25 Mar 2013

Pipelines, and deposit lines: a view from north Cyprus

Across the rooftops of Nicosia are the symbols of this island’s history, now again at the top of global concerns for different reasons.

A geopolitical divide running through Cyprus that’s even difficult to see at street level, until you stumble into the border guards. And then it becomes very real. Off limits for nearly four decades, streets are still deserted since the island’s partition.

On the Greek side of the line yesterday a D-Day of sorts – their fate in the single currency decided 2,000 miles away at a meeting in Brussels of their president with the Eurozone and the International Monetary Fund. The limits on cash withdrawals squeezed again to €120 as the bank vaults run dry. A week ago it was €600 plus.

The key sticking point was a desire by Cyprus’s rescuers to wind down Bank of Cyprus, which holds many of the deposits of Cyprus’ political and legal elite – a desperate attempt to resist pressure from the troika and keep some sort of offshore financial centre on the island.

On the north of the island, you can’t move for the flags of the self-proclaimed Republic of Northern Cyprus and its protector Turkey, but something here is moving.

The troubles of the south might change this island forever. The man who called himself the Mayor of Nicosia or Lefkosa from 1976-1990 (a title hotly-disputed in Cyprus proper) said he felt strong human sympathy for what was going on in the south.

If you travel further north on pristine motorways, paid for by the now booming economy in Turkey, you stumble across something extraordinary resting on the beach: piles of giant steel pipes, made in China, that will soon form a 50-mile pipeline of drinking water from Anatolia to North Cyprus.

At that point the north will have the drinking water and the south the gas. The Turkish Cypriots think it will help their bargaining power in any unity talks.

Also now it is the north that is growing, and that has open banks, and the south that has capital controls – in a week, when the sands have shifted hugely in Turkey, Israel, Russia and in the Eurozone. It is complicating negotiations and calculations about whether Cyprus will be allowed by Brussels to fall.

And its leaving the north Cypriots smiling.

In Turkish Nicosia, there’s a spot of schadenfreude at the fate of their neighbours, but when we spoke to the prime minister, unifying the island is back on the agenda.

Irsan Kucuk, who is the leader of the Turkish Cypriots and calls himself prime minister (though again this is disputed in the south)., said:  “Of course, I see this as the accumulated effect of many years [of their system]. I can say that the juncture they now find themselves at, has not come as a surprise to us.”

He said that depositors were welcome to put money in the banks in the north, which were “safe and stable”. But he also felt that better conditions may now exist for unity and peace.

“My opinion is, thinking logically, and considering the people in both countries and caring for their livelihoods and welfare, this could lead to relatively more positive developments.  The process could take a more positive direction, one would think,” he told me.

Cash strapped southern Cyprus was banking on using its gas reserves as a security in any bailout. On Monday Turkey proper waded in, the foreign ministry saying that was “dangerous”.

Last week President Obama on the tarmac next to air Force One, made PM Netanyahu of Israel apologise and promise to compensate Turkey for the deaths on its 2010 flotilla to Gaza. Just in the past few days Turkey has made up with the Kurds who have epic supplies of oil that need to cross Turkey. It has also made up with Israel which had been lined up as Cyprus’s gas partner.

It is said in Germany that Angela Merkel’s chancellery and Wolfgang Schaueble’s finance ministry agreed that economically, Cyprus doesn’t matter, that in the jargon it is “non-systemic”.

But Merkel, perhaps unlike her finance minister, does believe Cyprus is geopolitically vital. This is perhaps what is keeping Cyprus in the euro for now.

But this crisis is not just about ATMs, banks and deposits.

More on the economics and the deal later.

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