EUR/SE DEPUTY DIRECTOR BAXTER HUNT'S MAY 8-9

C O N F I D E N T I A L NICOSIA 000766

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E.O. 12958: DECL: 05/23/2016
TAGS: PROG
SUBJECT: EUR/SE DEPUTY DIRECTOR BAXTER HUNT'S MAY 8-9
CYPRUS VISIT

REF: A. A. NICOSIA 352


B. B. NICOSIA 113

C. C. NICOISA 476

Classified By: Ambassador Ronald L. Schlicher for reasons 1(b) and (d)


1. (C) Summary. EUR/SE Deputy Director Baxter Hunt visited
Nicosia May 7-9 and held meetings with key Cypriot political
and business figures in both the north and the south. On the
Greek Cypriot side, AKEL Spokesman and Foreign Relations
Secretary Andros Kyprianou and DISY Deputy Leader Averof

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Neophytou predicted strong showings for their respective
parties in the May 21 parliamentary elections. Both outlined
specific shortcomings of the Annan Plan and made clear that
even referring to the Plan in public was politically
dangerous given the "demonization of the term by the
Papadopoulos administration." With his Greek Cypriot
interlocutors, Hunt stressed the need to strengthen the
economy of the north in order to help the Turkish Cypriot
community distance itself economically and politically from
Ankara. Kyprianou and MFA Cyprus Question and EU Affairs
Director Ambassador Erato Marcoullis agreed, but rejected any
effort in this direction that amounted to "advancing the
economy of a state."


2. (C) In the north, "President" Talat's Undersecretary
Rasit Pertev stressed Turkish Cypriot disappointment at the
lack of progress towards a solution as well as growing
reservations about the UN's role. Erkut Sahali, Private
Secretary to the "TRNC Prime Minister" predicted that

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municipal and parliamentary bi-elections in June would not
undermine the ruling CTP's pro-settlement policies or its
grip on power. Representatives of the Turkish Cypriot Chamber
of Industry expressed frustration with trade restrictions on
the north's economy and called on the United States to take
the lead in easing Turkish Cypriot economic isolation. End
Summary.


ROC Elections and Beyond


3. (C) AKEL spokesman Andros Kyprianou began by outlining
the party's expectations for the May 21 parliamentary
elections. AKEL considered winning at least 30 percent of
the vote "to be of vital importance." DISY and DIKO, of
course, would use "all means necessary" to improve their
positions. This was particularly true for DISY, who want to
increase their numbers to form a government coalition to
exert pressure on the President and alienate AKEL. Even so,
Kyprianou expected AKEL to maintain its position and again
win the largest percentage of the vote. Kyprianou noted that
even in a campaign focused largely on domestic issues, the
parties would seek to use their handling of the Cyprus issue
to build support. AKEL, for example, was basing its campaign
largely on its advocacy for a Cyprus settlement. The party
firmly backed the technical talks agreed to in Paris by
President Papadopoulos and UNSYG Annan, but believed the
parties should discuss issues of political significance as
well as matters of daily life. Kyprianou noted that after
the elections, AKEL planned to focus on preparing the ground
for the beginning of negotiations by 1) continuing its
dialogue with the north's ruling CTP party and 2) increasing
its sponsorship of and participation in bicommunal events.
Improving strained relations with CTP was particularly
important.


4. (C) DISY deputy leader Averof Neophytou was more careful
in speculating on the election outcome. DISY was prepared to
take an electoral hit if it meant advancing the prospects for
reunification. AKEL, in contrast, was prepared to set back
efforts to negotiate a settlement in pursuit of votes.
Neophytou noted his party's disappointment at the way in
which President Papadopoulos "used the international
community" and "misleadingly represented the February Paris
talks as an initiative towards the island's unification, when
in actuality the talks did not serve the ROC's interests."
Neophytou also expressed his party's hopes that new efforts
towards a settlement would begin after the election. The
future of the settlement was, he maintained, directly linked
to the outcome of the May 21 vote.


Annan Plan: In ROC, Guilt By Association


5. (C) All of our Greek Cypriot interlocutors outlined
their main objections to the Annan Plan, including: security,
property, the number of settlers who would be allowed to
remain, the failure of the guarantor system, the right of
return, and the lack of clear, enforceable assurances that
the plan would be implemented as agreed. Still, the MFA's
Cyprus Question Division Director Erato Marcoullis began her
meeting with Hunt by expressing her optimism with regard to
the future of the Cyprus issue. Marcoullis was strongly

critical, however, of the UN's handling of the last round of
negotiations and the UNSYG's "misuse" of his arbitration
authority. Because of the way in which the negotiations were
handled, the Greek Cypriot public came to see the Annan Plan
as an imposed solution analogous to the 1960 treaties of
guarantee that established the discredited guarantor system.


