VZCZCXRO5900
PP RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHNC #0476/01 0881526
ZNY CCCCC ZZH
P 291526Z MAR 06
FM AMEMBASSY NICOSIA
TO RUEHC/SECSTATE WASHDC PRIORITY 5779
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCNDT/USMISSION USUN NEW YORK 0505

C O N F I D E N T I A L SECTION 01 OF 04 NICOSIA 000476 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 03/28/2016 
TAGS: PGOV PREL EAID EUN TU CY
SUBJECT: BUMPY START TO EU AID FOR TURKISH CYPRIOTS 
 
REF: A. NICOSIA 273 
     ¶B. LIBBY-SILLIMAN-ETC EMAIL (12/07/2005) 
     ¶C. LIBBY-INGMANSON-ETC EMAIL (12/13/2005) 
     ¶D. NICOSIA SIPRNET DAILY REPORT (3/21/06) 
     ¶E. ZIMMERMAN-INGMANSON-ETC EMAIL (3/28/2006) 
 
Classified By: Ambassador Ronald Schlicher, for reasons 1.4 (b) and (d) 
. 
 
¶1. (C) SUMMARY.  With the long-awaited EU aid package for the 
Turkish Cypriots finally approved, the European Commission 
and Turkish Cypriots have begun negotiating over project 
priorities and sensitive details of implementation.  The 
question of whether the EU's aid office will be located in 
the north or south is the first politically charged issue the 
Commission must address -- although other contentious 
logistical questions are sure to arise as the EU's aid moves 
forward.  The Turkish Cypriots hope that an April 4 meeting 
between DG Enlargement's Michael Leigh and "President" Talat 
will set a positive tone for future efforts to untangle such 
issues.  The Turkish Cypriots are nonetheless worried that EU 
aid will be funneled through the ROC or subject to Greek 
Cypriot political conditions, which they fear would render 
the assistance economically useless and politically 
impossible for the "TRNC" to accept.  "President" Talat has, 
for the moment, silenced quibbling between "TRNC government" 
coalition partners over whether to accept EU aid, reasserting 
his policy of consultation with the Commission and not 
blocking project implementation for now.  The Commission, 
anxious to reverse Turkish Cypriot perceptions that the EU 
does not keep its promises, has focused on high-visibilty, 
quick-start projects -- often without careful forethought, 
adequate intelligence about the political context in which 
they operate, or meaningful coordination with USAID's 
up-and-running CyPEG.   At the same time the 
politically-paranoid Turkish Cypriots may pose obstacles of 
their own, as in some cases the "TRNC" in its goal to avoid 
letting the ROC score points is capable of taking measures 
that amount to economic "self-isolation."  Haphazard 
planning, Greek Cypriot shenanigans, and Turkish Cypriot 
political twitchiness pose a real danger to the effectiveness 
of EU aid to the Turkish Cypriots.  END SUMMARY. 
 
EU PROJECT PLANNING BEGINS 
-------------------------- 
 
¶2. (C) The EU approved its long-awaited 139 million euro 
assistance package for the Turkish Cypriots in February (ref 
a).  (COMMENT: The package had been valued at 259 million 
euros when it was proposed immediately following the Turkish 
Cypriot "yes" vote in the 2004 Annan Plan Referendum.  But a 
drawn-out tug-of-war between the ROC, the UK, and the Turkish 
Cypriots over whether it should be "delinked" from an EU 
direct-trade proposal -- among other things -- resulted in 
120 million of the aid being lost as the budget cycle 
advanced.  END COMMENT.)  With aid now authorized, the Cyprus 
team at DG Enlargement, which handles north Cyprus matters in 
the Commission, visited the island twice in March to begin 
negotiating both the technical and political aspects of 
program implementation. 
 
¶3. (C) According to the EC team, as well as Turkish Cypriot 
sources, the EU's aid program will focus on five general 
priorities: economic and social development, rural 
development (to include projects relating to the environment 
and infrastructure), bicommunal reconciliation (including 
preservation of cultural heritage), technical assistance, and 
scholarship.  The Commission's team expressed a clear 
preference for quick-start programs that would be ready for 
approval by the Phare Committee (which oversees EU aid and 
consists of representatives from the member states, including 
the ROC) by June.  According to Turkish Cypriot sources, the 
Commission's team was "frantic" to "show the flag" in the 
north and was planning to spend as much as 25 million euros 
on quick-impact projects that would counter the perception 
that Europe had not "kept its promises" to the Turkish 
Cypriots. 
 
NEGOTIATING POLITICAL LAND MINES 
-------------------------------- 
 
¶4. (C) Before aid can start flowing, however, a large number 
of practical questions -- including several with potentially 
serious political implications -- need to be worked out.  The 
first is the question of where the Commission's aid office 
will be located.  The ROC has insisted that the office be in 
the "areas controlled by the legitimate government" (i.e., in 
the south), while the Turkish Cypriots recoil at the idea of 
their aid being "channeled through the Greek Cypriots."  They 
would like the EC to follow the example of USAID, which has 
insisted that its contractors open robust "service centers" 
north of the Green Line (on undisputed Turkish Cypriot 
 
NICOSIA 00000476  002 OF 004 
 
 
property).  The Commission appears to be quietly seeking a 
compromise and has floated the idea of hanging a shingle in 
the south, perhaps by simply opening a PO box, but operating 
a proper office (having a "presence") in the north. 
 
