17th May 2022


Could north Cyprus unilaterally join euro to escape Turkey's lira?

  • The militarised 'Green Line' demarcating Turkish-recognised North Cyprus from Cyprus - it currently also divides the island between the Turkish lira and the euro (Photo: Marco Fieber)
Listen to article

The Northern part of Cyprus has a unique status as a part of the EU where the EU law has been suspended.

In a referendum held in 2004, Turkish Cypriots living in the north voted in favour of the Annan Plan, also known as the UN Cyprus reunification plan, while the Greek Cypriots in the south rejected. So a divided Cyprus joined the EU as a full member.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

This resulted in the euro being the legal tender in the southern part of the island only. Although north Cyprus is also a part of the EU, the application of acquis communautaire has been suspended until reunification is achieved on the Island.

Reflecting their economic, political and financial dependence on Turkey, north Cyprus has opted for adopting the Turkish lira. This remains a political choice with dire economic and social consequences.

Lacking any monetary policy instruments and fiscal discipline, economy in the north is suffering the consequences of the recent unorthodox and controversial monetary policy decisions made in Turkey.

As the Turkish lira continues its downward spiral, authorities in the north helplessly watch their economic conditions and living standards severely deteriorate and can do nothing but introduce makeshift, palliative and ineffective fiscal measures.

Unsurprisingly, the long-standing debate and controversy as to whether the north could ditch the Turkish lira in favour of the euro has once again intensified.

While a bilateral adoption of the euro is not on the cards until a reunification, the question of this would work under a hypothetical reunification scenario remains a mystery as the EU rules are quite strict.

First, upon accession to the EU all new member states are required to join ERM II for at least two years before they can adopt the euro. Under a reunification scenario, it would be absurd to impose a two-year embargo on the use of the euro on one half of the island.

Second, during this transition period a so-called "central exchange rate", the irrevocable conversion rate at which the changeover to the euro from the national currency should take place would need to be in place. This would not be applicable given in the unusual case of north Cyprus where there exists no national currency to begin with.

Under normal circumstances the EU would not accept a unilateral adoption of the euro by any state aspiring to join the EU before it fulfils the Maastricht Treaty. The European Central Bank (ECB) emphasises that it "neither encourages nor facilitates" unilateral adoption of the euro.

It warns that such countries would be adopting the euro "at their own risk, without committing the EU or the ECB", explicitly stating that it would "pursue a policy of non-engagement and non-support".

While the EU Council explicitly states that unilateral euro-isation cannot be used to bypass the convergence process before the adoption of the euro, given the unique case of Cyprus the EU would be expected to grant certain concessions in the event of a reunification.

Mysterious rules

So, until a foreseeable future, a bilateral switch to the euro in north Cyprus is not on the cards. In fact, taking into account its current fiscal performance, northern part of Cyprus would by no means be deemed ready for the bilateral adoption of the euro in the first place even if it were a recognised state.

While it remains a mystery as to how the EU's standard procedures and conditions for a bilateral adoption of the euro could apply under such a scenario, whether the north could opt for a unilateral switch to the euro now like Montenegro and Kosovo is a more imminent and relevant question.

Technically speaking, unilateral euro-isation could indeed be possible with thorough and forward-looking planning. The ECB's stance is neither to prohibit nor promote unilateral adoption of the euro by any third countries. So a unilateral switch to the euro would essentially be a political decision and would be unthinkable without Turkey's approval and support, which currently does not seem very likely given the direction of the Turkey-EU relations.

Assuming Turkey gives the green light, a unilateral switch to the euro would not be a quick-fix for the legacy structural weaknesses and lack of fiscal discipline in the north. Regardless, this might give new life to reunification prospects on the island.

But unless the switch to the euro is done with the technical and logistical support of the EU, it could present itself as a major logistical and financial challenge, in terms of sourcing sufficient amount and value of euro banknotes and coins.

The EU and its institutions should lend support to north Cyprus under such a scenario as the adoption of the euro in the remaining part of the island could provide a much needed stimulus for institutional and fiscal reforms to bring the north closer to the acquis communautaire and the Maastricht criteria, as well as to the resolution of the decades-old dispute on the Island.

Author bio

Professor Dr Mete Feridun is chair of the Centre for Financial Regulation and Risk Management at the Eastern Mediterranean University in North Cyprus/Turkish Republic of Northern Cyprus.


The views expressed in this opinion piece are the author's, not those of EUobserver.

EU interconnector: Cyprus 'energy isolation' or Israeli gas?

The EU is not only turning a blind eye to Israel's belligerent and illegal gas extractions but outrightly colluding by financing and otherwise supporting costly infrastructure projects. The ongoing gas crisis affecting the EU is no excuse for this behaviour

Cyprus' Varosha is Erdoğan's canary in the coalmine

Last month, president Ersin Tatar of the Turkish Republic of Northern Cyprus, unrecognised outside of Turkey, announced the second phase of reopening the derelict tourist district of Varosha in the city of Famagusta.

Ankara's reluctance to join sanctions against Russia

Corruption, plus the Turkish economy's severe decline, is why the international sanctions are regarded as an opportunity for corrupt elites who perceive sanctions as a bargaining chip to make more money. Any EU sanctions regime must consider Ankarara's evasions.

Will 'Putin's Nato' follow Warsaw Pact into obscurity?

Valdimir Putin's equivalent to Nato — the Collective Security Treaty Organization of Russia, Kazakhstan, Kyrgyz Republic, Armenia, Tajikistan, and Belarus — is convening in Moscow next week to give cover that Russia is not alone in its war against Ukraine.

The EU Parliament Covid inquiry: the questions MEPs must ask

A basic lack of transparency around the EU's vaccines procurement negotiations has prevented effective public and parliamentary scrutiny. It has also made it impossible to answer some of the key questions we put forward here.

News in Brief

  1. EU to protect Finland and Sweden until they join Nato
  2. Poland backs Hungary over frozen 'rule of law' EU funds
  3. EU to reduce size and scope of Mali military mission
  4. Band members testify about Bataclan attack
  5. German prosecutors want five years for alleged ex-Nazi guard
  6. UN urges Iran to halt execution of Swedish-Iranian academic
  7. EU: legal Russian gas payments possible, but not in roubles
  8. McDonald's to sell up and exit Russia

Stakeholders' Highlights

  1. Nordic Council of MinistersClear to proceed - green shipping corridors in the Nordic Region
  2. Nordic Council of MinistersNordic ministers agree on international climate commitments
  3. UNESDA - SOFT DRINKS EUROPEEfficient waste collection schemes, closed-loop recycling and access to recycled content are crucial to transition to a circular economy in Europe
  4. UiPathNo digital future for the EU without Intelligent Automation? Online briefing Link
  5. Nordic Council of MinistersHuge support for Ukraine
  6. EFBWW – EFBH – FETBBWorkers want EC to limit subcontracting chains in construction

Join EUobserver

Support quality EU news

Join us