Economic studies and assessments conducted on the Cyprus problem so far indicate that a comprehensive settlement could generate significantly greater economic growth than the continuation of partition. However, international economic and geopolitical developments make a new and updated assessment necessary, argues Alexandros Apostolides.
The researcher at European University Cyprus and economic historian notes that, prior to Cyprus's accession to the European Union, the economic dimension of the Cyprus problem was not a central element of negotiations. After 2004, major studies were carried out by the World Bank and the United Nations, while PRIO Cyprus (the Peace Research Institute Oslo), one of the world's leading independent research centres, conducted three separate studies in which he also participated.
According to Apostolides, all these studies reach the same conclusion: a unified economy has substantially greater growth potential than one that remains divided. The findings suggest that a durable settlement could generate a "peace dividend" over a 20-year period, increasing Cyprus's GDP by between €14 billion and €18.9 billion, roughly one-third higher than under a scenario in which the status quo is maintained.
He believes that a new study is now required, one that takes into account changes in the global economy as well as modern data analytics tools, so that the Greek Cypriot negotiator can have immediate scientific support when evaluating the impact of proposals placed on the negotiating table.
It’s an investment
Apostolides argues that the economic dimension of a settlement has long been presented in the wrong way.
He recalls that before the 2004 referendum, a document from the Republic of Cyprus was leaked outlining investment and financing requirements estimated at 16 billion Cyprus pounds. According to him, the document was incorrectly presented as the "cost of the solution", when in reality it primarily concerned productive investments.
In his view, the infrastructure required to facilitate the return of displaced persons should not be regarded as an economic loss but as an investment that would strengthen the economy. For this reason, he suggests referring to the financing needs of the transition to a federal state rather than the "cost of the solution".
At the same time, he acknowledges that substantial investments would be needed during the early years, including the restoration of the fenced-off city of Varosha. The future federal state, he says, would need to carefully determine which investments are absolutely essential for implementing the agreement.
He also does not rule out the need for external financing, as well as special arrangements with the European Union allowing temporary deviations from Eurozone fiscal rules.
Property issue and compensation
According to Apostolides, the largest financial component of any settlement is likely to concern compensation for displaced persons who do not return to their properties.
Although the property issue remains one of the most complex aspects of the Cyprus problem, he points out that there is still no adequate economic analysis of which institution would pay compensation, who the beneficiaries would be, what amounts would be involved and how payments would be made.
He argues that compensation should be based on realistic financial planning and paid gradually over a period of ten to twenty years. Given current international conditions, he considers substantial external funding for this purpose unlikely.
Who will pay?
Responding to the perennial question of who would finance a settlement, the researcher estimates that the greatest need for external support would arise during the first years, before the economic benefits of peace begin to materialise.
"Unfortunately, insufficient attention has been paid to this crucial issue. Potential funding is directly linked to the decisions that the two communities ultimately make. As I have already noted, I believe external financing will be needed primarily during the initial years, until Cyprus's GDP increases substantially through the peace dividend," he says.
He believes the European Union is likely to finance infrastructure projects in areas returned to Greek Cypriot administration and support the rapid alignment of the Turkish Cypriot community with the EU acquis.
At the same time, he is more cautious about the prospect of fiscal exemptions from Eurozone rules, although he regards private investment, both foreign and domestic, as a likely contributor to reconstruction efforts, provided a framework is established that offers attractive returns to investors.
He notes that there are already indications of interest from international financial institutions, although it remains impossible to assess the potential scale of funding. Until the actual needs of a future federal state are defined, he explains, any meaningful evaluation of external interest remains difficult.
He adds that promoting joint investments between the two communities, such as renewable energy projects along the Green Line, could serve as a testing ground for international investor participation.
Sectors that would benefit
Drawing on PRIO's findings, Alexandros Apostolides argues that the benefits of a settlement would not be confined to specific sectors but would spread across the economy as a whole.
Particularly strong growth is expected in shipping, as a result of the lifting of Turkey's embargo, and in professional services, which would gain access to the large Turkish market. Increased demand for infrastructure projects would also provide a major boost to the construction sector.
PRIO's latest study estimates that, over a 20-year period, the income of the average Greek Cypriot could increase by 25%, while that of the average Turkish Cypriot could rise by approximately 70%, significantly narrowing economic disparities between the two communities.
The ‘Peace Dividend’ Is Measurable
Alexandros Apostolides explains that the "peace dividend" is not an arbitrary estimate but emerges from a comparison of two different scenarios: first, that of a reunified federal economy, and second, the continuation of the island's current division.
While it cannot be calculated with absolute precision, he notes that all studies conducted to date reach the same conclusion: a settlement would generate significantly higher rates of economic growth. Citing data from PRIO's 2020 report, he notes that the real GDP of a reunified Cyprus could reach €54.2 billion over a 20-year period, compared with €40.3 billion without a settlement, creating an economic benefit of roughly €14 billion and increasing per capita GDP by around €8,723.
Three Steps Forward
The economic historian concludes by proposing three immediate actions which, in his view, should begin even before an agreement is reached.
1. The Republic of Cyprus needs a research centre dedicated to the Cyprus issue. Such a centre could develop tools to better analyse the likely impact of different settlement parameters, enabling better informed and more evidence-based decision-making.
2. The current stagnation in confidence-building measures undermines the long-standing Greek Cypriot position in favour of a strong federal central government. Confidence-building measures have a positive impact on citizens. There are compelling economic reasons to promote measures that include joint investments and increased trade across the Green Line.
3. It is time to seriously consider how to implement forms of economic cooperation that can benefit citizens today while helping them develop a vision of post-settlement economic collaboration. According to Apostolides, there is an immediate need for an electronic payments system that facilitates transactions across the Green Line. More imaginative ideas should also be explored, such as developing recycling infrastructure and creating an autonomous trade and business zone along the Green Line.
