The Economic Dimensions of a Cyprus Settlement

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Interview with Dr. Aris Petasis January 26, 2016 Larnaca, Cyprus

Dr Christodoulos Pelaghias (C.P.): Good afternoon and welcome to our discussion on the economic dimensions of the Cyprus settlement.

Uri 5eThis evening we have with us, once again, Dr Klearchos Kyriakides, Head of our own institute’s Law and Democracy Programme, and Dr Aris Petasis, an expert in international business management. Just before I start, I have to say that all parties here speak at their own individual capacity, and not on behalf of any organization which they belong to.

Gentlemen, we hear that a peace dividend is at hand, if only we can solve the Cyprus problem. What’s your response?

Dr Aris Petasis (A.P.): First of all, let me thank ERPIC for inviting me to the programme. I hope we can give some valuable information to our viewers. Now, the peace dividend. I read the reports in which an attempt is made to basically beautify the bi- zonal solution as being to the economic benefit of the people, but I do have these major observations on the whole exercise. In my capacity as a consultant I know one thing, that if I go to my clients and I give them anything which does not rest on logical and sound assumptions, they will not take my work seriously. So I’m afraid this exercise on the peace dividend sits on some airy fairy assumptions that don’t make any sense, basically.

C.P.: Let me ask you specifically. We are not going to refer to any particular report per se, but there have been a number of reports, and they all are done by reputable people, they’re done by economists and so on, and the end result is, as far as they’re calculating, that there are certain benefits flowing out of a settlement. And I’ll give you some examples, and you can comment on them. First of all, there will be a compensation for the refugees, a compensation either of return to their properties, or cash compensation, and so on. So there will be a cash infusion, let’s say, into the economy. That’s one thing. Then, because of the peace, there will be, or are predicted to be large foreign investments, both institutional investments, but also from the general public. A third one is a foreign debt reduction, because there are suggestions and promises by both a European Community and other parties, including Turkey, suggesting that they will give the new federal government a stipend in the sense of reduction of debts and so on. More than that, they have suggested that there will be an equalization of the two communities, an economic equalization. There’s going to be a huge trade boom. The huge market of Turkey will open for the Cypriot businesses, both in the north and in the south. And also on the horizon is the hydrocarbon bonanza. So all of these things will happen faster, more efficiently, because of the settlement.

A.P.: Well I don’t know where to start, because you have put forward plenty of hay on our fork. I’ll start with the compensation. All the reports that have been written, have been challenged by me through articles in the press. I asked them to give me the assumptions under which they’re working. Because any study in our area rests on assumptions. If you assume for example that the government’s going to be run by vetoes, that’s one assumption. If you assume that the government’s going to run freely based on democratic principles like all the countries in the European Union, especially the Western European countries, it is another story altogether.

C.P.: So basically you’re raising the question of whether the political system is going to be efficient and run efficiently or not, and that’s one of the qualifications that you put down, right?

A.P.:  You either have democracy and you’ve got a good economy, or you have partition called “bi-zonal” and you don’t have an economy, that’s my understanding of things. Now, compensations. The reports usually avoid the issue of compensations, and they say that this is not part of the scope of the study. Why do they avoid it? They avoid it because the numbers don’t tally. If you take the occupied areas in where the Turkish state – because there is not going to be a Turkish Cypriot state, there is going to be a Turkish state – so what the Turkish state will have, it will have roughly 3,000 square kilometers of land under its own jurisdiction. Just think of 3,000 square kilometers of land, and starting the compensation of the owners. The moment you get into that, we are talking about 40, or maybe even 50 billion Euros of compensation.

C.P.: But doesn’t it depend on the value that’s going to be ascribed to the exchange of  properties and so on? It’s not just compensation; if you remember, there are twenty two categories of ownership that we are discussing.

A.P.: Let’s not confuse ourselves with categories. The issues are very simple. In the occupied area 90% of the properties belong to the Greek Cypriots. That’s end of it.

C.P.: I didn’t know it was that high.

