Faculty of Governance and Global Affairs Master Thesis Public Administration
“The role of the European Commission in the economic transition of Cyprus during the economic crisis.
A Single - Case Study”
Supervisor: Dr. Johan Christensen January 2021
Name: Sona Keshishyan Student Number: s2490889
Abstract
This thesis examines the European Commission’s influence in Cyprus during the economic reforms in 2013. It aims to answer the question whether the EC influenced Cyprus and if yes, what mechanisms did the EC use to achieve that. The theory of International Organizations’ influence was used as a guide of mechanisms that EC could use to influence a member state. Delegation of authority, conditionality, experts and information and rational-legal authority are the four mechanisms used in this qualitative study to explore the reforms in banking, tax, foreign direct investments and the real estate sectors. This qualitative case study uses the method of coding documents to make data-driven decisions based on the literature concepts and tries to find the relations between them. Twenty-seven official documents and newspaper articles are coded and linked to the four mechanisms. The collected data provides three major findings. Firstly, the EC used all four instruments; therefore, all the assumptions made in this research are correct. However, the extent of use regarding each mechanism differed. The second research result drives to effective use of tactics "delegation of authority" and "conditionality", by EC to influence Cyprus. That was an early assumption emanated from the theory and confirmed by the analysis. Last but not least, this study showed a limited use of domestic experts and information during this process and an even less exercise of the rational-legal authority as it founded very few times in all the documents. These findings suggest future research related to the EU influence in its member countries as well as the difference in influence between a small member country compared to a larger one.
Key words: European Commission, influence, Cyprus, economic reforms, economic crisis, delegation of authority, conditionality, experts and information, rational-legal authority.
Table of Contents
Abstract 2 List of acronyms 5 1. Introduction 6-9 2. Theoretical Framework. 10-24
2.1 The influence of International Organizations 11-12 2.1.1 Delegation of Authority 12-14 2.1.2 Experts and Information 15-18 2.1.3 Conditionality 18-19 2.1.4 Rational-legal Authority 19-21 2.2 Influence of International Organizations under conditions of economic crisis 21-24 3. Data and Methodology. 25-33 3.1 Type of Research 25-26 3.2 Case Selection 26-27 3.3 Method of Data Collection 27-31 3.4 Method of Analysis 31-33 4. Empirical Analysis 34-58 4.1 General European Commission’s influence in 35-36 Cyprus in economic reforms during crisis
4.2 Banking Sector. 36-42 4.3 Tax Sector 42-46 4.4 Foreign Direct Investment (FDI) 46-49 4.5 Real Estate Sector. 49-51 4.6 Summary 52-58 5. Conclusion 59-64
5.1 Limitations 62-63 5.2 Further Research 63-64 References 65-73 Appendix 64-138
List of Acronyms:
CBC Central Bank of Cyprus DIKO Central Democratic Party DISY Democratic Rally
EC European Commission ECB European Central Bank EP European Parliament EU European Union EUCO European Council FDI Foreign Direct Investments IO International Organization IMF International Monetary Fund MoU Memorandum of Understanding NPL Non-performance Loans
US United States VAT Value-added tax
1. Introduction:
The economic crisis emerged in the second half of 2007 in the United States (US). It was a financial crisis, which gradually became a global economic crisis. Financial crises can be caused by asset and credit booms, which eventually turn into busts and cause economic instability (Claessens et al., 2013). The United States and its expansionary monetary policy were the reason for the world economic recession. The US dollar is the currency with greater power, as it is reserve currency held in many countries' central banks. Thus, when the financial crisis hit the US, like a domino effect, it spread out slowly to other countries, because of the global financial market. In the past decades, economic theories present the efficient financial markets as a mechanism that smoothly and automatically can solve the most complex and constant economic problem; however, that was not the case in the recent worldwide economic crisis (United Nations, 2019).
This event is relatively recent; in some countries, they are still trying to overcome the situation. The case of Cyprus was different from other countries. The Republic of Cyprus is a relatively new government; it was granted independence in 1960. After 1974 and the invasion of the northern parts of the island by Turkey, it was essential for the country to strengthen itself as an international centre for business and finance. The island of Cyprus was an outstanding example of a small economy that achieved remarkable growth after 1976. The island rapidly became a credible financial and legal services provider for international business, with an increasing number of international firms selecting to base in the Republic of Cyprus.
There are several causes which resulted in the recent economic crisis on the island, it was a combination of different sectors collapsing. Responsibility lies mainly in the banking sector. It was always one of the leading forces behind the headway of economic performance. However, it turned out to be more of an Achilles' heel for the country, which revealed when the bubble burst and led the country close to bankruptcy. The main reason for this enormous
decline in banking was the systematically offered higher deposit rates from banks, which were relatively higer by double the amount compared to other European countries, and the purchase of Greek government bonds which were problematic.
The real estate bubble, Foreign Direct Investments, and the island's political climate played a significant role in this collapse. Surprisngly all "bad decisions" in these sectors were chained together and, like a domino effect, impoverished Cyprus' economy. The early indications of the crisis were visible in 2009; however, the government decided to cover the situation as the government's credibility was at stake. In May 2011, Cyprus was no longer accepted in the international financial markets. The country had to ask for help from the European Union to overcome this failure. The European Union developed an administrative body that consisted of the European Commission (EC), International Monetary Fund (IMF), and the European Central Bank (ECB) to provide advice and make decisions for countries facing economic difficulties within the union. In 2013, the first memorandum was signed, and Cyprus had to follow a bail-in solution, which means that they haircut unbail-insured depositors bail-in Bank of Cyprus. All deposits above €100,000 were taxed 9.9%, which gave the government €7 billion to recapitalize the two largest banks (Demetriades, 2018).
