Cyprus votes for ‘Nice Nic’ as Anastasiades sweeps to victory pledging bailout talks

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Cypriot voters have selected a new president in today’s runoff, finishing the business they started last weekend in the first round of the presidential election.cyprus_world_flag

Nicos Anastasiades, the candidate of the center-right Democratic Rally (DISY, Δημοκρατικός Συναγερμός or Dimokratikós Sinayermós) has won 57.48% of the vote to just 42.52% for health minister Stavros Malas, the candidate of the governing, leftist Progressive Party of Working People (AKEL, Aνορθωτικό Κόμμα Εργαζόμενου Λαού or Anorthotikó Kómma Ergazómenou Laoú), which will likely jumpstart talks between Cyprus and the European Union over a potential bailout.

Anastasiades nearly won the election outright last Sunday, when he garnered 45.46%, with just 26.91% for Malas and 24.93% for the independent, center-left anti-austerity Giorgos Lillikas.

Once derided as ‘nasty Nic’ for his hot-tempered manner — he is alleged to have once hurled an ashtray at an associate — he’s been all ‘nice Nic’ throughout the campaign.  The leader of DISY since 1997, Anastasiades was on the wrong side of a 2004 referendum when he supported the ‘Annan Plan’ to reunite the Greek and Turkish sides of the island; a majority of his own party and 76% of the Greek Cypriot electorate opposed the plan.  His election today, however, marks a triumphant personal comeback.

So what does Anastasiades’s victory mean?

First and foremost, Cyprus has chosen a new president who is much keener on securing a €17 billion Cypriot bailout for a government whose finances are on the brink of default, ironically, perhaps, due in part to the stage-managed default of Greek sovereign debt, which has had a disproportionately adverse effect on Nicosia (though the potential Cypriot bailout would dwarf the €245.6 billion Greek bailout). 

That stands in contrast to current talks between the European Union and the current leftist administration of Demetris Christofias, who has been hesitant about imposing tax increases and budget cuts as a condition for a bailout and resistant to privatizing state-owned industries.

Anastasiades, who had the not-so subtle backing of top European leaders, including German chancellor Angela Merkel, is seen as much more willing to impose austerity conditions on Cyprus in exchange for a bailout.  Malas and Lillikas had both argued against further austerity measures — Lillikas had somewhat fancifully, if popularly, argued that Cyprus should depend on newly-discovered offshore natural gas deposits for its economic salvation.

So today’s presidential victory is very much a win for the ‘Berlin consensus’ view of the European Union, though now that Europe will have a much more enthusiastic partner in Anastasiades, it remains to be seen if political leaders can stomach even a small bailout to a country whose banks are seen as a money laundering haven for Russian oligarchs. (It’s difficult, however, to envision the hapless — and even more pro-European — German social democrat Peer Steinbrück haranguing Merkel for a bailout in Germany’s upcoming federal elections this autumn).

Cyprus’s economy is not not quite as bad as Greece these days, but it’s not what you would call economically healthy — it has public debt of around 140% of GDP, an unemployment rate nearing 15%, and an estimated GDP contraction of between 2% and 2.5% in 2012.  A full default would likely exacerbate that — and in the event the government couldn’t afford to pay its obligations, a default could also trigger its unwieldy exit from the eurozone, which would set off another round of high alarm in Europe over the precarious economies not only in Greece, but Italy and Spain as well.  That’s made the presidential election in Cyprus, a country of just 1.1 million people, very relevant to the continent’s economic health.

In the short run, I think this means that despite a landslide victory, Anastasiades is set to spend his political capital very fast in the service of securing a bailout.  That certainly means an increase of short-term pain for Cyprus — although Christofias implemented a four-year austerity program that amounts to 7.25% of Cyprus’s GDP, he’s railed against austerity measures that he argues have exacerbated and not improved Europe’s economic situation.

That’s left Christofias with few allies at home or abroad — Cypriots blame him for the economic pain they feel even more acutely, and Merkel and top EU officials don’t appreciate the criticism from Christofias, who they believe hasn’t done enough to address banking and industrial reform to merit a full bailout.

Anastasiades has signaled that he has no such compunctions about reform or further austerity, so it seems almost certain that he’s willing to gamble short-term pain relatively early in his presidency for a chance to avoid a default and, perhaps, oversee some growth by the end of his five-year term.

 

For the first time since the 1970s, Greek-Turkish relations have taken a backseat role to economic and budget issues in a Cypriot election.  The island of Cyprus has been divided into the Republic of Cyprus (populated by Greek Cypriots) and the Turkish Republic of Northern Cyprus (populated by Turkish Cypriots) since a 1974 coup by the Greek government, attempting to annex the entire island.  Turkey invaded, in response, and took control of the northern part of the island, and Northern Cyprus has been essentially a separate nation ever since, formally declaring its independence in 1983.

Given that Anastasiades also supported the Annan plan in 2004, despite the overwhelming skepticism of a Greek Cypriot population of a plan implemented by top United Nations and E.U. officials, I think there’s some chance we’ll an improved outlook on Greek-Turkish relations on Cyprus.  Hidden behind the economic issues that have dominated the election, Anastasiades has already made a campaign pledge to reduce compulsory military service from 25 months to just 14 months.

That doesn’t necessarily mean an immediate impending rapprochement between Greek Cypriots and Turkish Cypriots, but if Anastasiades successfully navigates the economic issue for Cyprus, that will be the next logical project.

Any Cypriot president — but especially Anastasiades — must have in the back of his mind the idea of becoming the Cypriot president who reunites the island as a unified republic.

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