A.P.: Absolutely. 70% of private property, but 90% of property including church property belongs to the Greek Cypriots. So we are talking about 90% of 3,000 square kilometers to be compensated. I don’t think anyone can compensate this. Now, if we come to the free areas, controlled by the government, roughly 80% of the property belongs to Greek Cypriots, and 20% belongs to Turkish Cypriots. So even if you have an exchange, figures don’t tally. That’s why all these studies avoid this issue, they don’t make these assumptions that I told you, of how they are going to be the compensations, and how they’re going to value the land. So if we take the median value of land in the free territories, versus the median value of the new Turkish territory, then you will see that any sensible calculation will not be less than 40 billion, which is roughly 200% of the combined GDP of the free areas plus the occupied areas.

C.P.: But the one suggestion is that there is going to be grants from international organizations, there are going to be grants from the United States, and so people are going to give us money in order to implement the settlement. Will that not be enough to cover the difference? You are suggesting that it won’t.

A.P.: When we start talking about countries coming and giving us money free, I think we live in a Cloud Cuckoo Land, because last time we needed 8 billion Euros to keep our banking system on its feet…

Dr Klearchos Kyriakides (K.K.): This is back in 2013 you are talking about.

A.P.: Yes, back in 2013. And we didn’t get the single penny. When the (unclear) was here, and he was trying to promote, with all sorts of propaganda, the Annan Plan, he went to the donor’s conference, and he managed to get I think 67 million or 65 million Euros as pledges. So the moment you hear that somebody pledges 67, assume 7, because the other 60 will never come. So in other words, if somebody is saying that the American government will go to congress – because you need congressional approval – and will tell them that Cyprus wishes to have an anomaly, and they are asking us to pay for the anomaly, and the American congress will come and give money to the American government to compensate us… At this moment as we talk now, there are 80,000 veterans from Iraq that are homeless and living under bridges.

 C.P.: What about the International Monetary Fund?

A.P.: The IMF is business; it is not to give money. Their business is to lend money to countries that are in distress.

C.P.: So let it lend us money.

A.P.: And who’s going to pay it back? Let’s go back to the lending, let’s get our sums right. At this particular moment the free areas of Cyprus have debts to the tune of 18 billion Euros. 7.5 billion Euros were taken from the Social Security Fund, they are not going to be repaid. So that’s debt also. So we owe now…

C.P.: Who is “we”? The Republic of Cyprus?

A.P.: The Republic of Cyprus owes 18 billion. That amounts to about 110% of GDP, because our GDP is roughly 17 billion. I’ve got a note here that I can read for you. The Minister of Finance of the “Turkish Republic of Northern Cyprus” (TRNC) – because they have budgets they’re also, which are subsidized by Turkey – says that in his calculation the occupied areas owe Turkey 7.5 billion Dollars from loans. But we know for a fact that Turkey subsidizes 30% of the operational costs of the Turkish occupied areas, for the last forty one years. In my calculation that’s 12 billion.

C.P.: But that’s in the shape of a loan, or was it just hand outs?

A.P.: The TRNC receives two types of money from Turkey. It receives what they call aid, which Turkey does not want back, and they receive loans to sustain the civil service. So as long as you have loans to sustain the civil service for 41, 42 nearly years, it amounts to 12 billion. So if you’re going to add now 18 billion that we owe, and let’s just discount it to 10 billion, it makes 28 billion. The gross domestic product of the two areas now is 20, so we’re talking about roughly 180% of GDP, which is an amount no country can repay. Greece owes now 175% percent of GDP. Now, I’ve got to add something else. Turkey has built all the infrastructure of the occupied areas. That means they built the roads, they built the hospitals, they built schools, administration buildings and so on. Now, we did the same here. How did we build it in the free areas? We went to the Kuwait Development Fund, they lent the money to us, and we repaid it. Now, instead of going to Kuwait, they went to Turkey. So I’m just asking a legitimate question. Will Turkey donate all the infrastructure work that they have done?

K.K.: Can we just go back to basics. Turkey invaded Cyprus contrary to international law, it ethnically cleansed the northern parts of Cyprus contrary to international law, it has occupied Northern Cyprus for 41 years contrary to international law, and it has segregated Cyprus for 41 years contrary to international law. Is Turkey going to pay any reparations for breaking international law for 41 years?

A.P.: No one from the Greek Cyprus government’s side has ever raised the question of reparations.

K.K.: Why not?

A.P.:  They have not raised it, because they’re scared to raise it.