The international organization get an essential role quickly in the political world, which made scholars focus more on the IOs and their power to affect the global governance outcome. Researchers, the past twenty years, tried to explain more the causal mechanism underlying that influence of IOs in the member states (Abbott and Snidal, 1998; Martin and Simmon, 1998; Pollack, 2003; Heldt and Schmidtke, 2017). Scholars mostly used the principal-agent model to study the influence of the EU in all policy domains. This study uses an empirical approach to test the existing theory and provide causal mechanisms. The causal mechanisms tend to explain the relation of the EU and member states (principal-agent model) and how these mechanisms can influence the principal.
Scholars are mainly focusing on the economic aspects of this case. Some other researches concentrate on the country's political background and the status quo during the economic crisis, and others are trying to examine the relationship between Cyprus and the European Union. There are only a limited number of studies that bring together the economic aspect and the European Union connection. This case study will try to go in depth into the relationship between the European Union and Cyprus and will try to link this with the economic crisis aspects. This thesis researches the level of influence of the European Commission within Cyprus during the economic reforms in 2013.
Moreover, this analysis can contribute to understanding how the EU can use different mechanisms to achieve policy implementation, especially in small countries. IMF studies draw attention to the importance of designing new methods to classify crises more robustly and using qualitative methods to give a more profound understanding of crises and the policy issues surrounding these episodes. The study will contribute to qualitative method, as it uses qualitative coding to identify the different concepts in the documents and connect them with the theoretical notions to provide a data-driven content analysis, which will provide deeper understanding of the crises and policy implementation issues.
This research aims to answer the question, "To what extent and why did the European Commission influence Cyprus' economic reform during the economic crisis in 2013." The study intends to explain the European Commission's influence in the country's economic reformation and explore the underlying factors for this influence. This paper's main argument is that the EU used four different types of mechanisms; delegation of authority, conditionality, experts and information and rational-legal authority, to influence the policy field in Cyprus. Construction of a typology helps to examine the influence mechanisms and apply them in secondary sources, such as governmental documents, EU publications, legal documents, and
newspapers. The paper will use abstract propositions and test them in the empirical reality to determine which expectations are confirmed and which are not.
The subject of analysis can enhance both the existing literature and societal understanding. Majority of the literature focused on the general International Organizations' influence and why that happens. This study explores an International Organization's influence in a small country during an economic crisis, and the mechanisms that the IO can use. Few studies are combining all these elements together. From the literature, it can be observed that the way an IO can influence a member state during financial dependency differs from familiar situations, therefore by exploring this issue the research can contribute to the existing gap in theory. The results of this study can be used by the leaders of all EU member states. Cypriot politicians can learn from the outcomes of this study, how to react in a crisis and how the EU can influence them to achieve better results. This study can help them develop a better understanding of EU mechanisms and strengthen the relationship between the two actors. The suggested reforms from the EC have shown that over time they were positive and helpful for the Republic of Cyprus. These suggestions can show that the EC worked for the general good and it was not driven by individual preferences.
The fact that Cyprus recovered faster than other countries because it followed the group suggestions of the EU, is something which can benefit other member states to take into account the influence of the EU and use it carefully without decelerating it. Understanding the influence of the EU and why they have one by using specific mechanisms, can help the better collaboration of the actors and could even prevent future political or economic crisis.
2. Theoretical Framework:
This study seeks to address the theoretical question to what extent and why do international organizations influence policymaking after the economic crisis? The conceptual framework is divided into two major parts to find answers to both questions. Firstly, the focus is on international organizations' influence in all circumstances. To build up the theoretical framework of this analysis, different arguments on the question of "Do International Organizations' (IOs) have any influence on the member states," used. The second part of the theory introduces the literature referring to the influence IOs' may have on critical junctures, such as economic crisis.
Researchers argue for the definition of International Organizations. Many of them see IOs as a principal-agent model, where states are the principals and IOs' are the agents (Abbott and Snidal, 1988; Barnett and Finnemore, 1999; Fang and Stone, 2012; Kerwer, 2013). They explain the creation of IOs as the need of countries for complete information, transaction costs, and other obstacles to achieve Pareto efficiency and welfare improvement (Barnett and Finnemore, 1999). IOs implement the pursuit of shared common goals between different countries to achieve that efficiency (Abbott and Snidal, 1988). Decision-making, hierarchy, rulemaking, monitoring, and sanctioning are the elements that ensure the effectiveness of coordination and make IOs powerful actors in world politics (Kewer, 2013).
Other scholars argue that in IOs the relation is not a straightforward process, but it is more a multi-dimensional approach with many principles and changing actors (Bergstrom et al., 2007; Kerwer, 2013; Majone, 2001). The case of the European Union is a clear example of the complexity approach that the authors represent. The actors in the European Union are mainly the European Commission (EC), Council (EUCO) and Parliament (EP). Although the decision-making authority is predominantly in the EC duties, the other two actors have strong voices in some issues.
