Study sees property boom for unified Cyprus

Former Cypriot president George Vassiliou has prepared a report on the economy of a reunified Cyprus. It predicts a rise in property values and a building boom.

By George Gilson

THE UNITED Nations has reacted positively to a report prepared by former Cypriot president George Vassiliou that foresees an economic boom in a reunified Cyprus. In an exclusive interview with the Athens News, Vassiliou maintains that a settlement will guarantee the financial future of both Greek-Cypriots and Turkish-Cypriots.

"I don't have the slightest doubts about the economic prospects of Cyprus if we succeed in reuniting the island. But I am very pessimistic about Cyprus' prospects after May 1 if things stay as they are today," Vassiliou says.

The former president says the UN is receptive to three key proposals in the report, titled "The economics of the solution based on the Annan Plan":
  • Returning more tax money to the constituent Greek-Cypriot and Turkish-Cypriot states and setting up mechanisms to ensure budgetary and borrowing co-ordination between the federal government and states.
  • Establishing an organization that will oversee financial institutions other than banks (eg insurance companies).
  • Making sure that there is a single central bank rather than separate branches in the constituent states as proposed by the Turkish-Cypriot side.

"The UN did not pay attention to the economic aspects of a solution, but focused only on the political issues. To avoid more disputes, they avoided spelling out the coordination mechanism between the federal budget and that of constituent states. The only reason we don't have a solution now is that Turkey and Denktash don't want one Cyprus. They want two Cypruses. This will never happen - especially now that we've entered the EU as one Cyprus," Vassiliou says, calling for strict regulation of budget deficits, along the lines of the EU stability pact.

A building boom
Vassiliou foresees a huge building boom after unification, which would center on the expanded Greek-Cypriot state. "You have Famagusta, Varosha and Morphou that have to be rebuilt. That's like saying that half of Athens has been destroyed and must be reconstructed," he says.

Overall, the Vassiliou report sets the price tag of the entire resettlement and rebuilding process at 6.1 billion euros. The reconstruction of Varosha alone is estimated at 1.7 billion euros. For Morphou and all other villages and townships - where an estimated 80,000 Greek-Cypriots would be able to return to their ancestral lands - the renovation of 28,000 homes and the building of 7,000 new ones would cost an estimated 2 billion euros. An additional investment of 765 million euros would be required for the infrastructure of Morphou, including roads, schools, public buildings and churches.

The return of many Greek-Cypriots to their homes in the northern, Turkish-occupied part of the island would displace about 47,000 Turkish-Cypriots. These would have to be rehoused in 12,000 new homes in the Turkish-Cypriot constituent state, at a cost of about 765 million euros. There would also be about 21,000 Greek-Cypriots allowed to relocate in the Karpassia region, under Turkish-Cypriot administration. The report estimates that about 255 million euros would be needed for the renovation of houses there.

How will the money be raised? "The European Commission has already approved 206 million euros in post-settlement aid. If they renewed that for another five years, you'd get your 500 million right away. If a solution requires more funding annually, I am sure this would be provided," says Vassiliou.

Vassiliou has high hopes that an international donors' conference, for which the United Nations has already publicly declared its support, would help considerably in covering the costs. He believes that substantial contributions from Europe and the United States could well exceed the 500 million euro mark.

The report stresses the need for the free movement of labour, goods and capital, despite any transitional restriction on settlement by Greek-Cypriots in the Turkish-Cypriot constituent state. Vassilou notes that the Annan plan provides that any restrictions on capital cannot be discriminatory.

A central part of any Cyprus settlement is the compensation for properties lost by members of both communities, which under the Annan plan is undertaken by a self-financing property board. Those who cannot return home because of settlement restrictions can sell their land to the property board in return for state bonds, payable in 5-10 years. "Those people could sell their lands to the property board, which issues bonds in return for property. The board will buy these properties based on real market values existing in the free Greek-Cypriot areas and sell them off either to the current resident or someone else," Vassiliou explains.

The report estimates the value of property compensation for both Greek-Cypriots and Turkish-Cypriots over about ten years at 17 billion euros. It justifies the high price tag with the argument that northern property prices, depressed along with the rest of the Turkish-Cypriot economy, would rise. It also points out that "property prices in the Republic of Cyprus have been rising by 10 percent a year for the past 30 years".

One of the most significant economic proposals made in the report is returning two-thirds of the Value Added Tax (VAT) collected at the federal level to the two constituent states. (The Annan plan foresaw the return of only one-third.) "This is most important. If you return only one-third, you have surpluses in the federal budget and deficit in the budgets of the constituent states. By handing over all indirect taxes to the federal government, they are giving it much more than is needed. If, then years down the road, you decide to give the federal government more powers, then you can give it more money," Vassiliou concludes.

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