"We are in the wrong club of unrecognised states, and the sooner we get out of it the better it will be for us," says Ahmet Aker, economic adviser to Rauf Denktash, president of the self-proclaimed Turkish Republic of Northern Cyprus (TRNC).

Such frankness comes as a breath of fresh air in the isolated, economically-distorted enclave of northern Cyprus. Hard-hit by international sanctions, the north has a per capita income one-third of that of the Greek-Cypriot south.

The embargo maintained against the breakaway state by energetic Greek-Cypriot lobbying hits not just exports but also the opportunity to earn foreign currency through tourism.

Tourists from northern Europe in particular have dwindled as charter flights are unable to land in northern Cyprus without first making a stopover in Turkey.

As a result, the north is heavily dependent on both political and financial support from Turkey. But it has so far missed out on the economic reforms sweeping Turkey, says Professor Aker, with one not very happy exception.

Ankara's takeover of five troubled banks in Turkey in December triggered a run on five banks in northern Cyprus. "This was an accident waiting to happen as a result of shoddy banking supervision," says Prof Aker.

The five banks are now under the management of the Turkish Cypriot central bank. The enclave's government has negotiated an 18-month timetable for giving depositors back all their money together with interest under a deposit insurance scheme.

The relationship between private business and government is unhealthily close, and state-owned enterprises being considered for privatisation are mostly bankrupt.

Prof Aker, who teaches at East Mediterranean in Famagusta, one of the five international universities that constitute the north's main growth industry, claims the status quo suits most of the political class. "Complaining about the embargo and getting aid from Turkey is an easier way to rule than collecting taxes," he says. "When problems arise, you can always blame either the Greek-Cypriots, the Greeks, the EU, or the rest of the world."

The TRNC came into existence in 1983 after Turkey dispatched troops to the island in response to a Greek-inspired coup in 1974.

But the island's uneasy division started even earlier. Turkish-Cypriots say the larger Greek-Cypriot community began to unpick power-sharing arrangements three years after the island gained independence from Britain in 1960.

They are also adamant that any settlement reuniting the island must guarantee their safety to avoid a repeat of violence against Turkish-Cypriots by Greek-Cypriot militants in the years leading up to Turkey's military intervention.

Their main grievance is that the rest of the world recognises only the Greek-Cypriot government, which controls two-thirds of the island. Turkish-Cypriots feel they were forced to go their own way under the guardianship of Turkey, which has 30,000 troops there.

For Mr Denktash, securing the Turkish-Cypriot community's safety and "honour" comes before all else. "The economy is a factor when liberty is not at stake," the veteran 75-year-old leader declared in an interview before his election to a sixth term last April.

any of his compatriots would probably argue that present circumstances would benefit from a more flexible line, and with UN-sponsored proximity talks about to start, the north does have its best chance in years to achieve security combined with prosperity.

If the northern Cypriots can agree a new power-sharing deal with the Greek-Cypriots after 25 years of abortive talks sponsored by the United Nations, a reunited island would be virtually assured of joining the European Union.

The EU, which has already begun accession negotiations with the Greek-Cypriot government, has said a settlement would facilitate the admission of Cyprus. But in a bid to deny Mr Denktash an effective veto over admission if the talks fail, the EU has stipulated that a deal would not be a pre-condition for membership. The EU's decision in December to grant Turkey status of full candidate was seen by western diplomats as giving Ankara an incentive, for the first time, to encourage a settlement in Cyprus.

But unless the Turkish-Cypriots can demonstrate they have tried their best to reach an accommodation with the Greek-Cypriots, the EU would face strong Greek pressure to admit only the south. Greek-Cypriot accession would lead not only to a full merger between the TRNC and Turkey, say both Turkish and Turkish-Cypriot officials. It would also poison Turkey's relationship with the EU as a whole.

Avoiding such a scenario will require more active intervention by leading EU states and use of the carrot of EU membership to bring the two Cypriot communities closer together. It will also rely on a continuing rapprochement between Greece and Turkey.

Chances of progress will remain slim, however, as long as politicians on either side of the island remain stuck on issues which have little to do with substance.


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