2.1. The influence of International Organizations:
In recent years, scholars examine the linkage between international organizations and their member countries. They reinforce the epistemic world by emphasizing the IOs' influence in the state's behaviour and the causal mechanisms behind those behaviours. The legal framework behind the IOs makes them a very powerful participant in global politics (Eckhard and Ege, 2016). However, the authors observed that IOs' actions mostly happen in the background, and they never risk to openly disagree with member countries (Finnemore, 1993; Mathiason, 2007). One can think that this conduct constitutes a tool to protect the legitimacy of the organization and, at the same time, carry forward their policy formulations in the members.
The literature describes International Organizations' influence as something inescapable for member countries (Bradley and Kelley, 2008; Michaelowa and Michaelowa, 2017), which is an amorphous concept and cannot be determined clearly (Ege et al., 2019). A country that decides to become a member of an IO automatically gives the power to influence it, even in a small percentage (Michaelowa and Michaelowa, 2017). The reason behind this observation is that members give some autonomy to the "agent," and the "agent" can influence them either with their laws, which can chain the "principle" or by an external shock (Bradley and Kelley, 2008; Michaelowa and Michaelowa, 2017). The member state's motive to do that can be either the same interests shared with the organization or the fact that it can be depended on the IO economically. In their study, Bradley and Kelley (2008) showed that a member who is dependent even slightly from an IO with resources increases the chance of the influence. Notably, in external circumstances such as wars, pandemics, economic crisis, the IO members are even more contingent on it because the need for external resources is rising. That gives room to the IO to increase policy decisions' influence (Bradley and Kelley, 2008; Michaelowa and Michaelowa, 2017).
Moreover, the IO’s influence determined as the total policy-related outcomes that can affect other countries (Bierman et al., 2009). However, those results can be complicated and different for each member country (Ege et al., 2019). That is why scholars, in their try to measure the influence of an IO, are constructing mechanisms to define it. In this paper, the focus will be on four mechanisms; delegation of authority, experts and information, conditionality, and rational-legal authority, which International Organizations can use to influence the policy formulation.
Delegation is a complex mechanism which usually researches assume that it is present in the IO's context. It is one of the most common and robust mechanisms that IOs' use to influence its members. Scientific experts can be another weapon in this IO's, and member countries influence the puzzle. In particular, in the case of the European Commission, which this paper analyses, access in more information and experts' knowledge increases EC's ability to foresee reactions and enhance its role in the EU's decision-making procedure (Gornitzka and Sverdrup, 2011). Conditionality is a way to protect the organization and give them access to it only on members that follow the rules/policies that the organization's vision includes. European Commission and the European Union are well known for their use of conditionality as part of their policies directly or indirectly towards member states, candidates, and third countries (Anastasakis and Bechev, 2003). According to Weber (2009), rational-legal authority gains legitimacy through a set of rules and laws. IOs gain authority from their form and combined with their societal purpose and values; they can have that authority (Barnett and Finnemore, 2004). The four mechanisms will be investigated deeply in the following subcategories.
2.1.1 Delegation of Authority
International Organizations gain their power from various elements. Members of the organisation can give directly to IO the power to manage everything related to policy-making
decisions. The procedure which gives autonomy in the organisations is called delegation of authority. States that are part of an international organisation decide to delegate powers to an IO for two reasons; reduce decision-making costs, and enhance policy commitments (Majone, 2001; Pollack,1997). The act of delegation considered as one aspect of the institutional design. Scholars mostly assume that delegation is rational because it is a concept coming from the contextual design of IOs. Principal-Agent (PA) theory is the most common in analysing authority's delegation to IOs (Pollack,1997, 2007; Lake and Mccubbins, 2006; Bradley and Kelley, 2008, Hawkins et al., 2006).
According to the principle-agent model, delegation is the process where principles give the authority to the agent to act on the former's behalf (Pollack, 1997; Hawkins et al., 2006). The act of delegation includes conditionality as the principal agrees with treaties to become a member of an IO (Brown,2010; Bradley and Kelley, 2008; Pollack 2007; Hawkins et al., 2006). Although the level of delegation differs for policy fields. In some fields, the act of delegation is stricter while in others, the IO can give autonomy to the member states and refers to its opinion. Principles may assume that agent behaves opportunistically without considering the principal or common good. That is the point where the agent and principal are opposing each other to get more power (Pollack, 1997). It is a continuous effort by both parts to gain autonomy and control. However, even if the act of delegation is rational, it not necessarily implies that two parts are acting with self-interested preferences only. There is a probability that the principal and agent seek broader or collective goals (Delreux and Andriaensen, 2018). Theories of rational choice and representation indicate IOs as independent actors with their agendas and autonomous actions (Barnett and Finnemore,1999). Even though the delegation of authority can benefit the member countries, not all of them give autonomy to the IOs. The reason behind that is the fear of states to risk their autonomy and control as the agent can act against the principals' wishes (Delreux and Andriaensen 2018).
