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Thursday, September 23, 2010

Cyprus: Reunification Proving Elusive

Vincent Morelli
Section Research Manager

Attempts to resolve the Cyprus problem and reunify the island have undergone various levels of negotiation for almost 40 years. Nevertheless, in October 2010 the Republic of Cyprus will celebrate its 50th anniversary as a divided country and with a permanent solution far from being achieved.

On April 18, 2010, Turkish Cypriot voters selected a new leader, Dervis Eroglu of the National Unity Party (UBP) in part due to the fact that after almost two years of intense negotiations between Turkish Cypriot leader Mehmet Ali Talat and Cyprus President Dimitris Christofias, a Greek Cypriot, attempts to reach an acceptable solution for reunification had failed. Eroglu, a 72- year-old physician, long-time politician, and a negotiator considered more hard-line than Talat, led a political party that included some who advocated a permanently divided island and international recognition for the Turkish Republic of Northern Cyprus (TRNC).

Despite predictions of difficult times ahead as a result of the elections in the north, reinforced by a growing lack of unity among the Greek Cypriot political leadership whose opposition to Christofias’ negotiating strategy has grown, new talks began on May 26, 2010. Both Christofias and Eroglu have repeated their desire to reach a solution, although Eroglu has stated that such an agreement must be achieved by the end of 2010 while Christofias has rejected any such timetable. The talks continued through several meetings and three informal dinners over the course of the summer. Several additional meetings, including two all-day sessions have been held in September. The talks have focused almost entirely on the difficult issue of property where both sides have had long held and hugely different positions.

Pressure on both Christofias and Eroglu to achieve significant progress toward an agreement has also come from outside Cyprus. Turkey, facing national elections in early 2011, has called for a settlement by the end of 2010. This Fall, Turkey also faces the next progress report on its EU accession negotiations which, in part, will be influenced by Turkey’s role in trying to promote a Cyprus solution. The United Nations also appears to have adopted the end of 2010 deadline for a settlement and the Secretary-General has indicated that he will issue a status report on the progress of the negotiations in November that could determine the future role of the U.N. in the negotiating process. Finally, the European Commission has introduced a formal regulation regarding direct trade between the EU and Turkish Cyprus that is currently pending before the European Parliament and which has caused considerable problems for the Greek Cypriot side.

The United States Congress has continued to maintain its interest in Cyprus partly due to constituent concern and because the lack of a negotiated settlement continues to effect relations between Turkey and the EU, Turkey and Greece, the EU and NATO, and overall U.S. interests in a strong relationship with Turkey. Hearings could be anticipated on the future of the negotiations as the new round of talks progress.



Date of Report: September 10, 2010
Number of Pages: 18
Order Number: R41136
Price: $29.95

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Tuesday, September 21, 2010

The Future of the Eurozone and U.S. Interests

Raymond J. Ahearn, Coordinator
Specialist in International Trade and Finance

James K. Jackson
Specialist in International Trade and Finance

Rebecca M. Nelson
Analyst in International Trade and Finance

Martin A. Weiss
Specialist in International Trade and Finance


Sixteen of the European Union’s 27 member states share an economic and monetary union (EMU) with the euro as a single currency. Based on a gross domestic product (GDP) and global trade and investment shares comparable to the United States, these countries (collectively referred to as the Eurozone) are a major player in the world economy and can affect U.S. economic and political interests in significant ways. Given its economic and political heft, the evolution and future direction of the Eurozone is of major interest to Congress, particularly committees with oversight responsibilities for U.S. international economic and foreign policies.

Uncertainty about the future of the Eurozone grew in early 2010 as a result of the onset of a sovereign debt crisis in Greece that was intensified by fears that the crisis could spread to other heavily-indebted Eurozone members. These concerns, in turn, took on added significance because the euro is considered a cornerstone of the European integration process.

One important cause of the crisis stemmed from flaws in the architecture of the currency union, including the fact that the EMU provides for a common central bank (the European Central Bank or ECB), and thus a common monetary policy, but leaves fiscal policy up to the member countries. Weak enforcement of fiscal discipline, over time, led to rising public debts, contributing to the 2010 Eurozone debt crisis.

In response, European leaders and institutions, backstopped by the International Monetary Fund (IMF) and U.S. Federal Reserve Bank, adopted a large financial stabilization package in May 2010 to calm markets and to demonstrate European solidarity. Current proposals to reform the currency union center heavily on increasing fiscal policy coordination in ways that do not surrender members’ fiscal policy autonomy, or cede national sovereignty to a European Union institution. These include better enforcement of fiscal discipline, possible creation of a permanent financial crisis mechanism, and active involvement of the ECB in sovereign debt management.

The reforms, if implemented, could strengthen the foundation of the Eurozone and bolster confidence in the euro. Given that the currency union is largely a political undertaking and a major symbol of European integration, European leaders may be expected to support reforms which keep the currency union intact. Moreover, the proposals under consideration introduce institutions and policies that did not exist prior to the crisis, and represent higher levels of integration and commitment to strengthening the EMU.

