European Council’s decision will help to overcome the institutional crisis

The Irish rejection of the Lisbon Treaty was perceived by the vast majority of Cypriots as a serious setback in the efforts for a stronger and more democratic European Union. The conclusions of the European Council of December 2008 regarding the fate of the Lisbon Treaty, even though it was not widely covered by the Cypriot mass media, was perceived by many of our interlocutors as a step forward towards a more coherent and efficient European Union.[1]

Commenting on the conclusions of the European Council, Cypriot President, Demetris Christofias, expressed his overall satisfaction, adding that the decisions taken by the EU leaders during the European Council of December 2008 will help the EU to overcome the institutional crisis caused by the Irish rejection of the Lisbon Treaty.[2]

Moreover, diplomats conveyed to us their intuition that the agreement reached during the December 2008 EU Summit, regarding the European Commission’s constitution of one Commissioner from each member state, will be beneficial to small members such as Cyprus.[3] On the other hand, the diplomats pointed out that, as the Treaty of Lisbon needs to be ratified by all member states in order to obtain legal force, and since this did not happen as scheduled by the end of 2008, the treaty will come into force on the first day of the month following the last ratification. Our interlocutors, however, did not preclude the possibility that perhaps new obstacles might be raised by other member states that have not yet ratified the treaty.

It must be noted that the Cypriot House of Representatives had ratified the Treaty of Lisbon on 3 July 2008. At a day-long session, 31 votes were cast in favour, 17 against, while one MP abstained.[4] Cyprus was the twentieth EU member state to ratify the treaty. Main opposition party, Democratic Rally (DISY), coalition parties Democratic Party (DIKO) and Socialist EDEK, and opposition European Party EVROKO, voted in favour of the treaty. The only party opposed was the ruling Communist party AKEL, whose leader, President Christofias, later stated that, as elected President of the Republic, he had to honour the signature of his predecessor and support the treaty.[5] The Cyprus Green Party abstained, not, as it said, because it was against further European integration, but because of the non-democratic way the treaty was being promoted.

The parties which voted in favour of the Lisbon Treaty, in speeches delivered by their MPs and party leaders, stressed that the treaty, despite its weaknesses, is the way for the EU to move forward and unify Europe, strengthen the role of Cyprus within the EU, strengthen the powers of the European Parliament and national parliaments, and help the EU gain a strong voice on the international scene.[6] They criticised the stance held by ruling Communist party AKEL and said that the treaty will strengthen institutions which contribute to the security of Cyprus and will provide Cyprus with added instruments in its efforts for a political settlement.

Opposition DISY leader Nicos Anastasiades also said that the ratification of the treaty sends a positive message to the rest of Europe. AKEL MPs, in justifying their opposition, said that the treaty represents a neo-liberal approach, that European citizens have not been properly informed on the provisions of the treaty, that it weakens smaller EU member states like Cyprus, that markets will be completely deregulated therefore hurting consumers, and that the NATO alliance remains the main European defence structure. The leader of AKEL’s party group in the parliament, in responding to criticism by the other parties on its position on the Lisbon Treaty, noted that, since President Christofias was elected to office, support for the EU amongst the Cypriots of the free part of the Republic had risen by 20 percent. The leader of the Green Party in his speech clarified that his party is certainly not opposed to the EU “moving forward”; however, he called both for a better treaty and for the treaty to be submitted to a referendum in all EU member states. Most MPs maintained that Cypriots were unaware of the provisions of the Lisbon Treaty and that more awareness-raising was necessary.

The political parties’ debate on the Treaty of Lisbon and each party’s arguments were perceived by political analysts as a reliable indication of the orientations each party will develop during the forthcoming European Parliament elections of June 2009. Thus, it had been assumed that, during the forthcoming campaign, the ruling AKEL party would follow a more Cypro-centric agenda, while the main opposition party DISY, but also government coalition parties DIKO and EDEK, would follow a more Euro-centric approach but coupled with strong elements related to the Cypriot Republic’s “existential” political problem.