K.K.: And why are they scared to raise it?

A.P.:  Because they have so many other issues to deal with, that they don’t want to “complicate” the issue even more. But that tells you of the whole situation, of the whole ambience of the negotiations: that we are scared to ask for reparations, the moment we know that every single aggressor has to pay the victims reparations in any arrangement. It has never been brought up.

C.P.: But the settlement doesn’t indicate they are aggressors. It goes beyond that. It’s a goodwill settlement for the future, it’s not looking back. At least that’s the philosophy of the settlement that was given to me to understand. And therefore, that is why the reparations and other things are not part of this: it’s the euphoria of the future, not to destroy that.

A.P.: Yes but we have victims here, and the aggressors. We have two hundred thousand people that for the last forty years are not getting anything from their properties.

 C.P.: Do you think it’s realistic to look forward to such an euphoria without dealing with some of the problems of the past, and some of the baggage that will be carried into the future with unresolved issues?

A.P.: I think that the current numbers are more than enough to scatter any attempt for a bi-zonal solution in the way they’re trying to get it. Because simply numbers do not add up. And if the numbers do not add up, it means that the whole exercise is not viable.

K.K.: You have mentioned number of statistics. I’m not an economist, and I’m always skeptical when I hear statistics. But I have to ask a very important question: how much transparency is there in the so-called leader-led process in Nicosia? How much documentation has been brought into the public domain? How many sets of accounts have been produced?  How much information is there to enable simply with your expertise, as an ordinary citizen, to inspect what is going on, so that we can ascertain the economic picture that could unfold in the event of a settlement?

A.P.: As regards our figures here in the free Cyprus, there is no doubt that they are correct. As regards the occupied areas, we have to do triangulation and look into different sources: the sources that are coming out of the budget of the Turkish occupied regime, figures that come out of independent, so to speak, statistical agencies, and figures that come from reports, such as the latest report from Agence France-Presse. If you do a triangulation, you can see whether the figures tally. I am happy that the figures they are issuing are more or less in the same direction, including in the peace dividend report, they give the records that we were able to secure via the internet and other sources.

K.K.: Have the “two leaders” in Nicosia produced any sets of accounts, or any documents from the peace process to enable citizens to assess the prospective picture?

C.P.: We don’t even know how many people live in the north

K.K.: Do we know how many people live in the north? Do we know the assets or liabilities of the illegal regime?

A.P.: The number of people – I have to check that because of the per capita income issues and the equalizing the two economies, and rationalizing them and so on and so forth. I saw in the official Turkish-occupied government report that the census which they carried out in 2012, in what they call the major towns, I tallied the numbers, and they said that they had in 2012, 200,000 residents in these six towns. They’ve got dozens and dozens of villages also. So, when the current negotiators came up with the number the other day saying that they will assume that only 200,000 live in the Turkish areas, occupied areas, how do they compare with the official figures of 200,000 in only six towns?

 C.P.: The negotiators mentioned the figure?

A.P.: Yes, it was public. But I counted 200,000 in only seven towns. So what about the rest?

C.P.: But part of the negotiation is that number of settlers will be accepted…  I’m not familiar with what you are talking about.

A.P.: I am familiar with that. These are residents, official residents of the occupied areas, “legal residents”. Also in the statistical analysis that some of the independent studies issue, they mention the figure of 300,000. I have not seen any other figure in terms of total being less than 300,000. Our negotiators keep talking about 200,000. I think it is all part of the exercise not to frighten people.

K.K.: This is important, because in Davos the other day Mr Akinci spoke about the formation of a “new partnership” – this is one of their favorite phrases: partnership. A partnership of two communities. In business, or in law, before you enter into any partnership, you need to conduct proper due diligence measures, in accordance with the Latin Maxim caveat emptor – let the buyer beware. So it’s very important in my view that there needs to be full transparency, so that the citizens of the Republic of Cyprus know exactly what sort of entity they’re going to enter into partnership with. So I come back to the question of transparency. How much draft legislation has been published? Do we know what draft legislation is being drafted on matters such as for example: banking law, financial services law, the structures of economic governance, the regulation of banks and the financial services industry, the regulation of the insurance industry? How are these massive parts of the economy going to be regulated? And has the draft legislation been published?

