Euro blurs Cyprus division

NICOSIA – When Cyprus ditches its pound and enters the eurozone tomorrow, it could be a step toward bringing together the economies of the divided island even if no political solution is in sight. Merchants in the breakaway Turkish-Cypriot state in northern Cyprus have survived decades of isolation by accepting whatever currency they can. Some now suggest the north should unilaterally adopt the euro in line with Greek Cypriots in the south. «We already use the euro widely. Turkish Cypriots know the euro well and would have no objection to using it even more,» Ali Erel, head of the European Union Association in northern Cyprus, told Reuters. The north officially uses Turkish lira and declared itself independent in 1983, nine years after Turkey invaded the island in response to an Athens-backed coup in Nicosia. The enclave of about 250,000 is recognized only by Turkey, which props it up financially and has some 30,000 troops there. Cyprus joined the EU in 2004, but hopes that the island could be reunited anytime soon were shattered when Greek Cypriots voted against a UN peace plan just before EU membership. Although the currency issue was not such a major obstacle to a deal as sovereignty or the rights of thousands of displaced people, euro entry could remove questions over adopting a neutral currency and the responsibilities of the central bank. The central bank’s powers, subject of strong disagreement at the past UN-brokered talks, will now be largely taken over by the European Central Bank in Frankfurt. «It would make things easier,» said Costas Apostolides, a Greek-Cypriot economist and adviser in past reunification talks. «Bringing the two sides together is a matter of having the right negotiation framework, but this would make the negotiation process easier,» he said. Disparity The skyline of Nicosia, the ethnically divided capital, speaks volumes on the economic disparity between north and south. High-rise buildings jut into the southern skyline, but not in the north, where per capita gross domestic product of just over $10,000 is less than half that of Greek Cypriots despite the Turkish handouts. Turkish Cypriots said euro adoption in the south would have little immediate effect on the north’s informal economy. «We’ve been using the euro for years,» says clothes shop owner Cemil Bagcioglari, adding that he also uses the Cyprus pound, the British pound, the dollar and the Turkish lira. «We accept anything,» he said. In local casinos, frequented by Greek Cypriots since border crossing restrictions were eased in 2003, owners say the euro will not have a negative impact. «Living in north Cyprus we’ve always been adaptable to any currency, and we’ve been using the euro for two years now,» said Aziz Kent, owner of the Celebrity Casino. Turkish-Cypriot central bank officials say the 9.0 million Cyprus pounds in deposits will automatically be converted to euros on January 1. «We have links with Turkish commercial banks that have contacts with banks in south Cyprus, so we will have no problem getting the Cyprus lira we hold reabsorbed,» said Bagoc Sandalli, a spokesman for the Turkish-Cypriot central bank. Euro enthusiasts like Erel say ditching the Turkish lira and adopting the euro would be a major opportunity to chip away at the economic isolation that has plagued the Turkish-Cypriot community for decades. Isolation In the internationally recognized south, however, the idea is met with skepticism. «Euro adoption will benefit the whole of Cyprus and facilitate (future) reunification but unilateral adoption is not possible,» said Andreas Charalambous, a senior official at the Ministry of Finance. «(North Cyprus) is an entity not recognized by anyone, and unilateral adoption is not allowed,» Charalambous said, adding that such a move would not be allowed under EU law. Turkish-Cypriot authorities have also shown no inclination to shift from Turkish lira to the euro. «Not only are loans and financial aid in Turkish lira, so are all banking and trade transactions. Therefore I find such discussions irrelevant,» prominent Turkish-Cypriot businessman Fikri Toros told Reuters. But there is little that Turkish- or Greek-Cypriot authorities, or indeed the European Central Bank, could do to prevent a de facto unilateral adoption that already shows signs of taking hold in the north.