06 Nov 2016 Banks should step up on Cyprus problem

Next week, Nicos Anastasiades and Mustafa Akinci will spend five days at Mont Pèlerin hashing out some of the most politically thorny aspects of the Cyprus problem.

If things go well, then we shall be well on our way to the final phase: the multi-party conference in which the security aspects of the Cyprus problem are worked out and we reach a grand political deal.

What the leaders will not come back from the mountain with is tablets of stone, dictated by the Almighty, on how this is all going to be financed.

The UN Special Adviser, Espen Barth Eide, said at The Economist conference this week that an initial estimate had been made on the cost of property financing that was lower than expectations (he did not cite the figure); that there were plenty of foreign investors looking for a good place to invest; and that there was an agreed premise that the property solution should not burden the taxpayer.

These are positive signs. But they are not enough to secure two yes votes in a referendum.

When Greek Cypriots and Turkish Cypriots go to vote on a solution, perhaps some time next year, they will need more details about exactly how it will be financed and more concrete reassurances that it is not going to burden their pockets.

This is where the banks come in: to match the local knowledge with big finance in order to flesh out how to monetise the following. (And if you happen to structure a product in your head while reading this, do get in touch via my website).

First, the expected rise in value of ‘affected property’ in the north. This refers to Greek Cypriot titles in the north that are not reinstated, but which are currently traded at a heavy discount because they carry a legal impediment. A property settlement should lead to an immediate convergence of these prices with original Turkish Cypriot property.

Second, the expected rise in value of 58,000 hectares of affected Turkish Cypriot property in the south. Inferring from the valuation of private land in the south for tax purposes, carried out in 2013, I estimate that Turkish Cypriot property has a potential long-term value of around €25bn. However, at the moment this value cannot be realised, because the land is currently not traded at all and, in some cases, lacks basic utilities.

Third, the vast potential of the uninhabited district of Varosha, especially if it is redeveloped in a smart way (declaration of interest: I am part of the Famagusta Ecocity project, with a vision to turn the whole of Famagusta into the most liveable city on the island).

Fourth, credit guarantees and any other financial support that comes from the international community.

Finance a pre-condition for solution

It will be a great deal easier for the two leaders to find a deal on property if the banks have helped devise financing solutions.

Indeed, I would go one step further. The question, ‘How much compensation can we afford?’ is a key political consideration in working out the balance between compensation and restitution. Answering that question is therefore a necessary pre-condition for the leaders to take the final leap. That means it has to happen now.

At the Economist conference on Tuesday, Eide also spoke about the loneliness at the top. The leaders are going into this final stretch with a lot of people trying to stop them at every turn. They need every ounce of support they can get, from every section of society.

The banks have a lot to gain from a Cyprus settlement. But these opportunities will not be realised if they do not help make it happen. It is time the banks stepped up and did their bit to end the Cyprus problem.