No Way Out: Socio-Economic Impact of Austerity Policies in North Cyprus

Unlike other countries in southern Europe, in north Cyprus, austerity measures were not introduced to address the adverse yet temporary effects of the Great Recession on public finances. But rather these policies were devised to overhaul the politico-economic structure of a small, de facto state, which has been isolated from the rest of the world for half a century dependent on financial assistance from Turkey. The change in the attitude of Ankara towards the Cyprus problem, with the coming to power of the Justice and Development Party (AKP) in Turkey in 2002, also led to a change in economic policy towards the northern part of Cyprus. Ankara has become more reluctant to finance what it sees as the profligacy of Turkish Cypriot politicians. Since 2010, the Turkish Cypriot governments have implemented various austerity measures based on economic programs agreed with the Turkish government. As a result, similar to the situation in other southern European countries, the Turkish Cypriot ruling parties found themselves between two opposing forces: meeting the expectations of their voters or fulfilling the requirement of the belt-tightening programs that they signed with Ankara, the equivalent of Troika for Turkish Cypriots; when they chose the second option another case of what Bosco and Verney (2012&2016) call an ‘electoral and government epidemic’ followed (Sözen and Sonan 2019). Against this backdrop, this paper analyzes the impact of these measures on the Turkish Cypriot economy, society and politics by (1) using official statistics, and (2) conducting interviews with a number of experts and practitioners. The most obvious problem of the Turkish Cypriot economy has been the huge share of public budget for personnel and transfer expenditures, which stem from decades of clientelistic expansion of the public sector. Accordingly, one of the key targets of the austerity policies was reducing the attractiveness of public sector jobs. Did these policies succeed? The results of the austerity policies have been mixed. So we can talk about both continuity and change. The budget deficit has been reduced but this came at a cost: Public-sector employees, pensioners, and recipients of social benefits all saw their real incomes decline. Public debt stock as a share of GDP is still too high. Furthermore, as people who did not want to change their consumption patterns chose to borrow to make up for the loss in their real incomes, household indebtedness substantially increased. In a similar vein, the number of court cases between creditors and debtors boomed. Public education and healthcare services also seriously deteriorated. Meanwhile, the economy has started to grow again but has failed to generate white-collar jobs that would satisfy young university graduates. Although the entry-level salaries in the public sector have been reduced in real terms, as the working conditions in the private sector have not been improved, the public-sector jobs remain to be ‘the greatest object of desire’ for most Turkish Cypriot employees. As no end is in sight for austerity policies, this trend is likely to continue putting more strain on the political system.