Most of these assumptions were largely verified during the first public debate on the 2009 European Parliament elections, held in the studios of the “Cyprus Broadcasting Corporation” on 9 February 2009. Representatives of most Cypriot political parties voiced optimism about greater voter participation this time.[7] Simultaneously, they committed themselves to communicate more effectively to the public the importance of their vote for the day-to-day issues that concern all Cypriots. This, then, was a telling departure from the 2004 election when the Cyprus problem was nearly the sole issue that preoccupied the voters and nearly all political parties. In the debate on 9 February 2009, there was widespread agreement that, together with the Republic’s national, existential problem, the most crucial and urgent issues faced by the Cypriot public are those of the global economic crisis, illegal immigration, crime, and energy. An even more activist performance in the future by the Cypriot MEPs on a broad European Parliament agenda was also considered most appropriate, since it could also serve to increase the EU’s involvement in and further concern about the Republic of Cyprus’ problem of partial occupation by a candidate state.

Concerning the appointment of the High Representative for the Common Foreign and Security Policy, our interlocutors in the Ministry of Foreign Affairs believe that this is certainly a move towards better coordination among the EU-27 and further integration especially in the sector of the Common Foreign and Security Policy.[8] On the other hand, some Cypriot political analysts argue that the position of the High Representative, currently held by former NATO Secretary General Javier Solana, raises some concerns whether this is a step towards further ‘European integration’ or a step which enforces the Euro-Atlantic core of the EU. Nevertheless, it is also hoped that Barack Obama’s election to the US Presidency may well align the two diverse tendencies in the future.

2. Transatlantic relations renewed after President Bush: top priorities

 

Cyprus hopes on Obama’s active support for reunification

The Cypriot people were quite enthusiastic about Barack Obama’s election. Among other things, this was because during his campaign he promised to the Greek-American community that if elected, he will seek to negotiate a political settlement on Cyprus. As President Obama put it, “there must be a just and mutually agreed settlement of difficult issues like property, refugees, land and security”. Most importantly, he added that “a negotiated political settlement on Cyprus would end the Turkish occupation of northern Cyprus and repair the island’s tragic division while paving the way to prosperity and peace throughout the entire region”[9].

The Cypriot government congratulated Barack Obama on his election, while expressing hope that his administration will actively support the island-state’s reunification process. Cypriot President, Demetris Christofias, spoke of the “very positive positions” of Joe Biden and the long standing relationship with him.[10] He made reference to Turkish Prime Minister Recep Tayyip Erdoğan’s reported remark that he hoped that Obama’s statements (on Cyprus) would remain mere pre-election declarations. President Christofias said he hoped that the exact opposite would be the case. But he also made clear that Cyprus does not demand anything: all it wants is a fair treatment.

Cypriot government spokesman, Stefanos Stefanou, had stated some months ago that “President Obama has made specific declarations which we welcome. We hope that these declarations will be fulfilled”[11]. In the eyes of most Greek Cypriots, the US administration – especially the one under George W. Bush – have been, to date, far more pro-Turkish, in view of Turkey’s regional strategic importance. But as Stefanou put it, “We ask nothing more than respect for the values of international law and UN resolutions on Cyprus. We will insist on this, bearing in mind the realities existing both in the US itself and in the world.” The government spokesman also emphasised that the Cypriot government notes that Obama’s programme and his declarations promise a new era for the USA, which will bring more social justice in the country and a normalisation of its relations with the rest of the world.

In general, the Cypriot mass media presented the election of Barack Obama as a historic opportunity for the EU to re-define its relations with the US.[12] According to the Cypriot media on various occasions, EU officials have expressed strong satisfaction over Obama’s election and spoke of the need for a renewed commitment between Europe and the United States to a new joint direction in the world. Cypriot media were eager to report that numerous EU leaders also spoke of a remarkable victory allowing strong optimism about the chance for the European Union and the United States to pursue crucial solutions together.

On Obama’s election, Cypriot diplomats noted that this will provide a “unique opportunity” to strengthen EU-US relations.[13] According to the same diplomats, the three top priorities for a re-definition or re-vitalisation of the transatlantic and EU-US relationship are:

  1. The development of new and more flexible policies towards third countries such as Russia and countries in the Middle East (especially for issues like the Israeli-Palestinian conflict and the Iranian nuclear ambitions);
  2. The creation of common short-term and long-term policies concerning climate and energy issues, by promoting new technologies and incentives in the capital markets in order to push forward more quickly the development of a green economy;
  3. Common approaches on the global financial crisis in order to avoid a longer and more painful recession.