In the European Union case, the delegation consists of delegated rule-making authority to the Commission or, more rarely, the Council. It relates indirectly to a treaty provision (Bergström et al., 2007, p.338). Directives and regulations are broadly specified, which gives room to the Commission to take control and use its power to arrive at rules and decisions that will lend specificity to the broadheads of legislation (Bergström et al., 2007; Martin, 2006). In the past twenty years, countries delegated more powers in a variety of policy areas. In some sectors, such as trade, European Commission gain the full authority from members state to represent and negotiate. It has been visible that the entire delegation helped insulate the policy-making process from domestic pressures and led to positive outcomes for the collective good (Meunier and Nicolaides, 1999).
The European Union, as mentioned above, has a very complex institutional environment. It frequently occurs that multiple principals delegate authority to the agent (EU). The formal institutional rules combined with the power asymmetries within the principles give members instruments to control the Commission's influence and make coalitions to achieve a goal (Adriaensen, 2016; Bergström et al., 2007; Bauer and Becker, 2014). States are the ones who decide the degree of authority they delegate to the institution, and that decision depends highly in the trust and the control mechanisms that they have in their possession (Bergström et al., 2007; Delreux and Andriaensen, 2018; Majone, 2001; Meunier and Nicolaides, 1999). Scholars claimed that European Commission tries to acquire more leeway than the principals delegated initially, which can be part of the root of problems that the EU and members face (Delreux and Andriaensen, 2018; Meunier and Nicolaides, 1999; Bauer and Becker, 2014). For the purposes of this thesis, typology defines the delegation of authority as a conditional grant authority of a state to an international organisation to make decisions or take actions on behalf of the former (Bradley and Kelley, 2008; Hawkins et al., 2006).
2.1.2 Experts and Information
The main reason behind a government's decision to become a member of an IO is information sharing. IOs possess a large share of information through member states and experts working for them. Therefore, IOs can act through expertise and information to influence the members' policy (Barnett and Finemmore, 1999, 2004; Bauer and Becker, 2014; Fang and Stone, 2012; Urpailenen, 2012). Experts can be technocrats and scientific experts who represent, give advice or suggestions as a third actor in the decision-making process. They can act as moderators between the organizations and the states. IOs are often using formal or informal channels for scientific input in the policy-making procedure (Andresen 2000; Haas et al. 1977; Miller 2007; Gornitzka and Sverdup,2011). When an organization is large, the information spreading between the members is more complicated. Scholars have found that information asymmetries in this kind of organization are common; thus, independent expert sources that are scarce and valuable for the member states can be an effective mechanism for IOs to be influential (Barnett and Finnemore, 2004; Martin and Simmons, 1998). Scharpf (2006), stated that an IO could use consultation with scientific experts to collect information about member states and formulate policies favouring its interests. However, this process can develop a win-win solution as the scientific experts can provide information that can help both parts negotiate and reach the policy that can be efficient (Gornitzka and Sverdup,2011; Lake and Mccubin, 2006).
Scholars have proven that the national leaders are more likely to implement a policy if the scientific expert advice so (Fang and Stone, 2012). Scientific experts, who can work in groups for the IO and the member state, try to have an exact position regarding the suggested policies and avoid being characterized as extremists (Seabrooke and Tsingou, 2014). Independent professionals involved in this procedure aim to keep credibility among their
research and suggestions to ensure their reputation and future work. Countries trust independent expertise in discussion processes as they choose them based on criteria, such as knowledge, transparency and partiality. Therefore, if an expert supports or suggests a policy, the member state would be more open to implementing it. However, a positive reaction to the experts' advice does not mean that governments take all advice for granted (Gornitzka and Sverdrup, 2011; Barnett and Finnemore,1999). Scholars described the role of expertise as crucial in the in-between relation of the two actors. Authors infer that IOs can only influence national leaders in policy reformation if the experts are neutral, which means that the experts who are involving in the process of decision-making and collaborate with IO and the member state, will not give false or partial information to the country (Fang and Stone, 2012). Partial experts will influence government reformations favouring international norms, but both IOs and national leaders do not trust those experts even though they will eventually collaborate with them.
Knowledge and information sharing are instruments applied by international organizations to enhance their influence. IOs can collect global information and knowledge and use it whenever they find it appropriate to manipulate their members. It seems that social knowledge is the most potent weapon of IOs. Eckhard and Ege (2016) reported cognitive influence as a characteristic of international organizations as they gather, shape, and spread information and knowledge. Researches provide shreds of evidence that organizations are not sharing the complete information they possess (Barnett and Finemmore, 1999, 2004; Fang and Stone, 2012; Stone, 2013). Principally, international organizations share with states only what they want them to know to implement policies regarding organizations' interests. Neoliberals maintain that IOs' goals are connected directly with states' interests. The IO perceives a country's necessities and suggests a solution favouring both as they share common goals. It behaves to each case differently and provides all the needed information to the receiver. Thus,
transparencies and information asymmetries among states will not lead to any turmoil (Pevehouse, 2002). However, Stone (2013) mentioned a difference in how the information spread out among countries. Based on the above mentioned, more influential countries in an organization can have a clear advantage over smaller and weaker members as they cannot have the same information. The influential countries can have immediate and direct access to information, making them superior in decisive situations or conflicts between other organization members.