A.P.: Certainly it has not been published. Clearly, we live in darkness. I understand that the counterpart in the occupied areas spent seven hours presenting and explaining to the so-called parliament what’s going on, and then he went into civil societies and explained the thing. Nothing has been done here on our side.

C.P.: So they are more transparent in the north than they are in the south?

A.P.: Significantly more transparent, because they have something good to tell them. But we don’t have anything good to say.

K.K.: So we are seeing a secret process taking place with a view to the dissolution of the Republic of Cyprus and its replacement with three states: a federal state, a Greek Cypriot constituent state and a Turkish Cypriot constituent state. And there is no transparency as regards the legislation that is being drafted on matters as important as banking, tax, financial services…

C.P.: I think it’s a little bit too soon though, because in all fairness, they are not talking about legislation at the moment, they are discussing the general parameters. They haven’t even begun the process of constitutional drafting.  This is haggling at the moment, and making a deal. They’re still in the process of making a deal. We need to be fair. They haven’t come up with any specific legislation, or constitutional provisions. I would expect that once the haggling is over, and once the deal is cut, then they will move into the process of committing the agreement to paper in terms of constitutional provisions, legislation and so on. And that process then, if that will be done democratically – that’s an open question.  I’ll tell you why – because properly, you would have all of that done before you have a referendum, or at least a lot of it done, at least the skeleton part, so that people understand what it’s all about, so that they understand the fine print. If you jump it and you do it the opposite way, you haggle over an agreement which is secret for the most part, or some of its provisions are secret. And then you go to a referendum on the climate. Again, to be fair, referenda weren’t invented in Cyprus. Wherever they do it, again, they create a climate. And it’s usually the climate of “yes” or “no”, the positive or negative climate that carries the day.

A.P.: So what does that mean?

C.P.: I’m saying it’s important to have these things, but unfortunately the suggestion is, that it’s not going to happen.

K.K.:  Can I just ask a naive question? We’re talking about the peace dividend and all of this money that’s going to be pumped into Cypress in the event of a settlement. Will any foreign investor who want to know for example what is going to be the tax code in this entity that I’m being invited to pump money into? What is going to be financial services regulatory framework? These matters should be in the public domain.

C.P.: Just to take a page out of the European process. If you remember the whole process of the constitutional restructuring of Europe, and the European unification, there was a constitutional conference, there was a draft etc., and then people either said yes or no, in terms of referenda, in terms of parliamentary processes, and so on. I agree with you, I’m just saying that the suggestion that the referendum is going to happen real fast, and very fast after the haggling is over, and the secret haggling, is a bad news.

A.P.: I have never seen any person that has good news to hide it. I’ve seen plenty of people that have terrible news, that live in darkness and keep everybody in darkness. So all these hidden negotiations, all this absence of sunlight on this process doesn’t augur well.

K.K.: Can I just ask you a question? Let’s just take tax legislation, or financial services legislation for these three states that are going to come into existence. Is this legislation going to be drafted before the referendum, and presented to the public as a fait accompli, or there will be a referendum that creates these three new states, and then hope for the best, and then draft the three sets of legislation.

A.P.: I don’t know. But if the Annan Plan is any guide, which was nine thousand pages, and it was thrown at us, and we were given a couple of weeks to read nine thousand pages, if you give these to any independent fair-minded person and tell him that somebody threw at the common man of Cyprus nine thousand pages, that was done in secrecy, and ask him to vote, he will tell you that this is… but I must answer the question on the investment.

C.P.: Let’s stay one minute on the Annan Plan. A lot of the material that was agreed on, or drafted for the Annan Plan, my understanding is that it’s going to be grafted onto this new settlement, if the settlement goes through. A lot of the nine thousand pages, again to be fair, was technical stuff, that you’re going to have anyway.

K.K.: It still needs to be in the public domain and subject to line-by-line scrutiny.

C.P.: I agree. But what is sometimes that we bring forward, and I think that’s an important thing to think about, is the intentions. If there are good intentions in our politicians and our leaders, you have to credit them with good intentions – they are trying to do the good thing, or the right thing. The question is, if they are trying to do the right thing, why so much secrecy?