Moreover, in the words of one of our interlocutors at the Cypriot Ministry of Foreign Affairs, “the era that we are living in demands a closer cooperation between the EU and the US, and also among them and Russia as well as such emerging major powers as China and India. This is because the present-day problems are common all over the world and thus the international community needs common actions in order to be able to overcome these challenges. The EU can bring all these countries together and establish an ongoing constructive cooperation among them, because it has proven to be a reliable and fair mediator and honest broker with all states”[14].

To be sure, there were also some (lonely) sceptical voices in a few radio and television interviews with Cypriot analysts who, by recalling repeated disappointing cases of misplaced Cypriot expectations, argued that the Obama election would not be different than any other since, as the cliché goes, ‘US Presidents are not the ones who really decide’. The most serious commentators, however, such as former Cypriot Minister for Foreign Affairs, Erato Kozakou-Marcoullis, the rector of the University of Cyprus, Stavros Zenios, and rector of the University of Nicosia, Michalis Attalides, welcomed unreservedly the start of the Barack Obama administration. During a long live programme at the “Cyprus Broadcasting Corporation” (“CyBC”) before and during the 20 January 2009 ceremony in Washington, the three Cypriot personalities expressed deep appreciation for both the capabilities and the vision of the newly elected US President. Thus, Attalides stressed his conviction that the international community will experience better days with Obama at the US helm, while Zenios added that not only Obama’s vision is most promising but he has proven already that, in its execution, he can be pragmatic indeed. Kozakou-Marcoullis concurred on the label “pragmatic” and, in contrast to the pessimists, concluded that the Obama administration can be relied upon to make, inter alia, a salutary contribution to the resolution of the Cyprus problem, provided that the Cypriots also assert their rights actively and appropriately.

The next day, the chairman of the “Cyprus Institute of Mediterranean, European and International Studies” (KIMEDE), Costas Melakopides, interviewed by the “CyBC”, endorsed fully the evaluation by the three aforementioned commentators.[15] In addition, he emphasised the series of “idealist” values that President Obama had embraced in his speech, such as human rights, fairness and justice, dialogue even with former enemies, and refusal to regard military power as either always necessary or sufficient to achieve American goals. In this way, the new president signalled his commitment to a far less antagonistic and bellicose, but far more cooperative and multilateralist, US posture in the world. Melakopides thus concluded by submitting, as a more accurate description of the new American President’s worldview, the concept of “pragmatic idealist”.

Finally, Greek-speaking media in Cyprus (as in Greece), did not even attempt to hide their ‘relief’ at the departure of George W. Bush and Obama’s arrival on the international stage. After all, beyond the sincere expectation that the new administration will honour its pronouncements on Cyprus and Greek-Turkish relations, journalists and analysts could not miss Obama’s and Hillary Clinton’s, US Secretary of State, repeated references to (Professor Joseph Nye’s) ‘soft power’ and ‘smart power’ notions as their own favoured instruments for the performance of the United States in the world.

3. Financial crisis and challenges of global governance: the EU response

 

Economic crisis hits Cypriot tourism and construction industry

Cyprus felt the impact of the global financial crisis, however, at a lower scale than other EU member state economies. In October, the international credit crisis escalated significantly and the “Cyprus Stock Exchange” suffered its heaviest losses since 1999. At the time, Cypriot President, Demetris Christofias, in his intervention at the seventh EU-Asia Summit (ASEM) in Beijing, noted that the international financial crisis required fast and coordinated actions by all states.[16] Upon his return to Cyprus, Christofias stated that the Cypriot economy is not substantially affected by the crisis, while the country’s banking system still stands strong.[17] Minister of Finance, Charilaos Stavrakis, sharing the president’s view, also observed that the Cypriot economy will inevitably be affected by the international financial crisis, but because of its robust foundations it will be able to come out of the crisis much easier than other states.[18]

While efforts were made at EU and Eurozone level to come up with measures to address the crisis, the European Commission’s economic forecasts for Cyprus showed growth for the island’s economy (2.9 percent) at 29 times the Eurozone average despite the overall slowdown.[19] Minister of Finance Stavrakis, speaking from Brussels, expressed satisfaction with the forecasts, while adding that these are not reason for calm.[20] He also stated that this is the best indicator that the government’s economic planning is in the right direction and that it appears that the government will be able to fulfil its plans. He also expressed the belief that if oil prices remain at current levels, inflation in Cyprus could slow down to 2.5 percent.

