were not yet concluded by the end of the year.

Greek Cypriot domestic developments The situation in the south in 2012 was mainly characterised by Cyprus’ Presidency of the EU Council and the dramatic effects of the financial and economic crisis, while the usually © 2014 European Consortium for Political Research

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dominant Cyprus issue took a back seat. Towards the end of the year, Cyprus was facing state bankruptcy and the island depended on the consent of the ‘troika’ of the European Commission, the European Central Bank and the International Monetary Fund to provide financial aid within the framework of the EU rescue package. In March the cabinet was reshuffled since the Minister of Finance, Kikis Kazamias, stepped aside for health reasons and was replaced by Vassos Shiarly. The former Minister for Interior Affairs, Neoklis Sylikiotis, took over the Ministry of Trade, Industry and Tourism from Praxoulla Antoniadou Kyriacou, who filed suit against her dismissal. The former mayor of Nicosia, Eleni Mavrou, became the new Minister for Interior Affairs. In May, Greek Cypriot President Demitris Christofias declared that he would not seek re-election in the February 2013 presidential vote. He justified his decision by repeating his promise from 2008 to serve a second term only if a solution of the Cyprus issue would be around the corner. His party – the communist AKEL – chose the formally independent Minister of Health, Stavros Malas, as a candidate in September. Malas offered a moderate position in the Cyprus question, but was handicapped by a political climate that throughout 2012 had been adverse to AKEL and Christofias. The nominee of the second biggest party on Cyprus – leader of the conservative DISY, Nicos Anastasiadis – was tipped to be favourite for the next elections. He also gained the support of the third biggest party of the Republic – DIKO. Anastasiadis had advocated moderate positions in the Cyprus issue for years, but once nominated, he adopted a more hard-line rhetoric, pledging to take back some of the concessions of his predecessor. The third serious candidate was Giorgos Lillikas, widely considered a hard-liner and formally supported by the small opposition party. The start of Cypriot EU Presidency on 1 July was overshadowed by the economic and financial crisis. Cyprus is the fifth country that had to make use of the EU bail-out fund. There are two main factors contributing to the fragile situation of state finances. First, both of the country’s big banks (Popular Bank and Bank of Cyprus) suffered tremendous losses due to the ‘haircut’ in Greece and loan defaults. They urgently needed new capital, which they could get only from the state. Second, the creditworthiness of the Republic of Cyprus fell to junk status during 2012 and the country could not borrow money on the financial markets in order to fulfil its payment obligations. Initial estimates were fairly low, but the necessary sum soared up to an alarming €17.5 billion by the end of the year – a figure roughly equivalent to the gross national product of the republic. Of the total, €10 billion was budgeted for the banks, while €6 billion was needed by the state in order to cover liabilities and reduce the fiscal deficit by €1.5 billion. This level of credit would raise state debt to over 125 per cent of the gross domestic product, which is commonly seen as the maximum limit of affordable indebtedness. Nicosia’s attempts to find Russian or Chinese lenders raised eyebrows in Brussels, but they reflected an effort to obtain better conditions and, above all, to use EU money only for the bank bail-out, thus avoiding the harsh cost-cutting measures which would be demanded by the troika as a condition for further help. Officials sought to protect the status of the island as a tax haven with a 10 per cent corporate tax because foreign investors and letterbox companies constitute the elixir of the country’s economic life. The overture to Russia was not the first request for help. In 2011 Moscow provided a loan of © 2014 European Consortium for Political Research

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€2.5 billion at a reduced interest rate of 4.5 per cent for a period of five years, thus securing the financial needs of Cyprus until the summer of 2012 (officially until the end of the year). Yet, by the end of 2012 Russia was investigating extension of the repayment period until 2021. As of late 2012, the AKEL-led government was still in the final phase of negotiations with the troika. The parties sought to reach a solution by 12 November 2012 in order to avert state bankruptcy and give European partners sufficient time to ratify the agreement and permit first payments in December, but negotiations only ended when a provisional arrangement was reached on 22 November. Key aspects of the agreement are:

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• Maintenance of the Social Security Fund (SSF). The automatic inflation adjustment by salary indexation will not be cancelled, but will remain at the same level until 2016. Only 50 per cent of it will be paid out to the employees and only once a year instead of twice, as was usual up until now. • Continuation of the 13th salary for civil servants. • Incremental salary cuts in the public sector and a temporary extra duty that also affects employees in the private sector. • A moratorium on recruitment of civil servants until 2016 and changes in civil servant working hours. • Fixing of the retirement age at 65 years, linked to life expectancy from 2018 onwards. Civil servants who retire early between 63 and 65 will have to lower their financial expectations, and from 2013 onward pensions will be taxed. • Transfer of supervision of cooperative banking institutions from the Ministry of Finance to the central bank. • Changes in allowances including abolition, taxation or 15 per cent cuts. • Incremental salary cuts in the public sector and a temporary extra duty that also affects employees in the private sector. • Agreement not to privatise semi-state Cyprus Telecommunication Authority (CYTA) unless national debt becomes unbearable. • Tax increases on tobacco, alcohol and fuel.

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A final settlement remained to be agreed upon and ratified in the national parliaments. Germany expressed strong concerns about ratifying an agreement as Cyprus was accused of being a tax haven and money-laundering paradise for Russian oligarchs whose accounts might be rescued at the expense of German taxpayers. Others took issue with Christofias’ public statements that the agreed privatisation of CYTA would not happen, even in the case of unbearable public debt, and potential lenders raised questions about the continuation of the 13th salary for civil servants in a period when dramatic pay cuts in the private sector are the order of the day. In November 2012 the Cypriot central bank estimated a 2.4 per cent decline of gross national product in 2012, and the social implications of the economic crisis becoming increasingly tangible. In 2012, an average of 36,362 persons were unemployed – an increase of 28.6 per cent compared to the average of 28,276 persons in the previous year. Unemployment climbed to a new peak of 14.7 per cent in December 2012 and youth unemployment rose to above 20 per cent. © 2014 European Consortium for Political Research

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HUBERT FAUSTMANN & EROL KAYMAK

The Cypriot Council Presidency

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On 1 July, the Republic of Cyprus assumed the Presidency of the EU Council. The main emphasis of the Cypriot Presidency was working towards a better Europe. Attention was directed at promoting social cohesion, solidarity and policies of fiscal consolidation, as well as employment and job creation. Although these ambitious targets were not actually fully realised, on the whole it was a relatively successful Presidency. On 11 December, after a thirty-year-long debate between Presidency and Parliament, a uniform European patent law was achieved. The legislative package features a consistent regulation on protecting patents and an agreement on a unified European Patent Court intended to prevent multiple patent litigation and contradictory judgements in the different Member States. On 14 December, the European Council reached a settlement concerning the introduction of a Single Supervisory Mechanism (SSM) to control financial institutions. The unitary monitoring mechanism is a necessary condition for the European Stability Mechanism for the direct recapitalisation of banks. One important strategic initiative of the Cypriot Presidency was the reanimation of an integrated maritime policy by issuing the so-called ‘Limassol Declaration’ on marine environment and maritime safety. During Cyprus’s Presidency the EU also moved forward on important legislative projects related to the Single Market Act, venture capital and corporate funds, as well as trans-European networks. Progress was also made in the field of a Common European Asylum System and the Schengen Area. The primary goal of the EU Presidency was not achieved, however: negotiations on a multiannual financial framework to cover the EU budget for the following seven years were not concluded within the six months of Cyprus’s Presidency. One of the biggest but least noticed successes was the fact that no major crisis arose when Turkey, in protest against the Cypriot Presidency, froze relations with the EU. All parties refrained from escalating the situation.

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Turkish Cypriot domestic developments

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January 2012 saw the passing of Rauf Denktas¸, the Turkish Cypriot leader who represented the Turkish Cypriot community over decades of deadlocked negotiations to reunify the island. As the preeminent political figure in the community, Denktas¸ was principally responsible for the unilateral declaration of independence and the establishment of the internationally unrecognised Turkish Republic of Northern Cyprus (TRNC) in 1983. He died on 13 January and was laid to rest on the 17 January. That Denktas¸’s death marked the end of an era was underlined by the urgency of the agenda to privatise key elements of the state apparatus, including electricity and telecommunications. On 19 January, an indefinite strike was declared by unions opposed to privatisation. While Prime Minister I˙rsen Küçük agreed to withdraw the bill and suggested restructuring of the electricity company (KIBTEK) instead of privatising it, he then found © 2014 European Consortium for Political Research

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himself under pressure from Turkey to reverse his position again. The privatisation law was passed on 27 March. It was challenged in the courts, but was ultimately upheld by the Constitutional Court in November. Strikes intermittently disrupted services for much of 2012 and the financial insolvency of the Nicosia Turkish Municipality (Lefkos¸a Türk Belediyesi, or LTB) reflected a broader political crisis within the ruling National Unity Party (UBP) government. In September 2012 the Prime Minister sacked two ministers – the Minister of Education, Kemal Dürüst and the Minister of Health, Ahmet Kas¸if – as part of a cabinet reshuffle. In purging ministers close to President Dervis¸ Erog˘lu, Küçük sought to consolidate his power within UBP prior to the party congress held on 21 October. Dürüst and Kas¸if were replaced by Mutlu Atasayan and Ertug˘rul Hasipog˘lu, respectively. Ahmet Kas¸if stood as a candidate for party leadership against Küçük at UBP’s party congress. Küçük won by a narrow margin of party delegate votes cast (704 to 690 plus eight invalid ballots), but Kas¸if legally contested the result on a technicality of a party statute on vote tallies. Hearings continued into early 2013, but Küçük continued as prime minister. By the end of November, parliament agreed on a €1.5 billion budget for 2013. On 4 December Küçük signed an economic package with Ankara that included aid transfers of 3 billion Turkish Lira (€1.1 billion) to the TRNC. Turkish ambassador, Halil Ibrahim Akca, made comments suggesting that Turkey will cease its transfer payments for telecommunication, electricity and the ports, and made it clear that these areas will have to be privatised. Turkey estimates the 2012 economic growth rate of TNRC to be 2.8 per cent and projects a growth rate of 4.2 per cent between the years 2013 and 2015 – a period which corresponds to the timeframe of the reform plan that has been endorsed by Turkey and the TRNC. The 2012 growth rate did not help to reduce unemployment, however, and it remained at 9.9 per cent in 2012 – almost identical to the rate of the year before. Turkish Cypriot opposition parties and union leaders in particular also expressed frustration and concern with what was viewed as Turkey’s increasing encroachment on Turkish Cypriot assets and Turkish efforts at cultural engineering. The establishment of a religious school for the training of imams in Haspolat (near Nicosia), along with the long-term of leasing of state-owned properties to a newly established religious foundation for the purposes of a building a religious complex led to protests by teachers unions who claimed that the secular orientation of education was at risk. Meanwhile, after resigning as special advisor to Erog˘lu in the Cyprus talks, Kudret Özersay formed a political reform movement (Toparlaniyoruz) that emphasized the need for autonomy and accountability of TRNC politics and institutions. Finally, Turkey forged ahead with its ‘project of the century’ to build water pipelines between southern Turkey and Cyprus to be completed by March 2014, and the government of the TRNC granted drilling rights in northern Cyprus to the Turkish company (TPAO), which quickly commenced the searching for oil deposits. Meanwhile, efforts to construct a petrol-holding station led to environmental concerns and the government was compelled to postpone plans when a commissioned environmental impact study raised warning flags, but the government was successful in signing a long-term lease for the operation of northern Cyprus’s main airport: Ercan International Airport in Tymbou. © 2014 European Consortium for Political Research

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HUBERT FAUSTMANN & EROL KAYMAK

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Faustmann, H. & Kaymak, E. book 50(7–8): 934–947. Kaymak, E. & Faustmann, H. book 48(7–8): 927–940. Kaymak, E. & Faustmann, H. book 49(7–8): 923–938. Kaymak, E. & Faustmann, H. book 51(1): 62–75.

(2011). Cyprus. European Journal of Political Research Political Data Year(2009). Cyprus. European Journal of Political Research Political Data Year(2010). Cyprus. European Journal of Political Research Political Data Year(2012). Cyprus. European Journal of Political Research Political Data Year-

© 2014 European Consortium for Political Research