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02 Sep 2017 The Turkish Cypriot property dilemma

If my hunch is right, then Turkey’s ‘Plan B’ after the collapse of talks in early July to solve the Cyprus problem involves four key steps. The first two are to offer permanent residence to the Maronites in their traditional villages and to open up Varosha to its original inhabitants (under whose control seems to be still under discussion). The third step would be to speed up compensation for Greek Cypriot dispossessed owners in the Immovable Property Commission (IPC), while a fourth step could conceivably be to offer other displaced Greek Cypriots to be able to reside in northern Cyprus permanently. These four steps would remove much of the litigation risk faced by Turkey, thus ‘normalizing’ the permanent partition of the island. Speeding up compensation payments at the IPC is not straightforward, however. So far, Turkey has paid £238.6 million (it pays in sterling) in compensation for 1,028 cases. However, payments have slowed down because the Turkish Cypriot administration reportedly spent the money from Turkey on 13th salaries instead of on the IPC. Turkey is now pushing for other ways to fund the compensation. The primary idea is that those who obtain ‘clean title’ to the properties they are currently using, should pay. In my view, this is perfectly justifiable, since ‘Greek titles’ in northern Cyprus are sold at a discount to ‘Turkish titles’. This is because the market recognises that there is a legal impediment, even if the Turkish Cypriot authorities treat both titles the same. As soon as the current user obtains clean title, therefore, the value of the property will rise. It seems only fair that those who benefit should pay the difference, rather than Turkish taxpayers. This is, of course, politically unpopular for two reasons. First, it seems that many mainland Turks who came in the 1980s received this property for free, and second, because Turkish Cypriots probably received more property in the north in than they had left in the south. There are 1.4 million donums of private Greek Cypriot property in the north, compared with only 0.4 million donums of Turkish Cypriot property in the south. Even if there is an agreement that the current user should pay, the IPC also needs a considerable increase in resources if it is to compensate every single Greek Cypriot dispossessed owner. To date, the IPC has only concluded cases on 30,572,567 square metres (22,849 donums). That is just 1.6% of the 1.4 million donums of Greek Cypriot private property in the north. Even if you take the most productive year (2015) in which the IPC concluded 2.4 million square metres of cases, I calculate that it would take the IPC over 400 years to process every single square metre of Greek Cypriot private land in northern Cyprus. If there is indeed a ‘Plan B’, therefore, it is going to take years to roll out. That leaves a very small opportunity for those who still want a federal solution to keep...

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31 Aug 2017 Country Analysis Cyprus: short executive summary

CYPRUS EXEC SUM 31 AUG 2017: SAPIENTA COUNTRY ANALYSIS CYPRUS The following is a shortened version of the executive summary in the subscription product. Contact us for a free trial Political analysis and outlook: The Cyprus problem is likely to remain in limbo for a while, as the UN has taken a step back. Rumours have resurfaced about Greek Cypriot plans for a two-state solution, while Turkey has been sending mixed messages about abandoning a federal settlement. Structural reforms and natural gas: Initial results of the offshore natural gas drilling will be delivered to the government in September. The government has started the process of privatizing the state lottery. Fiscal performance and forecast: Revenue growth continues to accelerate and pre-election spending has also started to rise. We continue to expect the debt/GDP ratio to fall below 100% in 2018. Banking sector: BOC continues to cut NPLs aggressively but reported a loss of over €500m in the first half after a higher than usual increase in provisions. RCB has received a credit upgrade and banks have started lending again. Macroeconomic trends and forecast: Real GDP grew by 3.6% in the first half of the year and we have revised up our forecast for 2017 to 3.5%. However, there are some potential signs of a slowdown from the second half of the year and Brexit will affect UK tourism in 2018. For premium access to the full report on your Bloomberg terminal find our contacts at {SEOR} <GO> For more information about Sapienta Country Analysis Cyprus and a sample visit https://sapientaeconomics.com/country-analysis-cyprus/ Copyright © 2017 Sapienta Economics Ltd Full report: ISSN 2301-2439, Sapienta Country Analysis,...

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20 Aug 2017 Politics of identity: Right or wrong?

