THE POLITICAL ECONOMY OF A CYPRUS SETTLEMENT

The report analyzes four scenarios for the Cyprus settlement: a bizonal bicommunal federation, the continuation of the status quo, a two-state solution, and a functional federation with loose bizonality. The author argues that a functional federation with loose bizonality is the most economically viable option as it encourages integration, respects individual rights, and leverages market forces to achieve socioeconomic convergence. In contrast, the report suggests that strict bizonality and the current stalemate create economic bottlenecks, sustain socioeconomic gaps, and risk political instability. The analysis emphasizes the impact of Cyprus's membership in the EU and the Eurozone, noting that these frameworks necessitate a more integrationalist approach to fiscal and monetary policy.

• The author identifies a 'functional federation with loose bizonality' as the optimal model because it adopts an integrationalist approach, encourages cooperation, and utilizes market forces to achieve socioeconomic convergence.
• A strict bizonal bicommunal federation, as envisioned in the Annan Plan, is viewed as potentially non-viable due to its emphasis on segregation and dual majorities, which could lead to policy paralysis and economic bottlenecks.
• The continuation of the status quo is described as undesirable for Greek Cypriots but preferable for Turkish Cypriots, as it allows the latter to enjoy rights in the Republic of Cyprus without corresponding obligations while the 'TRNC' is upgraded.
• A two-state solution based on 'land for recognition' would create an initial economic boom and a wealth effect for both sides, but its long-term success depends on whether the 'TRNC' pursues modernization and Europeanization or remains dependent on Turkey.
• The adoption of the euro on January 1, 2008, significantly shifts the political economy by resolving disputes over national currency and the role of the Central Bank, while imposing strict EU fiscal constraints on budget deficits (3%) and public debt (60% of GDP).
• The partial lifting of restrictions on free movement on April 23, 2003, undermined the Turkish policy claim that the two communities could not coexist, leading to thousands of crossings and an economic boom in the northern part of Cyprus.
• There is a significant socioeconomic gap between the two sides; by the end of 2007, income per capita in the northern part of Cyprus was approximately 50% of the level in the government-controlled areas.
• The report highlights a critical conflict in property arrangements: Greek Cypriots emphasize restitution and the three fundamental freedoms, while Turkish Cypriots advocate for 'global' exchanges and compensations to maintain bizonality.
• The issue of settlers is identified as a major security concern for Greek Cypriots and a potential obstacle to any solution, with estimates of their number ranging from 120,000 (Turkish-Cypriot sources) to 180,000 (Republic of Cyprus authorities) by the end of 2007.
• The author argues that a unified Social Security Fund is essential for socioeconomic convergence, a feature only present in the 'functional federation with loose bizonality' model.

APA

THEOPHANOUS, A. (2008). THE POLITICAL ECONOMY OF A CYPRUS SETTLEMENT. Peace Research Institute Oslo. https://cdn.cloud.prio.org/files/86339ece-b840-4a7b-9753-8789b413d541/Report 2008-1 - Political economy of a Cyprus settlement.pdf?inline=true

Chicago

THEOPHANOUS, ANDREAS. THE POLITICAL ECONOMY OF A CYPRUS SETTLEMENT. Peace Research Institute Oslo, 2008. https://cdn.cloud.prio.org/files/86339ece-b840-4a7b-9753-8789b413d541/Report 2008-1 - Political economy of a Cyprus settlement.pdf?inline=true.

Wikipedia

{{cite report |last1=THEOPHANOUS |first1=ANDREAS |title=THE POLITICAL ECONOMY OF A CYPRUS SETTLEMENT |publisher=Peace Research Institute Oslo |date=2008 |url=https://cdn.cloud.prio.org/files/86339ece-b840-4a7b-9753-8789b413d541/Report 2008-1 - Political economy of a Cyprus settlement.pdf?inline=true |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{theophanous2008political, author = {THEOPHANOUS, ANDREAS}, title = {{THE POLITICAL ECONOMY OF A CYPRUS SETTLEMENT}}, institution = {Peace Research Institute Oslo}, year = {2008}, url = {https://cdn.cloud.prio.org/files/86339ece-b840-4a7b-9753-8789b413d541/Report 2008-1 - Political economy of a Cyprus settlement.pdf?inline=true}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }