Economic Partnership in the Aegean: A New Understanding between Turkey and Greece

July/August 2000 - Until the summer earthquakes of 1999, the distance between Greece and Turkey was wider than the Aegean Sea. Although ordinary Greeks and Turks longed for friendly social and political relations, it took natural disasters to provide new opportunities. Now it is time to reap the fruits of rapprochement between two conflicting and unnecessarily hostile neighbors. For this new era to endure, political good will must be backed by economic initiatives and improved business relations.

Geographical proximity among countries sets favorable preconditions for any type of partnership, from bilateral cooperation to economic union. The availability of infrastructure such as connecting roads, airports, harbors, and telecommunications increases the chances of success for any attempted cooperation.

However, unhealed historical wounds, differences in political regimes, existing cultural gaps, differing goals and aspirations among respective political elites, and the existence of conflicting interests all serve to impede any prospective collaboration.

In practice, most conditions indicate a promising outlook for Turkish-Greek cooperation independently of the European Union framework. Both economies are diversified in production and demonstrate self-sufficiency in almost every product. Greece's economy is more service-oriented than Turkey's, which remains more agriculture- and manufacturing-oriented. Both countries are attempting to adopt trade and finance liberalization policies in accordance with their respective EU guidelines and those of the World Trade Organization (WTO).

Although both economies are export-oriented, Greece's comprehensive integration into the EU and the world economy gives it an essential export advantage. If Turkey and Greece could cooperate in certain areas of manufacturing and services, they might together export more effectively than they have to date. Greater market scale and diversification would also likely result from increased bilateral trade.

Both Turkey and Greece are emphasizing greater trade with European Union countries. In June 2000, Greece, a European Union member since 1981, was declared ready for membership in Europe's Economic and Monetary Union (EMU) next year. The EU established a customs union with Turkey in early 1996, and Turkey is still on the waiting list to become an EU member after 2010. If Ankara's structural readjustment package of 1999 helps stabilize the Turkish economy and reduce inflation, unemployment, and the share of the budget deficit in the GDP, and expand privatization of the public sector, then accession to the EU will be guaranteed.

Based on 1998 and 1999 figures, the Greek economy seems more successful than the Turkish economy. Nevertheless, the difference between the relative performances of the Turkish and Greek economies is not likely to create an impediment for any prospective cooperation between the two countries. Both sides appreciate the importance of making peace instead of exploiting the bitter historical experiences of the past, which long prevented economic and other forms of cooperation.

Following the formation of the Turkey-EU customs union, all tariffs on Turkish-Greek trade were removed. As a result, Turkish-Greek trade reached a peak of $729 million in 1997 and $688 million in 1998. This bilateral trade is based largely on the exchange of agricultural and light industry products. There is also a potential for growing intra-industry trade between the two countries. Optimistic projections estimate that trade will reach $2.5 billion within a few years. Discovering other economic partnership opportunities need not be difficult. Two major opportunities lie in earthquake technology research and building code standardization. Establishing joint construction companies to carry out earthquake-proof building projects offers cooperation with a cause.

Other possibilities involve opening the Athens and Istanbul stock exchanges to individual and corporate investors from Turkey and Greece. Several Greek companies seek to purchase shares of Turkish State Economic Enterprises slated for privatization. This may well be realized if reciprocity is displayed on the Greek side, granting Turkish companies the ability to purchase shares in Greek public sector enterprises awaiting privatization.

Joint oil drilling projects in the Aegean can help both sides discover and share common resources. Preservation of sea resources and environmental projects can be jointly conducted. At the Evros River border, where the Thrace regions of Turkey and Greece meet, fish farms can be jointly established to process and export fish. Cooperative measures may be taken to refine the alluvial waters of the Evros River basin and to drain the surrounding marshland to prevent mosquito infestation. Projects in safe agriculture to prevent water pollution and in reforestation to prevent soil erosion are also potential areas for cooperation.

Despite the optimistic prospects, there is one major area of conflict that may retard Turkish-Greek rapprochement. Although Turkey traditionally considers the Cyprus issue to be a political and military matter, Greece views Cyprus from an economic perspective as well. Greece and Cyprus have strengthened their relationship through mutual efforts to integrate their banking, finance, tourism, and transportation sectors. This gradual but decisive process, occurring parallel to Cyprus's eventual EU accession, is a success story on the Greek side. However, it may also be an impediment to Turkish-Greek economic partnership if Turkey perceives the Greek-Cypriot relationship as a threat to both Turkey and to the political well-being of the Turkish Republic of Northern Cyprus.*

Nevertheless, despite the issues of conflict over Cyprus, there are areas for cooperation on the island as well. Turkey's private sector may examine Cyprus from a business perspective and offer economic solutions to problems. One possibility involves the sale of water from the Turkish mainland to northern Cyprus for use in the south, which has been suffering a severe drought. Investments in the energy sector can also be carried out for the entire island.

The dialogue between the Turkish and Greek foreign ministers, Ismail Cem and George Papandreou, has provided an essential breath of air to a suffocating Turkish-Greek relationship. Coupled with the re-election of the Simitis government, half the battle of permanently changing the substance of Turkish-Greek relations has already been won. Considering the delicacy of the countries' mutual interests and the importance of peace for both sides, unfriendly speeches and acts of politicians must be carefully avoided.

The Greek proverb, that "nothing is more permanent than the temporary," offers cautionary advice against false hopes for the future. Turkey and Greece must realistically plan to achieve concrete results to transform temporary expectations into permanent realities. Turkey and Greece have already wasted too much precious time over constant and unnecessarily-nourished animosity. It is time to create a new chapter in the ancient history of the Aegean, one that is mutually beneficial and contains the promise of partnership and prosperity.

*Editor's Note: The Turkish Republic of Northern Cyprus was unilaterally declared in 1983 and is recognized only by Turkey.

Dr. Sema Kalaycioglu is Professor of Economics at Yildiz University in Turkey and a contributor to the Ari Movement's publication Insight Turkey.