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Cyprus Savior Should Be Turkey Not Russia, Standard Bank Says

March 21 (Bloomberg) -- The financial crisis in Cyprus is an historic opportunity for Turkey to win peace and bolster its European Union accession bid by offering a bailout, Standard Bank Group’s chief emerging-market economist said.

Turkey, which occupies northern Cyprus, should offer aid in return for an agreement to the terms of the 2004 Annan peace plan for unification of the island, Tim Ash wrote in a report today. The plan, named after former United Nations Secretary-General Kofi Annan, would create a federation of two states and was approved by Turkish Cypriots in a referendum in 2004. It was scrapped after rejection by Greek Cypriots.

The European Union and Russia are “both seeking to extract a pound of flesh for any bailout,” and Cypriots may be better off going to Turkey, Ash wrote. A deal would allow Turkey to “save a very big chunk of the substantial aid -- and significant military spending -- flows it pumps into northern Cyprus each year, and the north would instead find itself open to EU structural fund flows,” Ash said.

Cyprus has been divided since Turkey invaded the northern third of the island in 1974 to stop an attempted coup seeking to unify the island with Greece. Cyprus joined the EU in 2004, represented by the internationally recognized Greek Cypriot government in the south. The dispute has been a stumbling block in Turkey’s EU talks.

Turkish aid would “send a clear message to some of its foes in core continental Europe that Turkey has indeed matured and is worthy of a place at the heart of Europe,” Ash said.

The bailout cost at 7 billion euros ($9 billion) would be “relatively small change” for Turkey, equivalent to a little over 1 percent of GDP, and would be repaid by a “peace dividend,” progress on EU accession and potential energy dividends from Mediterranean exploration, Ash said.

Cypriot Finance Minister Michael Sarris, who is in Moscow today negotiating aid, should be told “he is in the wrong capital,” Ash said.

To contact the reporter on this story: Benjamin Harvey in Istanbul at bharvey11@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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