---

Despite the headlines its conflict with Turkey conjures up in the minds of foreigners, day-to-day life in the Republic of Cyprus couldn’t be better more peaceful- or prosperous. The beaches in Cyprus are pristine and the pockets of the people are full. Paradise on the Mediterranean.

The national currency is strong and has been on par with the English pound for decades. Both violent and serious white collar crime is almost non-existent. The family unit is strong. People are friendly and upbeat. The weather is as good as it gets. While the rest of the Middle East is haggling over diminishing sources of fresh water, Cyprus has three fully operating desalination plants and plans for a new $300 million airport in Larnaka. It’s national debt is only 2.8% of GDP while the net national debt (excluding intra-governmental debt) is only 60% of GDP. GNP per capita is just under $15,000; inflation is running at just 2%; and unemployment 3.6%.

Whichever way you slice it, this tiny island of just 9,251 square kilometers should be the envy of all developing countries.

Waiting To Be Gobbled Up Into Europe’s Belly

Despite its 28 year old conflict with Turkey, Cypriots learned in December 2002 that the European Union consider them, officially, part of Europe. For the Greek Cypriots, no higher complement can be given to them than to tell them "they are European, not Middle Eastern".

While Cypriot government bureaucrats have been busy for the past two years harmonizing the island’s economy to conform with EU directives, a political deal with the Turks is nowhere in sight. Greece has said it will not agree to the other countries to join without Cyprus so now everyone is waiting to see what formula can be worked out so that Cyprus joins, but allows Turkey to save face (Turkey itself is eyeing European membership by 2010

While it is politics that kept Cyprus’s accession in doubt, economically, the country passes the EU’s criteria with flying colors.

“In almost every economic indicator Cyprus is as good or better than all the other candidates,” says Dr. George Thomas, head of research at the Bank of Cyprus. “Our GDP per capital is 90% of the EU’s average and higher than Greece, Spain and Portugal. In fact, due to their very high standard of living, Cyprus would a net exporter of funds to Europe- unlike Portugal and Spain which get more than they give in agricultural subsidies.”

Cypriot companies have also been busy adapting to the potentially new playing field come January 2004.

“For a company like ours, being part of Europe will force us to use our resources more efficiently and be able to break out of our home market and expand into other European markets where we have a relative advantage,” says Tassos Angeli, general manager of Cyprus Airways.

For Cyprus Airways, that “relative advantage” is in the Greek aviation market where the company has already established a wholly-owned charter airline, Hellas Jet .In the Q2 2003, it will begin flying from Athens to Paris, Rome, Milan, Brussels, Frankfurt and Amsterdam.

While there will be some pluses for the economy, the major benefit for Cyprus from European membership is political, to come under European’s protective umbrella, as well as the legitimization Cypriots have always craved to be viewed not as a Middle East country- but as a European one.

“The feeling that we will no longer have to tread between being part of the Middle East but focused our future on Europe will be one of the biggest benefit to Cyprus joining the EU,” says Michael Firillas, head of Cyprus’s trade mission in Tel Aviv.

Real Estate Market Will Benefit From European Accession

One market in Cyprus which stands to gain big from European assession is real estate where prices are far below most European countries. In addition to an increase in the price of commercial buildings, the segment of the market that everyone seems to be banking on is in the construction of “holiday homes” for foreigners. The government actively encourages this industry by making it extremely easy for expatriates and retirees to settle on the island to purchase a “vacation home” and reside permanently in Cyprus. Luxury villas are much cheaper than most other Mediterranean locales- and in places such as southern Spain where the prices are similar, Cyprus wins out due to its low crime rates and the fact that English is widely spoken by the locals, as well as the weather being better in the winter than in the western Mediterranean vacation spots.

The government realized that as the country has very economic sectors where it has a relative advantage, it does have cheap land which makes “holiday homes” very affordable- especially for Northern Europeans. These “holiday villages” bring in foreign currency via the sale of products or services, and it costs the state nothing as private builders buy the land and build the homes without any government aid. Already, more than estimated 80,000-100,000 expatriates and retirees (mostly British and Russian) live on the island as the cost of housing and living is much less than for example, in the UK thus English pensions go much further in Cyprus than do in Britain.

“Our research shows that this segment of the real estate market can grow substantially over the next 3-5 years in Cyprus,” says Marios Argyris, head of the private equity division of Sharelink Financial Services- one of the country’s leading investment banks .”By then it could become Cyprus’s leading earner of foreign currency.”

Sotos Sotiriou, owner of the Sotos Properties estate agency in Limassol’s red hot real estate market which is up 30% in the past three years, adds: “Foreigners living in Cyprus for short periods of time is a huge boom to the local economy- even better than tourism as it is more stable and not dependent on factors such as terrorist attacks.”

While between 2.5-3 million tourists visit a year leaving behind about $1.8 billion dollars- the industry, which was the main engine of growth for the island’s economy in the past is facing tough times. Most of the tourists today come from the lower end of the market- mostly from the UK looking for a cheap holiday in the sun. On the low end it is losing out to cheaper destinations such as Turkey, and on the higher end, to other islands in the Mediterranean where there are more “luxury resorts” than what Cyprus can offer.

“With or without European accession the entire industry is in desperate need of a facelift,” says Sotiriou.

So How Bad Would Life Be Not Being Part of the EU?

The crux of the historical political conflict in Cyprus was that two ethnic minorities couldn’t stand living next to each other, and eventually, peace came via their physical separation. This is a good thing and by all measures- the conflict ended in 1974. For the Greek Cypriots, despite the huge economic loss, and the scars inflicted on their collective national psyche, the future is incredibly bright- with or without EU membership.

“We are no worse in it than we are out of it- but we are not doing badly at all- even if we decide not to join the EU,” claims Argyris. “There is no reason not to join as what Cyprus can offer in the way of an attractive place to live, invest, and do business, is not going to disappear- inside or out of the formal EU club.”

With or without accession into the EU, Cyprus will still be Cyprus and thus can offer some very attractive advantages to international businessmen. For companies in the US or Asia, goods can be transshipped from Cyprus to the Middle East and Europe. With little to offer in the way of high value-added exports, probably the only sector that Cyprus can compete internationally in is as an off-shore, low cost business center- on shore.

While some 40,000 offshore companies are registered in Cyprus, few of them actually do any business in Cyprus. The recent reforms in the tax code brought the rate of taxation down to 10% (from 25%) for foreign and local companies (raised from 4% to 10% for offshore companies) and was meant to give an encouragement to these “brass plate companies” to come onshore and contribute to the local economy. The idea wasn’t to turn Cyprus into a tax heaven, but into an “inexpensive offshore/onshore location” in which non-Cypriot companies could market their goods and services to either Europe and/or the Middle East.

“Asian and US companies will have the most to gain if Cyprus enters the EU as they will be able to set up a relatively inexpensive, safe, and low-taxed, offshore facility- onshore- on European soil,” says Masis der Parthough, publisher of The Financial Mirror- the country’s leading business publication.
-------------------------------------------------------------------------------------------------------------

The Political Situation: From A Tragic Past To A Prosperous Present

The “Cypriot conflict” began back in the mid-l950s when the British Colonial Office decided in 1878 that Cyprus had immense geostrategic importance which put them into conflict with a small, but well-motivated groups of Greek Cypriots who either wanted Cyprus to be independent, or to be merged into Greece like the other Greek islands. Meanwhile ethnic conflict with the much smaller Turkish population (about 30% of the total population of the island) led to periodic bloodshed.

Yet the British realized that anyone who controls Cyprus can control much of the Middle East’s air space (which was proven correct in the Anglo-French-Israeli invasion of the Suez canal in 1956) and so they came up with a constitution for power sharing between the Greek and Turks, but also generously gave themselves total sovereignty over a portion of the island. The Sovereign Base Areas (SBAs) of Akrotiri and Dhekelia (comprising 98 square miles) in perpetuity. When violence continued between the Turks and the Greeks in the mid-60s the Johnson administration became involved in the conflict as they saw Turkey (which had been part of NATO since 1952) as being a more potential future ally than Cyprus.

“While most people think the “Cyprus problem” begins when the Turks invaded in 1974, it’s origins are in the early and mid-60s when the US began its involvement in the region,” says Brendan O’Malley, co-author with Ian Craig of The Cyprus Conspiracy- perhaps the only book every published to offer an objective history of the events that took place in Cyprus from the early 1960s through the 1974 invasion by Turkey.

As Craig and O’Malley tell the story, former National Security Advisor Henry Kissinger conspired with the Greeks and the Turks to first foment a coup in Cyprus using right wing elements aligned to the then military dictatorship in Greece, which enabled Turkey to invade the island on the claim that they were “protecting the ethnic Turkish population” (none of which who were Turkish citizens). In addition to occupying the entire top third of the island, as a result of the Turkish invasion about 70% of the Republic’s economic capacity was confiscated-about $4 billion (in l974 dollars). This included real estate, all major water resources, the main port, highly productive agricultural holdings, and hotel properties- much of that concentrated in the resort town of Farmagusta on the eastern coast.

After the Turkish invasion more than a third of the Greek’s 650,000 population became refugees. Embarking on what they called a “Reactivation Effort” within seven years all of these refugees all lived in permanent homes and were gainfully employed- without any UN agency involved in the process.

Cyprus’s Cinderella story from rags to riches is nothing short of a miracle. In just a few decades this tiny industrious nation with its highly educated population (Cyprus has the highest per capita number of university graduates in Europe and the third highest in the world) built world class industries in transportation, shipping, banking and telecommunications. As there is almost no heavy industry pollution isn’t a problem nor is urban sprawl with just 82 persons per square kilometers and a life expectancy for males of 75.