Cyprus is finally growing closer to unification. For 34 years it has been divided, following a Turkish military invasion in 1974, which split the country in two. But on Wednesday morning, Cyprus President Demetris Christofias arrived at a compound in Nicosia to meet Turkist Cypriot leader Mehmet Ali Talat, in the hope of finding a resolution to the island’s division.

Christofias and Talat will want to concentrate on the larger economic picture in continued discussions over the coming weeks. Unification of the island would likely give rise to a flood of foreign investment, and also provide a big boost to Turkey’s hopes of joining the European Union. It may even reignite last year’s oil and gas study by the Greek Cypriot Government of untapped resources in the Eastern Mediterranean. A 70,000 square kilometer sea area south and south-west of the island could contain reserves of between 6 and 8 billion barrels of crude.

This is the fifth time the two leaders have met in 2008, and the outcome is looking positive for peace. The two moderate figureheads are backed by a pro-unification consensus from all the key international organizations and governments. "All the stars: the United Nations, EU, United States, Turkey, Cyprus and the United Kingdom, are aligned for the first time," said David Lee of specialist risk consultancy, Control Risks.

But challenges will lie ahead as discussions, continuing on Sept 11, turn to the economy. Economic issues caused the termination of talks in 2004, with the Greek-Cypriots unable to see the benefits of unification at that time; many of the Greeks who lost their homes in the North at the time of the division, would not have got them back. Businesses in Cyprus are struggling too--a report in the Cypriot Financial Mirror’s showed this week that profits for companies listed on the Cyprus Stock Exchange tumbled 47.0% year-on-year, to 465.5 million ($669.4 million) in the first six months of 2008.

And the two sides of the island are still economically unmatched. The Greek-Cypriot South is a prosperous, popular holiday destination, which sees over three million tourists per year, and has been on the International Monetary Fund list of the 32 "Advanced Economies of the World" since 2001. The Turkish-Cypriot North, by contrast, is heavily dependent on agriculture and government service, and has a gross domestic product approximately a third the size of the South. The North has suffered from an international trade embargo and little foreign investment as many have been wary of its de facto administration that is recognized by just one country, Turkey.

Lee says that the most important issue for unification is not the economic disparity between the two sides at present, but the "technical issues" central to the country’s reform, the most pressing of which is how a unified government would run on a day-to-day basis. The potentially explosive issue of housing rights also remains. Many families, especially Greeks who lived in the North, are still not convinced they will reclaim their lost homes.

Source: Forbes.com