Within the context of the European Union, scientific experts play a substantial role. They are a crucial instrument for the EU to influence the institution at a government level and a system of increasing the knowledge and information flow. The European Commission relies on a large group of experts to develop EU policies and influence others. This strategy attempts to create a more legitimate EC culture that can enhance the governments' trust in the EC policy suggestions (Seabrooke and Tsingou, 2014; Gornitzka and Sverdrup, 2011). With experts' help, the Commission became a crucial provider of information and knowledge and established it as an element of transparency and inter-institutional scrutiny. Access of experts gives EC a considerable advantage as it distinguishes the ability to know what will happen regarding proposals and initiatives, which gives them time to react in issues before they even happen (Bauer and Becker, 2014; Gornitzka and Sverdrup, 2011; Haas, 1998). However, scientific experts and information provide some power in the member states, but in the implementation phase. As EC cannot force policy implementation, it is up to national institutions to go along with it. In this phase, member states can negotiate the Commission's recommendations to achieve a win-win solution. Experts are a vital moderator instrument for both parts to reach an agreement as they exchange the information and knowledge between the two participants (Bauer and Becker, 2014; Gornitzka and Sverdrup, 2011).
The term experts in this study indicate the independent scientific experts who are involved in the procedure of policy-making. Their suggestions are knowledge-based, and they keep themselves neutral in order to keep their legitimacy. Information is the outcome of the work of these professionals. It is all the knowledge that the EU holds in its possession and can benefit a country member.
2.1.3 Conditionality
Another concept that helps IOs to gain power over its members is conditionality. Some scholars tried to explain the concept of conditionality by describing it as a mechanism that an IO uses to promote reforms attached to its granted benefits by using conditions for the member state to achieve a common goal (Anastasakis and Bechev, 2003). It differs among member states based on their merits. Multi-level actors shape conditionality with different interests and perceptions (Hughes et al., 2004) who interact through rewards and rules to grant some goods (Sacchi, 2015). The critical part here is the power asymmetry of the two parts, which are asked to understand and comply. In the case of international organizations, conditionality is applicable for economic, political, social and security-related reasons. The effectiveness of conditionality highly depends on the relation of the organization and the domestic country. The country has to follow all the conditions set by the organization to gain help from the IO.
Consistency and credibility, as well as low domestic adoption costs, are obligatory to achieve a high level of effectiveness in this process (Schimmelfennig and Sedelmeier, 2005). During this procedure, IOs are trying to support the member state with information and knowledge and reward if it progresses in the reformation (Schimmelfenning and Sedelmeier, 2004). Though, if IOs consider it necessary, they can proceed to punishments to reinforce the state in compliance (Schimmelfennig, 2008; Schimmelfennig and Scholtz, 2008).
European Union uses this mechanism of conditionality in political and economic aspects, as it is a powerful source for involvement in the national authority (Schimmelfennig and Scholtz, 2008; Sacchi,2015). Conditionality has been used in two different realms: providing financial aid in the member states and during the accession of new member states. In financial support, conditionality requires the change of specific national policy changes to grant financial support (Spanou, 2020). That was observable in Southern European member countries (e.g. Greece, Italy, Spain, Cyprus) during the economic crisis. EU conditionality aims to push national authorities to reform policies, even unpopular ones, to benefit from the EU or the eurozone (Anastasakis and Bechev, 2003). That was the example of many countries upon them Cyprus and Greece when integrating to the union.
European Commission is well known for the construction of conditions to do or give something to a country. Conditionality applies even after accepting membership as the preferences and norms of the political actors change over time (Sasse, 2008). Therefore, the necessity of shaping agendas and oppositions is continuous, and they regularly refer to the EU conditions. In this research, the interpretation of conditionality conceptualized as a process with norms shaped by the interaction of multi-level actors, perceptions and interests, differentiated rewards and sanctions, temporal factors and various degrees of institutional or policy compliance (Hughes et al., 2004, p.3-4).
2.1.4 Rational Legal Authority
International organizations are complex concepts, and they can acquire power through their composition, impartiality, and suggestions. According to Weber (2009), rational-legal authority mechanism is the only type of authority relationship stable enough to provide the foundation for permanent administrative structures. It rests on the belief in the legality of rules and hierarchies. The social purpose, values, rules, and routines give the IOs the ability to
exercise power to shape certain behaviours (Barnett and Finnemore, 2004). These organizations get their power through the laws that defined their existence. The leader of the hierarchy, in this case, an IO, has the legal authority when it gains legitimacy based on its subjects on the rationale that it has the right to issue commands by formal rules and laws (Guzman, 2007).
The rationality of legal authority lies in assuming that given laws can change if they ground on instrumental or value-rational structure (Guzman, 2007, 2015). The rules and norms have to follow consistency and established in the text. This provides a distinct chain of supervision and command. This type of authority differs with its impersonality, and the obedience comes from the impersonal legal order than to the person in authority. The person in authority is distinguished from the agent and can only legitimately rule within limits authorizes for the agent (Mitchel, 2006; Guzman, 2007; Weber, 1978, 2009). However, laws and rules cannot rationalize themselves just by their existing; it requires justification by reference to considerations beyond themselves (Obradovic, 1996, p.198). Rational legal authority gives the IO the bureaucracy and the general behavioural vocabulary, but bureaucracies have to serve some particular purpose (Barnett and Finnemore, 2004). The values of the IO make it respected and authoritative by the member states.