To overcome the impact of the financial crisis, the Cypriot government followed the guidelines drafted at an EU level during the high-level discussions between the European Commission, the European Central Bank and largely affected states, such as the United Kingdom, Germany and France. The Ministries of Finance and of Commerce, the “Central Bank of Cyprus” and other financial bodies, often briefed the Committee on European Affairs of the “House of Representatives” on the deliberations on the European level regarding the effort to contain the financial crisis. The “House of Representatives” needed to revise existing legislation, according to revised EU directives, in order to reinforce the stability of the financial system, the reduction of exposure of credit institutions to risk, and the improvement of the oversight of banks which operate in more than one EU member state. As the president of the Committee on European Affairs of the “House of Representatives”, Nicos Cleanthous, stated, this is a particularly serious issue given the international financial crisis, and therefore the briefing of the “House of Representatives” will continue in order for it to be better informed and therefore capable to further refine the legislation which will be derived from the EU directives.[21]

All relevant authorities in Cyprus were also called to prepare emergency plans in order to support sectors that might be affected by the crisis, including the tourism industry and the holiday home market. Thus, according to data released by the “Cyprus Hotel Owners’ Association” and the “Cyprus Τourism Organisation” the arrival of tourists from the UK and Russia is expected to decrease for 2009 and the income of the tourist industry for September 2008 was expected to face a decrease of 6 percent.[22]

The Ministry of Commerce, Industry and Tourism examined a series of measures, such as the promotion of Cyprus’ tourist product, concentration on new markets, and the creation of a coordinating committee which will handle a possible crisis.[23] The Cyprus tourism organisation outlined a plan for winter tourism and also announced a programme for the attraction of domestic tourists.[24] By early February 2009, however, some signs were somewhat melancholy: overall figures about tourist arrivals in January were down by 8.5 percent compared to the same month in 2008. On the other hand, arrivals from the promising market of Russia in the same month had increased by 42.9 percent as compared to January 2008.[25]

In this connection, our communication with the consulate general of Cyprus in St. Petersburg provided the following useful data. First, the visas issued by that consulate to Russian tourists travelling to Cyprus in 2007 were 23,698, reaching 30,911 in 2008. And second, the total number of Russian tourists travelling to Cyprus for the years 2006 to 2008 were as follows: (1) 2006: 114,758 people; (2) 2007: 145,914 people (i.e. an increase of 27.1 percent over the previous year); and (3) 2008: 180,919 people (or an increase of 24 percent over 2007).[26]

For its part, the Ministry of Labour announced that, while Cyprus does not have a problem with unemployment, the government will take measures in case the financial crisis does affect the construction and tourism industries.[27] Part of these measures is the creation of a permanent mechanism for observation of the labour market, which will convene on a regular basis.

The Interior Ministry also announced its plans for 2009, which aimed at boosting the construction industry, which is the first sector to be affected by the crisis, as developers warned of layoffs and called for a reduction of transfer fees and capital gains tax.[28] The ministry’s plans include the renovation of old apartment buildings and their resale to those entitled to subsidised housing. Also, the increase in housing aid to refugees of up to 100 percent, which will be effective retroactively as of 1 March 2008, and the grant of government aid to the construction sector, based on income criteria and for those purchasing their first residence, in compensation for the payment of transfer fees.

Two aid packages were also announced by the government. The one, announced in November 2008, provided for a 52 million Euro aid package in support of the tourist and construction industries.[29] According to the package, development projects will be accelerated and bureaucratic procedures will be simplified in an effort to support the construction industry. Also, the application for visa by third-country citizens will be simplified, a number of consulates will be opened in countries with a high potential for tourism, and the Cyprus tourism organisation budget will be supplemented by 12 million Euro. The government also decided to form two action groups to deal with potential problems in the two sectors in danger.

