Expert group to study euro introduction in northern Cyprus

Hopes for unofficial EU approval

 

An expert group of professionals and economists is undertaking a study on whether the euro can be introduced simultaneously on both sides of the Green Line on January 1, 2008 as a way of promoting the reunification of Cyprus, with hopes of gaining unofficial EU approval for the idea.

The government-controlled area of the Republic of Cyprus in the south is due to adopt the euro on January 1, 2008, while the de facto currency in northern Cyprus is the Turkish lira.

The volatility of the Turkish lira, which in turn has led to inflation problems in northern Cyprus, has led to calls for the adoption of the euro in the north. The Cyprus pound is already widely used in shops and restaurants and it is expected that this would quickly be replaced by the euro once the euro is adopted in the south.

The proposed study is an initiative of the Bicommunal Initiative Group comprising Cypriots from both communities. Participants include experts in the field of economics and monetary policy.

Logistical and organisational support is being offered by the Management Centre, while a contribution to the logistical costs of the project is being made by the British High Commission.

The contributors to the study will establish the potential political and economic gains to be made by all parties concerned as well as any costs or risk involved and study whether the expected gains outweigh the risks.

The intermediate findings of the study will be discussed at a roundtable discussion to take place in mid-January, while the final results will be presented at a conference to take place around the end of February, with participation of discussants from Cyprus, the European Union and beyond.

One of the key questions will be whether the adoption of the euro by northern Cyprus, which is legally part of the EU but where the acquis communautaire is officially suspended, will be accepted by the EU authorities.

Speaking to journalists, members of the expert group indicated that while they do not expect an official sanction from the European Commission or the European Central Bank, they might get an unofficial sanction because of the political benefits.

Moreover, the group hopes to get input from EU experts, albeit in a personal capacity. During the press conference, Praxoula Antoniadou Kyriacou, a member of the Bicommunal Initiative Group and a former senior employee at the Central Bank of Cyprus, referred to the fact that one of the major sources of disagreement in the run-up to the failed twin referenda to reunite Cyprus in April 2004 was over the currency and the number of branches of the Central Bank.

“What becomes immediately apparent is that one major source of disagreement that existed so far in the discussion about the economy of a unified Cyprus will be removed with the simultaneous introduction of the euro,” said Antoniadou Kyriacou. “The question of what should the currency of a unified Cyprus be and the issue of who will be making monetary policy decisions will be automatically resolved, while the possibility of having a branch of the Central Bank in the north would not raise any monetary policy issues.”

Bulent Kanol, executive director of the Management Centre, said, “We are anxious to use every single opportunity to break the deadlock on the way to a sustainable solution to the political problems we are facing. We think economics can be an important stimulator to break the deadlock…We hope that the euro study will contribute to the peaceful aspirations of our communities.”