¶5. (C) It is far from clear that this compromise would meet 
the requirements of both sides.  But the "TRNC's" lead EU 
expert, Erhan Ercin, nonetheless gives the EC team credit for 
trying to find a middle ground.  Ercin had similar praise for 
the Commission's apparent willingness to allocate aid funds 
via HSBC Bank in the north, rather than through the Cyprus 
Central Bank in the south -- the apparent preference of the 
GOC.  Ercin acknowledged that there would be "countless 
other" technical issues to work out in the future, but 
suggested that, if the Commission maintained its "newly 
constructive attitude" and continued to "show backbone 
against Greek Cypriot demands," such problems could be 
resolved. 
 
¶6. (C) This cautious praise for the EC is a remarkable change 
of tone for the Turkish Cypriots, who until very recently 
were furious at the Commission for agreeing, in December, to 
issue an "unacceptable" declaration as the price for ROC 
approval of EU aid (ref b).  Although the EC later backed 
down amid howls of protest from Talat (and, more quietly, 
from the UK), there was nonetheless significant damage to 
their relationship with the Turkish Cypriots (ref c).  Since 
then, Ercin noted to us with some satisfaction, Leopold 
Maurer (whom the Turkish Cypriots blame for December's near 
train-wreck) has since been assigned to Kosovo.  His acting 
replacement, Georg Ziegler, was much more "constructive." 
Ercin also told us that DG Enlargement's #2, Michael Leigh, 
would visit Cyprus on April 4 and meet with Talat (in the 
latter's office).  Ercin hoped Leigh's visit would produce a 
"final and acceptable" agreement on the issue of office 
location -- and mark a definitive turn-around in the 
political atmosphere between Turkish Cypriots and the 
Commission. 
 
STILL NO RED CARPET UP NORTH 
---------------------------- 
 
¶7. (C) Ercin's rosy-ish assessment of Turkish Cypriots-EC 
relations, however, has not translated into smooth political 
sailing for the EU's aid package up north.  Many Turkish 
Cypriots feel that EU aid to develop their economy is useless 
without the corresponding "direct trade" package that the EU 
proposed, but then failed to approve, after the 2004 Annan 
Plan Referendum.  As one commentator put it, EU aid is a 
"moldy half loaf" instead of a full and nutritious meal.  For 
this reason, Turkish Cypriots were dead-set against 
decoupling the trade and aid measures.  Passing aid alone, 
they feared, would create the impression that the EU had kept 
its promises to help Turkish Cypriots, thus making it easier 
to shelve direct trade for good. 
 
¶8. (C) Now that aid is in the pipeline, Turkish Cypriot 
public opinion has focused its worry on questions of 
implementation.  Most observers assume that the "Greek 
Cypriot administration" will use its sway as an EU member 
state to ensure that aid is either stymied or frittered away 
on projects not directly beneficial to the Turkish Cypriot 
economy.  Informed experts share this worry.  They note, for 
example, that Greek Cypriot stipulations about respecting 
property rights could severely limit development assistance 
by blocking projects supporting economic activity that takes 
place on Greek Cypriot land (which amounts to at least 80 
percent of all the land in the north).  This belief -- 
compounded with the general sense that the aid is somehow 
going to be "funneled through the south" -- has caused 
significant public opposition to "accepting" European aid. 
 
¶9. (C) Serdar Denktash, the nationalist "FM" who is the 
uneasy coalition partner of Talat's ruling CTP, has led the 
charge against EU aid.  Threatening at one point to bring 
down the "government" over the issue, Serdar was only walked 
back from the edge after Talat took him to the woodshed in a 
closed-door meeting last week (refs a and d).  Calmer voices, 
including respected members of the business community, have 
echoed Serdar's call that the "TRNC" should reject EU aid. 
Perhaps most significantly, Turkey is rumored to be pressing 
Talat to block implementation of EU aid -- something the 
local Turkish Ambassador tacitly admitted to Ambassador 
Schlicher on March 14, even as he said that the Turkish 
Cypriot authorities had made their own, contrary decision on 
the matter. 
 
¶10. (C) Despite this pressure, however, Talat has directed 
"TRNC" officials not to block aid, but to cooperate with the 
Commission's aid team.  "PM" Soyer has reassured the public, 
on behalf of Talat, that EU programs will help build 
institutional ties between the Turkish Cypriots and Europe 
 
NICOSIA 00000476  003 OF 004 
 
 
that could prove more valuable than the aid itself over the 
long term.  Privately, advisors close to Talat have told us 
that "the president" did not want to be painted as a 
nay-sayer by refusing EU aid outright.  But they nonetheless 
stress that Talat will constantly reassess his position on 
aid if too many "unacceptable" restrictions and/or political 
conditions are "imposed" by the GOC. 
 