Even so, international organizations do not have enforcement powers at their service to implement their recommendations (Eckhard and Ege, 2016; Fang and Stone, 2013). Persuasion is the component that IOs are using to propel their power of influence in member countries. The image they framed as impersonal, technocratic, and neutral, which only uses its power to serve others, helps achieve cogency and acceptance of their legitimacy and authority (Barnett and Finemmore, 1999). Regarding the Weberian approach, IOs are always using the rules and rationally established norms to defend themselves (Weber, 2009). That increases their
influence as they display the organization as law-abiding, leading to higher trust and engagement.
The European Union is one of the most legalized organizations in existence, which protects all its moves and decisions with a rational-legal framework. There are three pillars defined in the EU's legal framework related to obligation, persuasion, and delegation. All the member states during their entry to the EU are legally bounding to the European Court of Justice (ECJ), and the failure to obey in the EU rules can lead to a fine (Alter, 2000). Moreover, the EU rules can be particular and vague, which gives the room to manoeuvre both in the EU and sometimes in the member states. Studies have shown that EC is the institution within the union with the rational-legal authority (Bauer and Becker, 2014).
This thesis is justifying rational-legal authority as member states' allegiance to the IO's legal authority based upon its impersonality and values. Authority is rational as it invests in legalities, procedures and rules to develop socially recognized relevant knowledge to determine how goals can be achieved (Barnett and Finnemore, 2004). The laws under this mechanism are concrete and established in writing to give IO the exercise of control based on knowledge (Weber, 2009).
2.2 Influence of International Organizations under conditions of economic crisis:
A crisis can be a changing condition in the direction of international organizations' influence. It can have either political, economic, or both forms. As shown in the above section, organizational influence depends on many factors connected in periods of stability. The decision to adopt a policy at the domestic level relies on the national leaders' perspective. During periods of crisis, and especially global crisis, the influence can be even more substantial, and the policy implementation is likely to have compulsory characteristics
(Dolowitz and Marsh, 2000). Countries may feel the pressure to comply with international norms to achieve stability again.
When global financial stability or other forms of crisis are in the balance, International organizations and member states are more likely to have diverse interests and perspectives. The local actor of an affected country focuses on how that can help the country gain stability and do not necessarily internalize the consequences of a crisis globally (Fang and Stone, 2012). However, as described before, in all circumstances, when a country decides to join an IO, then shares some common values and views. Scholars show that it is indeed challenging to focus on a common goal during a crisis, but in the EU, the crisis was a common threat for all the countries and the union. Therefore, countries greatly affected by it were influenced by the EU perspectives (Ioannou et al., 2015).
As Martin (2006) mentioned, a country is open to a delegation when it is more dissatisfied with the status quo. Therefore, during a crisis, states are more willing to delegate authority into an IO to change the existing regime. Especially in periods when emergency solutions are necessary, the IO will bear lots of responsibility (Bauer and Becker, 2014). The current local government will prefer to decrease costs such as responsibility and loss of reputation involved in admitting mistakes (Fang and Stone, 2012). Researches have shown that governments in a significant economic crisis tend to shift the blame to international organizations (Patel, 2013). As a result, a delegation of authorities to an IO under critical circumstances is highly present. The use of information and expertise is even more critical in cases of crisis. IOs have to convince sceptical leaders to collaborate and implement policies. Expertise can be useful in the situation. Even though impartiality is not given when IOs sent a crisis signal through them, the local government may accept the influence (Fang and Stone, 2012). The International Organization's independence in periods of crisis is highly constrained; powerful member states can react and limit the organization (Abbott and Snidal, 1998). During periods of extreme
events where there is a high level of uncertainty, national governments tend to have the necessity of expert knowledge to interpret the situation and scheme strategies to overcome the problem (Haas,1992). The policy adjustments are essential and time-consuming, that is why government leaders trust the scientific experts even if they do not believe that they are impartial. They need solutions implemented as soon as possible to stop the collapse of their economy (Fang and Stone, 2012). European Union and member countries affected by the economic crisis showed an increase in expert knowledge demand. Economists and financial analysts were called to construct groups (Eurogroup, Troika) to examine and control the situation of each country (Seabrooke and Tsingou, 2014, 2019)
International Organizations can use the instrument of conditionality during an economic crisis to ensure that their "loans" will be ensured. Organizations that have produced a considerable number of binding rules and have robust enforcement mechanisms are more likely to be blamed for tying national governments' hands and taking away all the viable options (Kerwer, 2013; Patel, 2013). According to many studies, international organizations may be weak, but they seem to have a significant long-term effect at a national level (Kerwer, 2013; Abbott and Snidal,1998).
In the European Union case, empirical shreds of evidence suggest that the European Commission's role continues to be a powerful force. However, it tends to change from the central role it had. Although, Commission has been accused of its absence in the early crisis management and for being not useful and influential during the economic crisis (Puetter, 2012). Southern European Member countries are remarkable examples of how the European Commission and Troika generally influence during the economic crisis. Greece, Portugal, and Cyprus were the ones who had to go into Memorandum of Understanding (MoU) and reform policies under conditionality, which EC suggested (Sotiropoulos, 2015). In Spain's case, the Commission and IMF were more resilient as they lend them money without forcing them to
sign an MoU. The same was Italy's case, which did not sign an MoU, but at moments where they find it necessary to take instructions on reform guidelines from the IMF and the ECB (Verney and Bosco 2013). Rapanos and Kapanoglou (2014) discussed that Greece's policy reform happened due to forcing pressures from the EU with institutional mechanisms such as scientific experts, the delegation of authority, and legal framework.