There is a theory doing the rounds in US politics at the moment which goes something like this: the rise of white supremacists is all the fault of the Democrats, because they have focused on the ‘politics of identity’, also sometimes called the ‘politics of victimhood’ or the ‘politics of hate’. Kinder analysis simply says it is a vote-loser and the Democrats should focus on something else instead. Below I explain why the vote-loser argument might have some merit. But the logic of blaming the Democrats for white supremacists seems wobbly. Let’s start with the assumption that to create a free, fair and democratic society, you need equality of opportunity. If schools, employers or networking clubs either deliberately or inadvertently exclude you on the basis of religion, class, race, sexual orientation, identity and so on, then this automatically puts you further down the ladder. Poverty levels One indication that the US suffers from inequality of opportunity is the State of Working in America website, which finds that “Workers earning poverty-level wages are disproportionately female, black, Hispanic, or between the ages of 18 and 25”. Just in case you are tempted to put this down to genetics, another paper from the Equality of Opportunity website, which measured the impact of moving young children to better neighbourhoods, found “no systematic differences” by gender, race or location. “[T]he effect of the experimental voucher on earnings are positive for all five experimental sites, for whites, blacks, and Hispanics, and for boys and girls for children below the age of 13 at RA [random assignment],” it said. Another paper from the Equality of Opportunity website showed that upward income mobility (earning more than your parents) has deteriorated. It says: “rates of absolute mobility have fallen from approximately 90% for children born in 1940 to 50% for children born in the 1980s”. The researchers found that unequal distribution of economic growth was a key factor. “We find that most of the decline in absolute mobility is driven by the more unequal distribution of economic growth rather than the slowdown in aggregate growth rates.” The research found that a more equal distribution of GDP, even at today’s lower growth rates, would have reversed more than two-thirds of the mobility decline. Focusing on the causes Equality of opportunity does not come out of thin air. As a woman a hundred years ago, I would not have been able to vote in Britain. Two hundred years ago, as a Catholic, even if I were a man I would not have been able to sit in parliament. Within my adult lifetime, British police spent resources chatting up gay men with a view to arresting them as soon as they made a pass. All of these stopped because a group of people organised and made ‘an issue’ out of it. Was that divisive? Probably. Does that mean we should forget about those whose opportunities are more restricted than ours? Only if you believe in the law of the jungle, the survival of the fittest. But even that philosophy is self-destructive. A world in which only the rich can afford healthcare is one in which you might get struck down by a nasty infectious disease. A world in which even a significant minority are poor or angry is one in which the wealthy have to restrict their movements, living behind big gates and spending a fortune on security. If we are to ensure that everyone gets the same chance at life and that we can all live peacefully in our neighbourhoods, we have to focus on what holds people back. This...

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13 Aug 2017: Retailers lose out if crossing points close

January-July this year, Turkish Cypriots spent €14.7 million using plastic cards south of the Green Line, while Greek Cypriots spent €5.1 million in the north, according to data from JCC Payment Systems. Another €1.8 million was spent by Greek Cypriots in Turkey. JCC has been producing statistics on card spending across the Green Line for 10 years: enough to see some patterns. Greek Cypriot and Turkish Cypriot card spending is my shorthand for JCC’s “use of Turkish credit cards in Cyprus” and “use of local credit cards in occupied areas and Turkey”. Since 2011, JCC has reported the data spent in the north separately from money spent in Turkey. The first clear pattern is that Turkish Cypriots spend far more with their cards in the south than the other way round and always have done so. In 2016, they spent €26.1 million for the whole year, whereas Greek Cypriots spent €7.4 million—less than a third as much. The number of Turkish Cypriot transactions was also higher. Total card transactions by Turkish Cypriots amounted to 482,630, whereas total transactions by Greek Cypriots was 70,651. One can see from these figures that Turkish Cypriots also spend on average more per transaction: €54 per transaction compared with €45 for the south. TC spending up 55% in two years What is even more interesting is that, despite the fall in the Turkish lira, Turkish Cypriot spending has been rising rapidly in the past couple of years. In 2014, spending south of the Green Line was just €16.8 million. As noted above, in 2016 it was €26.1 million. In two years, therefore, it has grown 55%. If you convert Turkish Cypriot spending back into Turkish lira, using the average exchange rate of the lira against the euro for each year, you can see that Turkish Cypriot spending has actually been rising every single year since records began. By comparison, spending by Greek Cypriots in the north has been more volatile. It fell for three consecutive years in 2011-13, jumped by 33.8% in 2014 and then rose by a more steady 5.1% in 2015 and 8.9% in 2016. It is only in the past two years that spending has risen so much. There are two possible reasons for the recent rise in spending. The first is that prices in the north are rising faster than the fall in the lira. For example, the lira fell by 32.0% against the euro between 2013 and 2016. Cumulative inflation in northern Cyprus during the same period was 34.7%. This means that, on average, prices rose a little higher than one would expect just from the exchange rate. One can imagine that prices of certain goods rose even higher. A second reason is that the south was experiencing deflation during this same period, owing to both recession and low oil prices. Between 2013 and 2016, prices south of the Green Line actually fell by a cumulative 2.6%. This will have made goods in the south more competitive relative to the north. Add the fact that the south has greater competition anyway, because it is more open to the rest of the world, and you can see why Turkish Cypriots flock to the shops on Saturdays. Broadbased spending Another feature of Turkish Cypriot spending is that it is more broadbased than Greek Cypriot spending. In 2016, the top category was supermarkets (€6.3m), accounting for 24% of the total. This was followed by clothing (€5.3m), “other” (which I suspect includes IKEA and Jumbo) at €3.6m, and DIY and household items at €3.1m. For Greek Cypriots, the top category in 2016 was...