WILL IT WORK? 
------------- 
 
¶11. (C) The question of whether Turkish Cypriot authorities 
will accept EU aid is a bit misleading, since the Commission 
is not planning to write checks directly to the "TRNC." 
Nonetheless, the Turkish Cypriot political leaders can make 
or break the program by granting -- or withholding -- their 
cooperation with implementers.  At the logistical level, 
there is a range of options at the "TRNC's" disposal (such as 
demanding VAT payments, slow-rolling phone installation, or 
denying entry to implementers) should they decide the 
political cost of accepting EU aid is too high. 
 
¶12. (C) Unfortunately, the Turkish Cypriots are more than 
willing to shoot themselves in the economic foot to make a 
perceived or symbolic political point.  For example, this 
week "TRNC" officials appear to have used indirect pressure 
on the Chamber of Commerce and a "state"-owned fruit packing 
company to derail a deal to export citrus through the south 
(ref e).  This maneuver was the result of a misguided 
political fear that allowing exports through Limassol -- 
however profitable this might be for their businessmen -- 
would undermine the political argument for direct trade with 
the EU.  We have strongly counseled the "TRNC" that, even as 
we seek to find ways to end Turkish Cypriot isolation, they 
in no instance should take action that damages existing 
opportunities and can be styled as "self-isolation."  It is 
reasonable to expect the Greek Cypriots to try to exploit 
this self-destructive instinct by kicking up a fuss (over 
office location, for example), goading the Turkish Cypriots 
into saying "no" to European aid, and watching with glee as 
Europe curses Talat's intransigence. 
 
¶13. (C) At the same time, serious questions remain about the 
ability of the EC Cyprus team to manage its aid program 
effectively.  As one Turkish Cypriot reminded us, the EC has 
a startlingly bad understanding of Turkish Cypriot political 
dynamics.  Referring to the Commission's point-man on the 
Turkish Cypriots (who lodges in the south, spends significant 
time in Brussels, and speaks no Turkish) he noted that the 
EU's only consistent presence in the north consisted of 
nothing more than a "single Italian in a car."  It is hardly 
surprising that the Commission has repeatedly rammed blindly 
into Turkish Cypriot political redlines as it tried to secure 
approval of aid last year. 
 
¶14. (C) The Commission also seems instinctively resistant to 
cooperation with USAID -- refusing, for example, to share 
with us a World Bank study they commissioned on the north's 
economy and withholding for over a year the results of their 
feasibility studies in important areas such as water, waste 
water, energy, rural development, and solid waste.  This 
attitude appears to stem, at least in part, from a rather 
territorial belief that, since Cyprus is a European country, 
the U.S. should butt out.  As a result, the Commission team 
here consistently rebuffs our offers to discuss potential 
areas of coordination and deconfliction between our 
assistance programs.  This attitude sometimes borders on the 
surreal, with Commission officials bickering over our use of 
the word "Partnership" in the CyPEG acronym (on the grounds 
that the EU's "Partnership for the Future" program had 
already appropriated the term).  Once, Commission 
representatives even forbade their contractors to join a 
Turkish Cypriot-led meeting on environmental priorities 
because AID staff were also present. 
 
¶15. (C) In their rush to spend money and make a quick public 
splash, the EU seems to have compromised the quality of their 
program management and implementation.  Despite the 
managerial and political ineptitude of their local team, the 
EU has indicated they will likely use the existing 
Partnership for the Future as the delivery mechanism for most 
-- if not all -- of their initial assistance package.  Past 
performance suggests this preference for convenience and 
speed could have serious consequences.  In one case, a 
PFF-funded restoration project in Famagusta was put on such a 
tight deadline that Turkish Cypriot municipal authorities had 
to choose between losing EU funding for a restoration project 
or settling on quickly-available contractors whose lack of 
expertise threatened to damage the medieval structure that 
they were trying to protect.  This does not bode well for 
successful (or Turkish Cypriot-friendly) quick-start programs 
in the future. 
 
NICOSIA 00000476  004 OF 004 
 
 
 
COMMENT 
------- 
 
¶16. (C) The EU's aid program is probably too little, too late 
to reverse the Turkish Cypriot perception that "Europe" has 
abandoned them.  At the same time, hasty planning and poor 
coordination will probably dilute the impact of the EU's 
assistance efforts.  Meanwhile, Turkish Cypriot twitchiness, 
coupled with the inevitable Greek Cypriot shenanigans, could 
mean that EU aid will ultimately amount to little more than 
an arena for more childish political games.  We will seek to 
forestall this possibility here through pressing for more and 
better coordination and deconfliction of projects and 
priorities.  At appropriate points, we will ask our 
colleagues in Brussels and appropriate EU capitals to echo 
this message when needed.  END COMMENT. 
SCHLICHER