Margareta Pagano: Can Aphrodite reunite Cyprus and Turkey?

The current plight of the Mediterranean island could be eased if it can build bridges with its former enemy to exploit nearby gas fields

Professor Hari Tsoukas has a simple theory to explain how and why Cyprus is in such crisis: he calls it an "organisational accident".

The Greek Cypriot academic says the country has collapsed because the politicians buried their heads in the sand, ignoring the failures of the banking system. They allowed what had been an efficient banking sector to become eight times the size of the country's GDP and permitted the banks to become so powerful that they became part of the political establishment, leading to reckless lending to Greece but also to many Cypriot businessmen, without guarantees.

Thus, when the Greek crisis crunched, Cyprus was at its most vulnerable and open to random events with disproportionate impact; not dissimilar to what the writer Nassim Taleb famously called the black swan effect.

It was only when the Greek haircut took place last year, and the Laiki bank lost €4bn (£3.4bn), that the extent of the crisis became clearer. But even then, the Cypriot Communist leaders turned a blind eye, even though they were warned by the IMF's Christine Lagarde that they too faced razor treatment as the price for doing a deal to restructure the banks. They thought Ms Lagarde was bluffing and chose to ignore her warnings. Instead of just a haircut, they got a shearing.

When I caught up with the Professor last Thursday, he was in a break between lectures at the University of Cyprus in Nicosia – he also teaches at the Warwick Business School. He had been lecturing on the management of change, and saw the funny side. But his students didn't – the mature ones studying part-time were in a state of shock, while many of his undergraduates were sobbing. Many want to leave.

But they aren't angry with the IMF's Ms Lagarde, the ECB or the EU, as so many of the headlines over here seem to suggest, he says. Their anger was for their politicians who allowed the country to fall into such chaos. Like his students he fears the worst, and predicts a decade of suffering with unemployment rising to 30 per cent.

Whether the country stays in the euro or not is almost incidental – either way there will be suffering. More important is what to do next? The new centre-right President, Nicos Anastasiades, is looking at many options – how to make tourism competitive again, whether to privatise industries such as electricity and the airlines and how to build on its expertise in English law and software services. For sale signs over land are already written in Chinese.

By far the biggest prize, though, is finding the cheapest way to explore the natural gas in the Aphrodite gas field lying to the south of the island. Aphrodite has some 200 billion cubic metres of natural gas worth about $80bn at current prices – enough to provide 40 per cent of the EU's annual gas intake. But the costs of piping this to Europe are crippling – about $40bn. Building a pipeline to Turkey would cost far less, about $15bn.

But is the political price too high? Turkey made its usual noises last week about claims on the gas fields but is said to be willing to renew talks. President Anastasiades, only elected last month, is said to be warm to the idea too – he voted for the Annan plan in 2004. As well as the $3bn a year that the gas could bring to Cyprus in the long-term, reunification could boost GDP by 3 per cent a year. Turkey has shown it can do business with past enemies such as Israel and longs to be a good partner with the EU. For their part, Cyprus and Greece no longer veto Turkey at the EU.

It could be that the EU's brutal bail-out, coupled with the riches named after the goddess of love, could prove the trigger that reunifies these countries. Stranger things have been born of such accidents.

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