At the same time, a number of factors could weaken or even perhaps undermine the sustainability of the Eurozone. In the event of sovereign defaults by some members, public support in fiscally sound Eurozone countries for resource transfers to highly-indebted countries could decline. Shared responsibility for defaults could also lead to divisions among Eurozone members, causing some members to reconsider the costs and benefits of membership. In addition, the fiscal problems some Eurozone members face stem from economic imbalances that may be very difficult to resolve without a shift in economic policies by its members, particularly Germany.

If the Eurozone survives largely in its current form or strengthens, the impact on U.S. interests is likely to be minimal. However, if the Eurozone were to break-up in a way that undermines the functioning of Europe’s single market or resurrects national divisions, the impact on U.S. economic and political interests could be significant.



Date of Report: September 14, 2010
Number of Pages: 31
Order Number: R41411
Price: $29.95

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Sunday, September 19, 2010

Frequently Asked Questions about IMF Involvement in the Eurozone Debt Crisis

Rebecca M. Nelson, Coordinator
Analyst in International Trade and Finance

Dick K. Nanto
Specialist in Industry and Trade

Jonathan E. Sanford
Specialist in International Trade and Finance

Martin A. Weiss
Specialist in International Trade and Finance


On May 2, 2010, the Eurozone member states and the International Monetary Fund (IMF) announced an unprecedented €110 billion (about $145 billion) financial assistance package for Greece. The following week, on May 9, 2010, EU leaders announced that they would make an additional €500 billion (about $636 billion) in financial assistance available to vulnerable European countries, and suggested that the IMF could contribute up to an additional €220 billion to €250 billion (about $280 billion to $318 billion). This report answers frequently asked questions about IMF involvement in the Eurozone debt crisis.

For more information on the Greek debt crisis, see CRS Report R41167, Greece’s Debt Crisis: Overview, Policy Responses, and Implications, coordinated by Rebecca M. Nelson.



Date of Report: August 27, 2010
Number of Pages: 25
Order Number: R41239
Price: $29.95

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Thursday, September 2, 2010

The European Union: Questions and Answers

Kristin Archick
Specialist in European Affairs

Derek E. Mix
Analyst in European Affairs


The European Union (EU) is an economic and political partnership that represents a unique form of cooperation among its 27 sovereign member states. The Union is the latest stage of a process of integration begun after World War II to promote peace, stability, and economic prosperity in Europe. The United States has strongly supported the EU and its progenitors as a means to foster democratic states and robust trading partners. 

The EU has been built through a series of binding treaties and EU member states have committed to a process of integration by harmonizing laws and adopting common policies on an extensive range of issues. For most economic and social issues, EU member states have largely pooled their national sovereignty and EU decision-making has a supranational quality. Decisions in other areas, such as foreign policy, require unanimous consensus among member states. 

EU member states work together through common institutions to set policy and to promote their collective interests. The three main institutions of the EU are the European Commission (essentially the EU's executive), the Council of the European Union (representing the national governments), and the European Parliament (representing the citizens of the EU). The Lisbon Treaty is the EU's latest attempt to reform its institutional arrangements and decision-making procedures in order to enable an enlarged EU to function more effectively. The treaty creates two important new leadership positions in the EU: President of the European Council (held by Herman Van Rompuy) and High Representative of the Union for Foreign Affairs and Security Policy (Catherine Ashton). 

The EU has a strong common trade policy, and a developing Common Foreign and Security Policy (CFSP) for a more united voice in global affairs. It has also been seeking to build a Common Security and Defense Policy (CSDP) in order to improve its military capabilities and capacity to act independently. Although some shortcomings exist in EU-NATO relations, the two institutions continue to seek a more cooperative and complementary relationship. Over the last decade especially, the EU has also been working to forge common internal security measures in the Justice and Home Affairs (JHA) field, including by boosting police and judicial cooperation and enhancing the Union's ability to combat terrorism and other cross-border crimes. 

The United States and the EU share a large, mutually beneficial trade and investment relationship. The global financial crisis and recession has challenged both sides to forge a common response. The United States and EU have a number of lingering trade disputes, but have led the push to liberalize world trade, and have sought to reduce non-tariff and regulatory barriers in the transatlantic marketplace. 

This report provides a summary overview of these issues, many of which may be of interest to the second session of the 111th Congress. For more information, also see CRS Report RS21618, The European Union's Reform Process: The Lisbon Treaty, by Kristin Archick and Derek E. Mix, CRS Report RS21998, The European Parliament, by Kristin Archick and Derek E. Mix, and CRS Report R41088, The European Union: Leadership Changes Resulting from the Lisbon Treaty, by Derek E. Mix.



Date of Report: August 25, 2010
Number of Pages: 13
Order Number: RS21372
Price: $29.95

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