Regarding the theories and empirical evidence, this case study expects that the European Commissions' influence would be present in Cyprus' economic policy reform in 2013. Thus, the expectation was to be a substantial influence. According to literature, countries with negligible power are more likely to obey the European Commission's determinations generally and even more during an economic crisis. Especially in the banking sector, which was the main problem for the island's economy, the study expects that the national government obeys MoU and Troika's rules and suggestions. Specifically, this research expects that:
A. The European Commission used a delegation of authority to influence Cyprus' economic reforms during the crisis.
B. The European Commission influenced Cyprus' economic reforms during the crisis through the use of expertise and information.
C. Economic reforms in Cyprus during the crisis have been made based on the EC decisions due to conditionality.
D. The European Commission used rational-legal authority to influence the policy changes in Cyprus during the crisis.
3.Data and Methodology
Influence is an indeterminate concept, and the attempt of measuring it somehow can be sketchy and incomplete. There are not statistical units of measurement which can shed light on the measurement of this concept. Scholars of political sociology and public administration to determine and measure this abstract concept use causal mechanisms to prove causal connections of influence and the variable being influenced (Dür, 2008; Toshkov,2016; Ege et al., 2019). Suppose the constructed causal mechanisms strongly imply the connections between the events. In that case, they are causally relevant, and one can say that the concept of influence is present in the research (Toshkov, 2016). Influence is traced back in people, states or organizations who can bring changes in policy fields in line with their preferences (Ege et al., 2019; Dür, 2008).
3.1 Type of Research
Literature focusing on international organisations and the economic crisis shows different views on whether there is a connection between international organisations and states or not, particularly during a crisis. Scholars try to define that relation either statistically (Fang and Stone,2012; Chapman and Wolford, 2010; Urpelainen,2012; Kreppel and Oztas,2016) or by observing qualitative sources of data (Barnett and Finnemore, 1999; Bauer and Becker, 2014; Eckhard and Ege,2016; Eilstrup-Sangiovanni and Hofmann, 2019). This study aims to answer the research questions, “To what extent and why does the European Commission influence the economic reformation in Cyprus during the economic crisis.” This thesis objective is to increase the understanding of the different mechanisms through which the EU works to influence the member states and give some more profound outcomes in Cyprus’ case. Mechanisms such as delegation of authority, the use of expert knowledge, conditionality, and rational-legal authority.
The obstacle with this kind of topic is that the influence cannot easily measure statistically. Thus, the subject will be approached through the use of a qualitative case study. A case study can help to analyse the issue in detail. Gerring (2007, p.13) mentioned that case studies allow peering into the box of causality. Single-case studies in a theory-testing context are suitable for examining causal mechanisms, and this study aims to explain the causal mechanisms underlaying in the case of EU influence. Theory testing follows a deductive logic, which means that the study starts with abstract propositions and put them to the test of empirical reality to distinguish the observations that match in the case (Toshkov, 2016). Case studies refer to the intensive analysis of a single unit or a small number of units where the researcher’s goal is to understand a larger class of similar units (Seawright and Gerring, 2008, p.296). The case analysed in this research is Cyprus. The dependent variable is the policy reformation, and the independent variable is the European Commission’s influence.
3.2 Case Selection
There are several reasons for choosing Cyprus' case to search for the European Commission's influence. Cyprus is one of the smallest country members in the European Union, with only one million inhabitants. One can assume that the country's voice in different issues is relatively small in European politics. In the recent economic crisis, Cyprus was the only country that faced a bail-in framework to ensure the country's economy's sustainability. This mechanism insisted on major reforms in different sectors of the economy, giving the space to apply the theoretical mechanisms on empirical observations.
Moreover, Cyprus is a complicated case because of its geopolitical characteristics and the strong economic environment before the recent crisis. Trying to analyze the influence that the EU can have on this country can give quite interesting results. Also, Cyprus is one of the last members that joint the European Union and Eurozone; therefore, the EU's influence in the
country can be relatively short and manageable because of the short period that Cyprus is under the power of the organization. Finally, the quick recovery of the island's economy can intrigue someone to look at this case and the influence that the EU had there. Cyprus observations can probably be applicable in other member states who have gone through the European Stability Mechanism and have similar geopolitical characteristics. However, it is doubtful that this small island's case could be broadly applicable to all the member states as each country's characteristics vary.
The focus will be on four types of economic reform: tax reformation, banks, foreign direct investments, and the real estate's sector. The study will essentially trace the decision-making process leading to reform in each of these sectors. The method of process-tracing in single-case studies is very relevant and extensively used. This method is "the use of evidence from within a case to make inferences about causal explanations of that case" (Bennett and Checkel, 2015, p.4). More simply, process-tracing influence measuring is the seeking of steps by which causes affect the outcome (Dür, 2008). The analysis focuses on the EC policy involvement and seeks to identify the strategies through which it could change the outcomes in Cyprus.