K.K.: I have a very important question which deals with the secrecy. I don’t know what’s going on in secret, all I know is that there is a secrecy. If there’s a settlement, the likelihood is, I may be wrong and I hope I’m wrong, but if there is a settlement, the likelihood is that this secrecy we’re seeing at present is going to spill over into the new state of affairs. We know from history that when you have secrecy, you have corruption, or the increased risk of corruption. Can you comment on the inter-linkage between secretive governance and corruption, and allied to that, the degree to which this new state of affairs will be exposed to the risk of corruption?

A.P.: First, let me go back to the investment. Christodoulos raised the question at the very beginning of the exercise, saying that plenty of investments will be pouring into Cyprus. I presume we’re talking about international investments. The only system that looks like the one that they are trying to market in this country, is the Bosnian constitution. Bosnia can be a fantastic reference as regards what we call foreign direct investment (FDI), which is a figure of money coming in, but not including deposits in financial things because that’s what the investment, is just depositing the bank. Bosnia in the last ten years on average had FDI of 200 million – that’s a cost of an expensive building, and nothing more, nothing less. Cyprus that is still operating as a republic, had half a billion in the last year. There are 195 countries in the world now that the businessman can invest in. So I am asking the question: this shrewd businessman that relies on statistics, and data, and political risk assessment – will he go to a country that will be run with vetoes, that will be partitioned, that will have two ministers deciding…

K.K.: …three ministers.

A.P.: Three ministers, precisely. It will have three internal affairs ministers, and so on and so forth. We have forty five municipalities, they have twenty nine, so if you add them, we are talking about eighty municipalities for a population of one million, roughly. Greater Chicago, which is about eight million, has one municipality. So, who is going to come in his right mind to invest money in a deadlocked economy, where you will have vetoes? If somebody tells me that the vetoes are there, but they will not be exercised, I say: if they are not to be exercised, let’s not put them into the agreement. The vetoes are there because they are intended to be exercised.

K.K.: Just to clarify for everyone to understand. Again, if the Annan Plan is any guide, we will have, depending on how you calculate it, four or five levels of government in an island with a population of no more than one million or so. you’ll have the three branches of government in the Greek Cypriot constituent state, the three branches of government in the Turkish Cypriot constituent state, the three branches of government in the federal state, you’ll have the three sets of public sectors across the 3 states, you’ll have the organs of government in the two British sovereign base areas, and underneath all of this you’ll have municipal government. I’ll come back to corruption later, but this is a bloated state of affairs in the making. Who’s going to pay for it and how much is it going to cost? How much is it going to cost to pay for these structures, to operate three public sectors, and who is going to pay for it?

A.P.: I think that more important than the cost is the dysfunctionality which is more than the cost, because now Cyprus rates 110 out of 164 countries in terms of ease to do business and to get through things. Let me give you an example. The other day a foreign investor came, and said: if you give me state land to the tune of 450 acres, I’m going to invest 2 billion in Cyprus. Let’s assume now that we have a bi-zonal solution, and this same foreign investor comes to invest 2 billion dollars, and he wants the government to give him 450 acres. Let me tell you what’s going to happen. The first thing that will happen is that the occupied area which will then become the Turkish state, will say: no, we’re not going to allow you to get land as long as you’re going to get it there, in the Greek sector; we won’t allow you, we will veto it. If you want to build a project of two billion, you come to our side, otherwise we will not give you a permit, because we are competing.

C.P.: I think we are overstepping it a little bit, because decisions of this type, from what I understand, will be able to be made by the two separate states, and therefore in answer to your question, in terms of investment, let’s say, or building property on private land…

A.P.: This is not a private land, this is a state land. 460 acres of state land. I am giving you a practical case from yesterday.

C.P.: But I’m not talking about this case, I don’t know about this case. I am suggesting to you, that one of the countries that will invest, and people will invest, will be Turkey. Turkey has proven that it wants to invest, and has invested very heavily in the north. It will continue to do so. Now, another side to the three governments and how many other municipalities, the EU regulations will still be accepted by the federal government and defined the activities of the federal government, but also of the two state governments. So that’s another positive issue. Again, why would somebody come to invest? Because with the peaceful resolution of the disputes in the region Cyprus can have good relations with Turkey, you know, doors will be open.