Despite President Christofias’ reassurances that the Cyprus economy is not only in good shape but also resilient, and that the government makes sure that this remains so through a dynamic development programme, the main opposition party, Democratic Rally DISY, expressed its dissatisfaction with the first package of measures announced, while saying it expected a radical revision of the budget and the support of the private sector, which did not happen.[30]

A second aid package followed in early February 2009, when the government announced the approval of an additional 300 million Euro for the economy.[31] The package of measures, which aims to maintain high productivity levels and low unemployment in light of the global financial crisis, concerns the construction, tourism and financial sectors. President Christofias outlined the measures, which he described as satisfactory for the time being, noting that these are temporary in nature, and stressed that there will be no new taxes imposed by the government.[32] With regards to the tourism industry, airport fees will be reduced for 2009 after the government waives its share, VAT for the tourism industry for 2009 is reduced from 8 percent to 5 percent, fees payable to local authorities per stay in hotels are waived, and measures are taken to promote domestic tourism and subsidise domestic tourism for low income families. The total cost of these measures is estimated at 51 million Euros. With regards to the construction sector, the government decided to grant long term low interest loans (for at least 20 years) for low and mid-income couples looking to purchase a house of up to 200 square meters. The loans will have a 0 percent interest rate for the first two years. It also decided to construct new units for refugees and the repair of school buildings. The total cost of the package for the construction sector is estimated at 200 million Euros. In view of the need to maintain low unemployment rates, expected to reach 4.5 percent in 2009, the government will focus on training workers and the securing of a suitable job for those applying to the unemployment office, as well as run a campaign against illegal workers and revise allowances for non-EU member state employees. In an effort to strengthen the financial sector, Christofias announced that the government will extend its deposit of 700 million Euros in commercial banks for an additional three and a half months in an effort not to affect the liquidity of the sector. Concluding the analysis of the package, Christofias also reiterated that the government will continue its social policy and that it will in no case stop supporting the taxpayer. The measures were welcomed by political parties and professionals associations.

In all, the global financial crisis is an issue which certainly concerns the Cypriot people. As shown in the autumn 2008 Eurobarometer, Cypriots claim to be largely affected by the crisis and are concerned by the future of the Cypriot, and the EU economy.[33] 67 percent stated that they can barely pay their utility bills each month, while 78 percent said it is not satisfied with the cost of living in Cyprus. In addition, 88 percent expressed dissatisfaction by the increasing price of energy and 93 percent by the increasing housing prices.[34] In “Marfin-Laiki Bank’s” annual survey, the “Cyprobarometer”, nearly half of the people asked (48 percent) said that, as regards the economy, 2008 was a much worse year than 2007,[35] Then, on 11 February 2009, upon returning from the ECOFIN and Eurogroup meetings in Brussels, Finance Minister Stavrakis admitted that Cyprus will not avoid an economic slowdown in the second half of 2009. Talking at an event entitled “Leadership in a Challenging Environment”, he added that, in any case, the Cypriot government will retain its present rates for company taxation, given that they provide Cyprus with a comparative advantage in attracting foreign investment.[36]

In the international power constellation system, the past months’ financial downfall showed a relevant shift, as the Euro had proven its strength and credibility compared to the US Dollar and the British Pound. Analysts from the “Central Bank of Cyprus” have expressed the estimation that Eurozone’s economy will be able to eventually come out of the financial crisis much stronger than before (already, in many Middle Eastern countries the use of the US Dollar has been replaced with the Euro as it is considered a more stable currency).[37] In general, the crisis could lead the world’s large economies to seek a more effective and efficient financial system, perhaps a ‘new Bretton Woods’ as leaders such as Nicolas Sarkozy have started envisioning. Political analysts also believe that when the financial crisis comes to an end, the political system will be transformed to a multi-polar global system of numerous regional powers, thus the cooperation between nations will be imperative.[38]

 

 