6. (C) Neophytou pointed out that his party had suffered
dearly for its "Yes" vote in the Annan Plan referendum. DISY
supporters had been labeled "traitors" and had been accused
of forming a coalition with the "Anglo-Americans" and Turkey.
For this reason, he noted, his party "cannot publicly support
the Annan Plan." Although he is willing to acknowledge
privately that the Plan remained the only viable basis for
reunification, Neophytou observed that President Papadopoulos
and his supporters had successfully demonized the Plan to the
point where it was now political poison. In terms of future
settlement efforts, Neophytou recommended that: 1) the
"Annan" name should be removed from any plan; 2) there should
be no future "Yes/No" referenda, and 3) the Greek Cypriot
public should be reassured that the EU was playing a central
role, even if it was not. He explained that Greek Cypriots
have a tendency to show defiance to the international
community as a symbol of patriotism, and majority "No" votes
in such scenarios are generally viewed as a national
triumph. The power and purity of "NO" or "OXI" was deeply
ingrained in the Greek psyche, witness the national
celebration every October 28 of Metaxas' rejection of
Mussolini's ultimatum on "OXI" Day.

Economic Development for Turkish Cypriots, But Not "TRNC"


7. (C) With his Greek Cypriot interlocutors, Hunt stressed
the importance of building up the Turkish Cypriot economy
and enabling Turkish Cypriots to distance themselves
politically and economically from Ankara. Kyprianou was
quick to point out AKEL's support of the 259 million euro EU
aid package for the Turkish Cypriot side. AKEL would,
however, insist that any international trade with Turkish
Cypriot firms be conducted through "legal harbors" (in the
south). The Greek Cypriots also had a "sensible" proposal on
the table that would legitimate trade through Famagusta.
While expressing his support for Turkish Cypriot economic
development, he also underscored AKEL's concern that if the
north became economically self-sufficient, the Turkish
Cypriot side would lose interest in a solution.


8. (C) Marcoullis articulated the GOC view that Talat and
the Turkish Cypriots were simply not in control in the north
and this was the most serious drag on efforts to reach
agreement on a Cyprus settlement. According to Marcoullis,
it was the Turkish military that exercises effective control
over the Cyprus issue. Expressing sympathy for the Turkish
Cypriots' position and their "deprivation suffered as a
function of Turkey's military occupation of one-third of
Cyprus," Marcoullis also endorsed "the economic development
of the Turkish Cypriot community." She made a point to
distinguish this, however, from programs or policies aimed at
"boosting the economy of a separate state." Marcoullis also
credited the ROC with offering Turkish Cypriots a range of
benefits since the opening of the crossing points in April

2003. Turkish Cypriots were entitled to free medical care in
the south. They could (and did) claim ROC passports and the
benefits of EU citizenship. Turkish Cypriot income had
effectively doubled in the three years since the crossing
points opened, largely because of Greek Cypriot generosity,
she claimed.


UN "Disappoints" the North


9. (C) "President" Talat's Undersecretary, Rasit Pertev,
told Hunt that there were "worrying signals" that the Greek
Cypriot political leadership was trying to "annihilate the
Annan Plan." The UN had repeatedly failed to take a strong
stance in its dealings with Greek Cypriots and had
inexplicably backed off its previous (and in his view,
correct) insistence that the Annan Plan be used as the basis
for further settlement talks. Pertev agreed with Hunt that
the Plan had been effectively "demonized" on the Greek
Cypriot side. Hunt suggested that the Turkish Cypriot side
be flexible in its terminology and not lock itself in to the
name "Annan." It was important, Hunt added, for the Turkish
Cypriots to retain the moral high ground and keep from doing
harm to the pro-solution image they had earned in the
international community. Pertev said the Turkish Cypriots
could be flexible with regard to use of the term "Annan
Plan," but expressed worry over President Papadopoulos'
apparent rejection of a bicommunal, bizonal solution in a May
9 interview the French publication "L'Express." This cast
doubt over Greek Cypriot commitment to the long-standing and
universally accepted goal of a shared federation, and was
"extremely troubling for the Turkish Cypriots," who were

still trying to overcome the negative fallout from the
February 28 Paris meeting between Annan and Papadopoulos.