A.P.: Whose doors will be open? Our doors or Turkey’s doors?

C.P.: Well, that’s for you tell us, because I’m just repeating some of the suggestions that are put forward, that should be convincing, and are convincing a lot of people. Are they wrong, are they misled? This is part of what we should be trying to do today.

C.P.: I have written an article on this issue of Turkey versus Cyprus investment in case of a solution and so forth. Assuming that everything goes well, which is not going to go well, that’s an a priori statement. Turkey’s minimum wage now stands at 424 Euros. Cyprus’ minimum wage stands at 942 Euros. So there is a difference of 500 Euros. I give you the minimum wage, because it is indicative of many things. So I’m asking: who is going to export to whom? Is the country of a minimum wage of 424 Euros going to be more expensive than the country with 924 Euros, or the opposite? What I’m assuming is that Turkey will either invade the market here, and will knock out anyone that has to do with clothing, with shoes, with whatever it is, that can be produced mass production of consumer goods. Now let’s go to agriculture. Turkey has piped in water which they are not sharing yet cause of many considerations, and Turkey’s export in agricultural products, if I remember well, is roughly 50 billion of agricultural products. Turkey is a powerhouse in agriculture. So are we going to be able to compete with Turkish agricultural products the moment our cost of production is twice or three times the cost of production of Turkey? The answer is: no. We would become net importers. Agriculture requires three things: cheap water, which Turkey has and we don’t have; cheap labor which Turkey has and we don’t have; any lots of cheap land which Turkey has and we don’t have. So, two industries, manufacturing and agriculture will be wiped out the next morning. So all these stories about opening up the Turkish market is all propaganda. When China opened up about 25 years ago, somebody who is manufacturing clothes in Cyprus came to me and said: “We have good news for Cyprus: China’s market is being opened – he said – and I expect one of every hundred Chinese to be wearing a Cypriot shirt”. So I told him that I suspect that every other Cypriot will be wearing a “made in China” shirt. So twenty five years later we don’t have a single shirt exported to China, because it’s cheaper there to produce, and we are all wearing made in China shirts, except the aristocrats.

K.K.: Are you suggesting that if there is a “peace dividend”, that Turkey will be the primary beneficiary?

A.P.: Of course. Another argument that they throw out, which is really laughable, is saying that we are going to get an exchange of tourism from Turkey. I think that’s ludicrous. Because if a tourist were to decide between Cyprus and Turkey, and then spend one day between his holidays visiting the other country, he is going to go to the big country, and spend 15 days, and maybe take a boat to come and have lunch in Cyprus for a day. So therefore, even the tourists that we are getting are more likely to go to Turkey, because they don’t have to spend 15 days to see Cyprus, they can see Cyprus over couple of days. But if they go to Turkey, they need months before they can see Turkey. So they have a better product, they have cheaper services, they have better packages. So I’m just saying, if its open as they say, the tourism flow, will be in the direction of Turkey or our?

K.K.: As we are discussing Turkey. I mentioned corruption earlier, maybe we will come back to this. I have in front of me here the transparency international overview of corruption and anti-corruption in Turkey, published in the year 2014. And among other things transparency international report says, that: “Turkey faces high levels of corruption. Accordingly the government has taken steps to reduce corruption in the country. However, despite limited progress, the country continues to be confronted with challenges of rampant corruption and existing antique corruption measures are still in question”. Interestingly, the report adds: “One of the main criticisms is the lack of a coordinated and strategic approach to anti-corruption. There is also an absence of transparency and accountability in the political system, as embodied in the immunity regulations for high-ranking officials”. The question therefore is: if there is a settlement, and if a post-settlement Cyprus is integrated economically with Turkey to a far greater extent than the Republic of Cyprus is at present. Is the post-settlement Cyprus going to be exposed to the contamination that will flow from the corruption that is rampant in Turkey?

A.P.: My quick answer is: yes. Because when we have one supposedly unitary state, all these assessments done by central banks and by all sorts of bodies, they take the country as a whole, they don’t take parts or towns of the country. In other words they are not going to say that there is corruption in Nicosia, but not in Limassol. So when the Global Competitive Index comes here to study, they are going to study Cyprus. When the transparency international comes, they are going to study Cyprus; they are not going to study a unit of Cyprus. Therefore, if one of the two units is corrupt, it is going to carry in the corruption processes to the other unit, whether we like it or not. Today there are absolutely no rules as regards the banking of the Turkish-occupied areas. Ours is collapsed. So who’s going to control the banks? Is it going to be one central bank that will take directions from the…

C.P.: Well, surely, that’s what’s supposed to happen.

