If you want to know what's going to happen with Cyprus now that the Cypriot parliament has officially rejected the bank tax scheme, don't ask me. But if you'd like to know what's not going to happen, here's a plan that's much too sensible to be considered—sell diplomatic recognition of Northern Cyprus' secession to Turkey for the 5.8 billion euros that Cyprus needs.
As background, when Cyprus became independent in 1960, it was mostly Greek but contained a large Turkish minority. Leaders of both communities agreed to reject either union with Greece or partition upon ethnic lines and to instead continue as an independent binational-but-mostly-Greek state. Then after several years worth of disputes, the then-ruling military dictatorship in Greece backed a Greek Cypriot coup d'état on July 15, 1974. In response the Turkish military invaded and sponsored the creation of an independent Republic of Northern Cyprus. There was population displacement and violence, and when the dust settled, the Turks had about 40 percent of the territory and zero international legitimacy. And so it's continued for all this time. A sizable Turkish military presence safeguards the Turkish enclave, but no non-Turkey countries recognize Northern Cyprus.
So here we are today with Turkey spending upwards of $18 billion a year on its military, Northern Cyprus having no viable path to diplomatic recognition, and Cyprus bankrupt and lacking any viable path to reunification of the country. So why not have Turkey send some money in recognition of lost property during the war and in exchange let Cyprus renounce its claim to the lost territory?
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