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Turkey: Ankara offers to open port for Cyprus traffic

Thu, Dec 7 2006, 17:50 GMT
by Lars Christensen, Lars Rasmussen

Danske Bank A/S

This morning on Reuters, the EU Presidency Spokesman confirmed that Turkey had offered to open one port and one airport to traffic from Cyprus - a radical change in direction for Ankara. On Finnish TV, Reuters reported that the EU would now reconsider its position on Turkey’s membership talks. However, this has NOT been confirmed by the EU. In the minutes after the news broke, the Turkish lira (TRY) firmed nearly 1% against the USD, strengthening to USD/TRY1.4325, from 1.4445 at Wednesday's close. In the fixed in-come markets, Turkish bonds firmed, sending yields down by 25-30bp, mostly at the short end of the curve.

Later this morning, a spokesman from the Turkish Foreign Ministry was quoted as saying: “Negotiations on this issue are continuing. There isn't anything to share with the press at this moment for the sake of the benefits of the negotiations.” Hence, there are no clear guarantees from Turkey that it will fulfil its promise to open one port and one airport to Cyprus traffic, meaning the halt in TRY appreciation, which is currently trading around USD/TRY 1.435, seems fair.

Turkey has clearly made a goodwill gesture, a clever diplomatic move to maintain the moral high-ground on the Cyprus issue, and Ankara will, naturally, press for the easing of the isolation of Turkish-controlled Northern Cyprus in return. A Foreign Ministry source stated, "this is a two-way deal. We would require the same number of airports and ports to be opened on each side." (Source, Reuters).

A lifting of trade restrictions on Northern Cyprus is unlikely; in fact, a Cyprus government spokesman has just said that Cyprus would never consent to opening Northern Cyprus's airport to flights other than to Tur-key as part of any compromise deal that would allow Turkey to open its own ports and airports to Greek Cypriot traffic. At the moment, all flights into and out of Northern Cyprus have to go via Turkey.

Today’s news has now been priced into the Turkish FX and fixed income markets, and we are waiting to see if the EU-commission will decide not to suspend some parts of Turkey's accession talks. The Turkish move today could counter some of the anti-Turkey sentiment expressed by some EU countries and put Turkey in a more favourable light at the 14-15 December EU Council summit. We will closely monitor any EU signals on Turkey’s EU negotiations, and we think that the market will stay on hold until we get any news that might set the direction for the TRY and bond yields.

Published on  Thu, Dec 7 2006, 17:51 GMT