A.P.: It is supposed to happen. You know what they say? If there is one central bank – first of all they don’t want one central bank, they want two – but if there is one central bank, there should be two governors of the banks.

K.K.: Deadlock.

A.P.: Deadlock. And in deadlock the powerful side, which will be Turkey basically, calls the shots.

C.P.: But if it’s under Euro, and the Euro will be on both sides, then it is the European Central Bank which essentially rules, because at the end of the day the countries’ central banks are just executing, more or less…

A.P.: So can you please get somebody explain to me the moment we were under the European Central Bank, how come we ended up bankrupting the whole financial system without the Central Bank of Europe getting an idea before that happened?

C.P.: Well supposedly they are learning from their mistakes.

A.P.: I can guarantee you that the banks in the occupied areas, when they become Turkey proper, they’re going to link up with Turkish banks. They are not going to have anything to do with us. They will either become subsidiaries, or outlets of Turkish banks.

K.K.: This underlines my point of a few moments ago. We need to have the draft constitutional and legislative instruments in the public domain, so we can see how the banks are going to be regulated, how they’re going to be overseen, how the financial services authorities are going to function, how the ombudsman it going to function. For me this is extremely serious, and it’s an illustration of why Cyprus is really not a proper democracy, because we are operating, from what I can see, this secrecy is deeply troubling. And if they’re operating in secret before a settlement, is this giving us an insight into the secrecy that may flourish after a settlement? And if so, to take it one step further, is secrecy a friend or enemy of corruption?

A.P.: Secrecy is the greatest friend of corruption. Because whenever you have a crime, you try to control it by not letting out any information, and the cover-up and so on and so forth. Because of the various secrecies that were happening in this country, we got our economic system into such a great trouble, because nobody was telling anything to anyone about what was happening.

K.K.: I will repeat a question I had before: in the secret negotiations in Nicosia, are they composing freedom of information legislation? Will there be a constitutional guarantee of freedom of information? Will there be a freedom of information act built into the settlement?

A.P.: My quick answer would be that how can a body that is as secretive as the Masons, be open later?

K.K.: We don’t know because we are kept in the dark.

 C.P.: In all fairness to the Masons, the secrecy is in the negotiating process. I don’t think you can guarantee that there will be secrecy built into the political system. That’s a bridge too far I think for us to make that conclusion.

A.P.: But only one side is secretive; the other side is not secretive. The other side shares with its constituents everything that is happening here.

K.K.: If you just have a look at the transparency international list of corrupt, or perceived corrupt regimes, right at the bottom is North Korea, which is the most secretive society on earth. Towards the top I think is Sweden. Sweden has, if I am not mistaken, one of the oldest freedom of information legislation in the world. So there is a simple equation: transparency equals less corruption, secrecy equals more corruption. I ask Mr Ryder and Mr Akinci, and Mr Anastasiades to make a statement tomorrow or next week, clarifying whether or not there’s going to be a constitutional guarantee of freedom of information built into the constitution, and if not, is there going to be a freedom of information act governing all three states, or to put it another way, will there be three freedom of information acts? That for me is going to be the key to whether or not there’s going to be transparency in the new state of affairs.

C.P.: But certainly, the Turkish Cypriots will guarantee, since they are more transparent and democratic than the Greek side, they would certainly guarantee that that would happen (I’m just joking).

A.P.: They are free with information because they have good news to tell to the people.  Our side is not free with information because they have horrible news to tell people.

C.P.: Let me switch tag for a second because we are running out of time.  Margaret Thatcher said that the only peace dividend is peace. Even if you take away all the possibility and economic benefits, and all of that, isn’t it enough that we have peace? Isn’t that good enough to have a settlement?

A.P.: You can have peace in many ways. You can be subjugated, and have peace. You can come under the control of a foreign aggressor, and have peace, if you are silent. You can separate the country into two entities and keep quiet about the country that doesn’t work, and you can have peace. And you can have peace and the liberal democracy. So if we have peace in the way that Sweden has peace, the way that Norway has a peace, the way that the England has peace, yes. but if we’re going to have peace because we’re going to sign a surrender instrument, where we deliver lock, stock and barrel of the Republic of Cyprus, and all the rights of the people that have been here for the last three and a half thousand years, than thank you very much, I don’t want that kind of peace.

C.P.: Yes. And you would agree we shouldn’t trade freedoms for economic benefits that are never going to come.

K.K.: Can I come in here, there are two important points I want to make. Firstly, you’ve mentioned freedom. Bi-zonality is the antithesis of freedom, because bi-zonality rests on the formation of two zones, and zone is inextricably associated with restriction. So I just put it in the form of a question: how can you have a free market, how can you have free trade, how can you have free movement of persons with bi-zonality? So straight away bi-zonality negates freedom. But the second point I will make and close my contribution to the discussion with this thought. We mentioned at the beginning the peace dividend. I have a law background and I always like to look at the origins of words that emerged from the lips of politicians and diplomats. And I looked at the origin of the word “dividend”. And it has the same root as the word “divide”. The root of the word dividend is the Latin verb divider, meaning “to divide”. And that for me encapsulates what is philosophically wrong with bi-communal, bi-zonal federation: it’s an instrument of division, and the peace dividend, if there is one, will result in the division of money. And that will produce deadlock.

C.P.: I think it’s meant in the sense of share, in my view, as in “share of the dividend”. But coming to sharing – we haven’t mentioned the hydrocarbon issue, and that’s the might in shining armor, that’s going to come and rescue us all. What’s your quick last comment on this?

A.P.: If there is democracy in Cyprus – and I don’t see any democracy coming to Cyprus, I see division, and trouble, and all sorts of conflicts coming, with the Greek Cypriots basically leaving the country in due course – if there is democracy, yes, there’s going to be a lot of money coming in from the energy resources of the island, eventually, because it’s a very competitive area. But as things stand now, if we go forward with the bi-zonal settlement and become dependent on Turkey, we’re not going to see any of the energy resources, everything will be controlled by Turkey. And Turkey will give us whatever it feels that we should have. We will not have control over the energy resources because of the vetoes, and that’s a central government issue. Central government will be all vetoes.

K.K.: They don’t call them vetoes. They didn’t call them vetoes in the Annan Plan, if I am not mistaken. But in substance they are vetoes.

A.P.: With those vetoes that the occupied areas will have, the Turkish country – because it is going to be a Turkish territory from then on – they will never ever allow us to do anything which is sensible, which is meritocratic, or which is sound, unless Turkey approves it, because they will throw in the vetoes.  So let’s assume that we’re going to sell the energy resources to Egypt, for example. They will say: no, we should have a pipeline going to Turkey, and then from Turkey going to Europe. We say: no, we disagree. So we either have a stalemate and nothing happens, therefore we get nothing out of the energy resources, or we agree with their terms, and we send it to Turkey, and they will control the flow of all these financially rewarding resources, that we will never be able to touch. Vetoes are going to paralyze the central government, and deliver us to Turkey, because Turkey will be making all the decisions. So we’ll have two choices: either stalemate, meaning that we suffer, because we are not going to benefit from any revenues, or we accept Turkish conditions. I’m afraid, gradually, we will be accepting Turkish conditions, until we leave the island.

C.P.: So can we leave on the positive note, that if the peace dividend’s components are democracy, freedom and justice, that would be a good thing in itself, and that would perhaps help an economic aspect of peace settlement. But that’s not a guarantee.

A.P.:  I’ll give you few figures that will settle the case.  Norway, which is a democracy, has per capita GDP of 67,000 Euros. Bosnia, that is another Cyprus revisited, has 4,000, because they have bi-zonality.  Lebanon that is run on vetoes, has 9,000. And Norway, that is a democracy, and Denmark, and Sweden, and the US, they have around 60,000. So that tells you: we either have a democracy and we have a high economic dividends, or we have a bi-zonal dividend and we get into poverty until we leave this place.

C.P.: Gentlemen, thank you very much.

A.P.: Thank you for inviting me.

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