The island needs a strong Europe for its future security and prosperityby Vicky Pryce / October 5, 2016 / Leave a comment
Alarm bells have been ringing in Cyprus over Britain’s vote to leave the European Union in the referendum of 23rd June. The Cypriot residents in Britain, who with Maltese residents were the only other EU citizens allowed to vote in the referendum, would have voted overwhelmingly for Britain to stay.
Theresa May announced at the start of the Conservative Party Conference on Sunday that Article 50 will be invoked by March 2017—and that the government will repeal the 1972 European Communities Act and transpose (and then change as wished) EU law into UK law once we formally leave the EU. The timetable for Brexit is clear, even if much else is not.
What will it mean for Cyprus? Its relationship with Britain has not always been a happy one of course, but ties go back a long way—to 1878 and the Congress of Berlin, when it was detached from the Ottoman Empire and became a British colony. Only in 1960 did Cyprus obtain its independence after a long and bitter terrorist campaign but the country is still part of the Commonwealth. The economic and political links cannot be exaggerated. With Greece and Turkey, the UK is a “guarantor” of the independence and territorial integrity of Cyprus. The law on the island is mainly British, which has proved of great benefit to the Cypriots in making the island attractive for incorporation and business investment. Of its million tourists a year, half are from Britain. Many Brits own second homes on the island and substantial numbers of them have retired to it.
Its currency is the euro, of course, and the impact of Brexit on the exchange rate and the spending power of Brits on the island are issues that are likely to affect Cyprus’s economic growth in the years to come. Britain is Cyprus’s second largest trading partner and there are an estimated 300,000 Britons of Cypriot origin in the UK—as well as many Cypriot passport holders. Cypriot students who come in large numbers to the UK are worried about higher tuition fees when Britain exits. And of course there is an issue with the two RAF bases at Akrotiri and Dhekelia, where some 15,000 Cypriots, EU citizens, live on what is British Sovereign territory. Their post-Brexit status is currently unclear.
Cyprus’s other main link is, of course, with Greece, economically as well as politically. A failed attempt in 1974 by the Greek military junta to unite Greece and Cyprus led to a bloody Turkish invasion and the division into North and South Cyprus. Cyprus watched anxiously the attempted military coup in Turkey in July this year. Its success might well have jeopardised recent progress in the latest attempt at reunification under a system of joint governance—Northern Cyprus is only officially recognised by Turkey and EU law does not apply there, while Southern Cyprus is a member of the eurozone, though not in the passport-free Schengen area.
The relationship with Turkey is crucial. Britain had been, despite what was said in the referendum campaign, one of the most vocal supporters of Turkish membership of the EU. The future loss of British influence with the rest of the EU in this area is worrying. Nevertheless, on 27th September, Theresa May at Downing Street assured President Anastasiades of Cyprus of “the UK’s steadfast support for the process” of negotiating a comprehensive settlement.
Its achievement would be a tremendous boost to the island. And it needs it. It is a small country with only 0.2 per cent of the EU economy but strategically important at the eastern end of the Mediterranean close to the Middle Eastern areas of conflict. Cyprus was badly hit by the financial crisis of 2008 and suffered a severe crisis in 2013 when bad investments into Greek bonds nearly brought down its banking system. Russia at one point seemed ready to rescue it, but that didn’t happen and instead Cyprus received a EU bailout of ten billion euros with losses suffered by large depositors. It was also obliged to impose capital controls which have only just been lifted.
Brexit has increased uncertainty for Cyprus. In addition to the costs from any upset to its ties with Britain, European unity has been severely shaken by the British vote to leave and nationalist and populist movements are gaining ground in many countries in response to migration from war torn countries in the middle east. The EU’s uncertain response to these issues has led to a loss of faith in its institutions and its ability to act. Clear divisions were evident last month at the EU’s Bratislava summit, for the first time without a UK representative. At the same time the “periphery” countries in Southern Europe are increasing the pressure for better treatment given the perceived unfairness of austerity policies imposed on them by Northern Europeans and the Commission. Europe appears increasingly as a continent divided and not achieving its growth potential. Cyprus needs a strong Europe both politically and economically for its future security and prosperity. The British vote may well have tipped the balance against that possibility.
Vicky Pryce is a board member of CEBR, a former Joint head of the UK Government Economic Service and author of ‘Greekonomics—The Euro Crisis and Why Politicians Don’t Get it’ (Biteback Publishing)