[1] Interviews conducted by Christos Xenophontos at the Cypriot Ministry of Foreign Affairs, Nicosia, January 2009.
[2] Demetris Christofias, President: Statements, Brussels, 12 December 2008 (as reported by all Cypriot media).
[3] Interviews conducted by Christos Xenophontos at the Cypriot Ministry of Foreign Affairs, Nicosia, January 2009.
[4] Discussion in the House of Representatives on the Lisbon Treaty, 3 July 2008 (as reported by all Cypriot media and the Cyprus News Agency).
[5] Demetris Christofias, President: Statements, Brussels, 3/4 July 2008 (as reported by all Cypriot Media).
[6] Discussion in the House of Representatives on the Lisbon Treaty, 3 July 2008 (as reported by all Cypriot Media and the Cyprus News Agency).
[7] For an account of the 2004 European Parliament election in Cyprus, see Costas Melakopides: ‘Cyprus’, in: Juliet Lodge (ed.): The 2004 Elections to the European Parliament, Houndmills, UK 2005, pp. 73-80.
[8] Interviews conducted by Christos Xenophontos at the Cypriot Ministry of Foreign Affairs, Nicosia, January 2009.
[9] As reported by the Greek-American weekly newspaper Greek News, available at: http://www.greeknewsonline.com/ (last access: 25 January 2009).
[10] Christofias, President: Statements, Brussels, 8 November 2008 (as reported by all Cypriot Media).
[11] Stefanos Stefanou, spokesperson of the government: Statement, 3 July 2008 (as reported by all Cypriot Media and the Cyprus News Agency).
[12] Press commentaries, November 2008.
[13] Interviews conducted by Christos Xenophontos at the Cypriot Ministry of Foreign Affairs, Nicosia, December 2008.
[14] Ibid.
[15] Costas Melakopides in an interview with the journalist Paris Potamitis, in: CyBC1: ‘From Day to Day’, 21 January 2009.
[16] Demetris Christofias, President: ASEM address, Beijing, 24/25 October 2008 (as reported by all Cypriot Media).
[17] Demetris Christofias, President: Statements, Larnaca, 25 October 2008 (as reported by all Cypriot Media).
[18] Charilaos Stavrakis, Minister of Finance: Statements, Nicosia, 26 October 2008 (as reported by all Cypriot Media).
[19] Council of the European Union: 2901st Council meeting Economic and Financial Affairs, press release, No. 15067/08 (Presse 311), Brussels, 4 November 2008, available at: http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/103811.pdf (last access: 25 January 2009).
[20] Charilaos Stavrakis, Minister of Finance: Statements, Brussels, 4 November 2008 (as reported by all Cypriot media).
[21] Statements after members of the Committee on European Affairs of the House of Representatives after its session, 21 October 2008 (as reported by the Cyprus News Agency).
[22] Cyprus Hotel Owners’ Association Press conference, 28 October 2008 (as reported by all Cypriot media).
[23] See: Ministry of Commerce, Industry and Tourism, 4 November 2008, available at: http://www.mcit.gov.cy (last access: 25 January 2009).
[24] Cyprus Tourism Organisation: Press conference, 4 November 2008 (as reported by all Cypriot Media).
[25] 2,793 Russian tourists had arrived in Cyprus in January 2009, as compared to 1,955 in the same month of 2008. See: Simerini (newspaper), 12 February 2009.
[26] Correspondence with the consulate general of Cyprus at St. Petersburg, 16 February 2009.
[27] See: Ministry of Labour and Social Insurance, 4 November 2008, available at: http://www.mlsi.gov.cy (last access: 25 January 2009).
[28] See: Ministry of Interior, 1 November 2008, available at: http://www.moi.gov.cy (last access: 25 January 2009).
[29] Demetris Christofias, President: Statements, Nicosia, 14 November 2008.
[30] Democratic Rally: Announcement, 14 November 2008 (as reported by the Cyprus News Agency).
[31] Demetris Christofias, President: Statements, Nicosia, 3 February 2008.
[32] Ibid.
[33] Standard Eurobarometer 70, Autumn 2008, available at: http://ec.europa.eu/public_opinion/archives/eb/eb70/eb70_en.htm (last access: 25 January 2009).
[34] Ibid.
[35] Economic Research and Planning Department of Marfin Laiki Bank: Cyprobarometer-2007, 19 June 2008.
[36] Simerini (newspaper), 12 February 2009.
[37] Interviews conducted by Nicoleta Athanasiadou at the Central Bank of Cyprus, Nicosia, December 2008.
[38] Interviews conducted by Christos Xenophontos at the Cypriot Ministry of Foreign Affairs, Nicosia, December 2008.