10. (C) Pertev maintained that the Turkish Cypriot side was
disadvantaged in its dealings with the Greek Cypriots
because UN SRSG Michael Moeller was not an impartial
mediator. Moeller spent more time on the Greek side, used
Greek Cypriot sources for information, was fluent in the
Greek language, and had internalized the Greek Cypriot point
of view with regard to the Cyprus issue. Because of the
general Turkish Cypriot perception that "UN sympathies lie
with the Greek Cypriots," Pertev asserted that the Turkish
Cypriot leadership needed to increase its efforts to
familiarize Moeller with their positions, perspectives, and
sensitivities. The Turkish Cypriots would try to set up
meetings in the weeks ahead between Moeller and
representatives of the north's civil society, business
community, and political parties. Pertev hoped this would
result in more evenhanded dealings on the part of the UN.
Pertev feared that UNSYG Annan, with only six months left in
office, was unwilling to address any issue that would fail to
result in a "guaranteed victory" for his Good Offices
Mission. This, he asserted, was why U/SYG Gambari had been
so reluctant to visit the island.


Little Change Expected After "TRNC" June Elections


11. (C) Erkut Sahali, Private Secretary to "TRNC PM" Soyer,
predicted that June 25 municipal and parliamentary
by-elections would not shake the pro-settlement CTP's grip on
power in the north. Because the opposition was so
disorganized and demoralized, the CTP would probably even
consolidate its dominant political position by winning both
vacant "parliamentary" seats and increasing the number of
municipalities it controlled. He suggested that after the
elections, the CTP would probably seize the initiative and
reorganize several "state" agencies. For example, the
electricity authority "KIBTEK," currently located in the
"Ministry of Agriculture" (and therefore controlled by the
TP's nationalist junior partner, the DP of Serdar Denktash)
would move to the CTP-run "Ministry of Finance." Sahali said
these changes were designed to streamline the functioning of
the "state," however, and not to boost CTP's patronage power.
He pointed out that other planned shifts would either be
zero-sum swaps (with Serdar retaining control of the "Office
of the Environment" as it moved from the DP-run "Ministry of
the Economy" to "Agriculture") or losses for the CTP (with
the public citrus company "CIPRUVEX" moving from "Finance" to
"Agriculture"). He was less clear whether any
"cabinet"-level reshuffles were in the works, but stressed
that none of the anticipated changes would derail the Turkish
Cypriots' broad pro-settlement policy orientation.


Economic Optimism, but Global Isolation


12. (C) Outgoing President of the Turkish Cypriot Chamber of
Industry Salih Tunar (who had resigned from his position the
day before his meeting with Hunt to run as a DP candidate in
the June parliamentary Elections) joined incoming chamber
president Musa Sonmezler and chamber secretary Galip Yuksel
in stressing the paramount importance of economic development
in the Turkish Cypriot community. Sonmezler outlined the
expansion of the "TRNC" economy during the last two years,
citing tourism, construction, and the influx of students as
the key growth factors. He added that the "TRNC" was
enjoying low inflation coupled with low interest rates, but
stressed that international economic isolation remained the
significant barrier to real, sustainable economic growth.
Absent this isolation, Sonmezler was confident the Turkish
Cypriots could "catch up with" their Greek Cypriot neighbors
in a few short years. According to Sonmezler, however, Greek
Cypriots continued to insist on unjustly isolating the
Turkish Cypriots. Even as they insisted all the north's
trade pass through the ROC-controlled south, he added, the
Greek Cypriots had not overcome their political and
psychological barriers to trading with Turkish Cypriots.
These continued to be the most significant obstacles to
north-south trade.


13. (C) All of Hunt's Turkish Cypriot interlocutors
expressed satisfaction with the Austrian Ambassador's May 8
"Europe Day" speech in the north in which she said that the
EU would seek to restore the 120 million euros of aid that
had been lost when the parties had failed to reach agreement
on the modalities of implementation before a key deadline
(ref c). Even so, Sonmezler and Yuksel said that they
anticipated the Greek Cypriots would "create difficulties" by
imposing serious restrictions on Turkish Cypriot access to --
and use of -- EU aid. Hunt's interlocutors were unanimous in
predicting that Turkey's implementation of the Ankara
Protocol (the opening of Turkish ports and airports of
Cyprus-flagged vessels) would be a "disaster" for the Turkish
Cypriot economy. Turkey was currently the north's only
conduit for external trade. According to Sonmezler, if that
door were opened to Greek Cypriots, "it would be closed to
Turkish Cypriots." As an example, he described how the Greek
Cypriots have been able to block McDonalds from opening
franchises in the north by threatening to withdraw concession
licenses in the south. Sonmezler urged the United States to
set an example to the international community by supporting
the north's economic development and taking "more concrete
steps to ease Turkish Cypriot isolation." Yuksel outlined
plans by foreign investors to expand and diversify the
tourism sector through the construction of nine new hotels in
the Karpass region, increasing the "TRNC's" current hotel bed
capacity to approximately 30,000 by the end of 2007.
SCHLICHER