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06 Aug 2017 EU duties to Turkish Cypriots

In 2014, 92,000 Turkish Cypriots were eligible to vote in the 2014 Republic of Cyprus parliamentary election. This means that there are at least 92,000 EU citizens residing in northern Cyprus. If you count the children, there are even more. Inferring from the 2011 Turkish Cypriot census, I concluded there were just over around 136,000 people of (only) Turkish Cypriot origin in northern Cyprus in that year. The death of negotiations to solve the Cyprus problem, in particular declarations by Turkey that there is no point in pursuing ‘the UN parameters’, leaves these EU citizens vulnerable. There are already calls from some Greek Cypriot quarters to abandon all EU technical and financial assistance, since the Republic of Cyprus has only assented to it on the basis that it is “with a view to reunification”. That would be a mistake. In the last phase of the negotiations, the EU institutions, the World Bank and the IMF expended considerable efforts getting to know the economy of northern Cyprus and assessing everything that needed to be done to close the gap in standards, regulations and so on between the eurozone south and the north. The work to close that gap should not be abandoned, for three reasons. First, every year that passes widens the gap between the economy in the south, which has gone through the painful discipline of a financial crisis, and the north, where balancing budgets is always a task for ‘tomorrow’. If there is any shred of hope that negotiations might be revived, then the closer the Turkish Cypriot economy is to eurozone standards, the lower the Greek Cypriots’ concerns will be about the impact of a settlement on the economy. Second, we all live on the same island. The tap water runs through the same soil and we all swim in the same sea. Environmental pollution affects all of us. It is therefore in everyone’s interests that environmental standards are high. Third, as noted above, the EU has a duty of care to its citizens. It should start asking some difficult questions about the rights of those citizens. It should ask why a Filipina spouse of a Cypriot national can gain citizenship, but a Turkish one cannot. It should ask how blocking access to telecommunications is compatible with the EU’s telecommunications strategy. It should be asking similar questions about education and science. It should be taking a close look at history education in schools and asking if is compatible with fundamental EU principles and values. It should expand the Green Line regulation to include any product that meets EU standards, which by definition will improve competitiveness in northern Cyprus. The EU member states know that if they do this they will be subject to a lot of tantrums. But unless they want to deal with the even bigger headache of a hard border with Turkey along the Green Line, they need to face down the critics and do everything legally possible to keep the European path open for their vulnerable citizens in northern...

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30 Jul 2017 Why are Cyprus milk prices so high?

Last month, the EU’s statistical service, Eurostat, published comparisons of various consumer prices across the EU. The results are based on surveys of more than 2,400 consumer goods and services. Price differences are calculated on a ‘purchasing power parity’ (PPP) basis. This means that Eurostat officials do not just compare the sales price of a litre of milk, they compare its price relative to spending power in that country. Overall, Cyprus came out lower than the EU average for the all-inclusive category of ‘household final consumption expenditure’: that is, for all household spending. Eurostat found that overall prices at PPP in Cyprus were 88% of the EU28 average in 2006. By comparison, they were 86% in Greece and 121% in the UK. Denmark came out top among EU members, at 139%, while Bulgaria (despite a fixed exchange rate to the euro) was bottom, at 48%. Where Cyprus sticks out, however, is in prices of milk, cheese and eggs. Here, prices at PPP in Cyprus were the highest in the EU, at 145% of the EU28 average. Greece was 134% and the UK was 104%. Why is this the case? One reason in Cyprus’ case is the weather. There is not much rain, which means there is not much grass, so farmers spend more feeding cows with imported grain. A bigger reason, however, is likely to be that Cyprus is an island. Dairy prices in Greece, which is dotted with islands, were the second highest in the EU at 139%. Ireland had the third highest dairy prices in the EU, at 130% of the EU average, while prices in Malta were a fairly high 118%. It is easier for competitors to supply fresh milk to another country across land than across the sea. When there are no external suppliers, this means there is less price competition. This, in turn, leads to higher prices for consumers. In Cyprus, where there are essentially only two milk producers, this impact is even more extreme and leads to a market situation that behaves like a cartel. Indeed, the Commission for the Protection of Competition slapped a €2.1-million fine on the Cattle Farmers’ Association (which has 65% of the market) for price-fixing in December 2014. In a small market, only strong regulatory oversight can ensure that the consumer is not taken for a ride. Restaurants do better To give an idea of how plenty of competition in a sector can convert into lower prices, let’s take a look at a sector where Cyprus does have a large amount of market players, namely in tourism. According to data from the Cyprus Statistical Service, there are around 5,000 tourism establishments in Cyprus (both hotels and food-service outlets). This means, of course, that customers have more options, so restaurants and hotels need to compete on price (as well as other factors) to attract customers. As you would expect, in this kind of market, prices compare much more favourably in Cyprus with the EU average than in the dairy sector. Eurostat found that restaurant and hotel prices in Cyprus were just 91% of the EU average in...

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