3.3 Method of Data Collection
There are multiple types of data collection in a process tracing in a single-case study, such as archival research, document analysis, and different types of interviews. At the beginning of the study, the plan was combining both documents analysis and conduct interviews; however, due to the current coronavirus situation, that was not possible. By using only document analysis, this study collected data that examined and explained to elicit meaning, gain understanding, and develop empirical knowledge (Bowen, 2009).
This study collected data from secondary sources (official records archives, governments' publications, newspapers, and EU publications). The criteria to select those sources relied on content. Documents gathered from the Republic of Cyprus' official websites, such as speeches and public releases. More documents from the EU, such as speeches, public releases, agreements, proposals, and statements, have been obtained through the EC, ECB, and IMF websites. This kind of documents seems more reliable as they are official documentation.
Table 1:
List of Documents
1. MINISTRY OF FINANCE PRESS RELEASE-Conclusion of TROIKAS visits to Cyprus
(July 2012)
2. Statements by the President of the Republic (D. Christofias),
(13 September 2012)
3. Central Bank of Cyprus - Cyprus financial crisis: the framework for an economic recovery within the eurozone, (11 December 2012)
4. European Commission-Proposal for a Council decision addressed to the Republic of Cyprus 2013 (2013/0121 (NLE)
5. Independent Commission on the Future of the Cyprus Banking Sector, 2013 6. The New York Times “Resistance in Cyprus Grows to Europeʼs Bailout Plan”,
(18 March 2013)
7. The Guardian “Eurozone crisis live: Cyprus crisis deepens as MPs reject bailout terms” 19 March 2013
8. The New York Times “Rejection of Deposit Tax Scuttles Deal on Bailout for Cyprus”,
9. (19 March 2013)
10. Reuters “Cyprus lawmakers reject bank tax; bailout in disarray”, (19 March 2013)
11. The Financial Times “Cyprus crisis: The four scenarios” (20 March 2013)
12. Reuters “Cyprus closes in on EU bailout, U-turn on levy”, (22 March 2013) 13. Newspaper “The Guardian”, Cyprus bailout deal with EU closes bank and seizes
large Deposits (25 March 2013)
14. Eurogroup Statement on Cyprus (25 March 2013)
15. European Commission “Statement by President Barroso on Cyprus” (25 March 2013)
16. Eurogroup Statement on Cyprus (12 April 2013)
17. European Commission “Statement on Cyprus in the European Parliament”, (17 April 2013).
18. Cyprus: Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding (29 April 2013)
19. FINANCIAL ASSISTANCE FACILITY AGREEMENT, Execution Version, (8 May 2013)
21. Meeting of the President of the Republic with the President of the European Commission (23 May 2013)
22. Statement by the President of the Republic after the European Council’s conclusion, in Brussels (28 June 2013)
22. Statement by the European Commission, ECB and IMF on the First Review Mission to Cyprus (31 July 2013)
23. Speech by the President of the Republic, Mr Nicos Anastasiades, at the Economist 9th Cyprus Summit, Lefkosia (25 November 2013)
24. The President of the Republic gave a joint press conference with the President of the European Commission, in Brussels. (27 November 2013)
25. Eurogroup statement on Cyprus. (10 March 2014)
26. Eurogroup statement on Cyprus (19 June 2014)
27. Central Bank of Cyprus “The evolution of the Cyprus banking system: a reform story and its challenges”, 2017
Moreover, newspapers' articles have been chosen for use in this research due to their validity in the epistemic world. Some examples of those newspapers are the New York Times, Reuters, Financial Times, BBC. The reason for using newspapers' articles is the need to explore all the perspectives related to the influence that EC had in the Republic of Cyprus during the economic reforms and not just the perspective of the involved parts. The date range is also
essential as the content analysis will cover the period between the beginning of the economic crisis in Cyprus and the period of the adjustments (2013-2014).
The collected data can tell us how exactly Cyprus proceed with the reforms in each analyzed sector (banking, tax, FDI, real estate). Process-tracing gives analytical and chronological changes sector by sector. Therefore, the definite image will give the ability to come in conclusions related to the extent of influence coming from the EC. Because the documents are mostly official documents, show the exact changes in the island's economic field. It is better observable which reforms came from the EC and which were the Cypriot authorities' initiative. They will uncover a tight sequence of events that are linked together and held by causal mechanisms.
3.4 Method of Analysis
To code and analysis those documents, this article constructed a qualitative typology to establish more reliable outcomes. The typology consists of four causal mechanisms: delegation of autonomy, experts and information, conditionality and rational-legal authority. Those mechanisms are defined based on the theory chapter, which has discussed above.
Table 2: Four main categories
Definitions Indicators which will be searched for in the document Delegation of authority A process where a member state conditionally grant authority to an IO to
- Did the EC used delegation issued from the existing treaties to influence economic reforms in Cyprus?
make decisions or take action for it for a certain period of time (Bradley and Kelley, 2008; Hawkins et al., 2006).
- Did the government of Cyprus delegate authorities to EC because of existing status quo? - Did the EC practice strict
delegation or gave alternatives to the affected member?
Experts and Information
Independent scientific experts share their knowledge in a specific topic with both EC and country member. Information is the collected data from the EC and the scientific experts which can benefit a country member.
- Did the EU use expert’s knowledge to force its members to act in a specific way?
- Did the EU share its information and knowledge with Cyprus? - Did Cyprus implement a policy
because it estimates the scientific experts’ suggestions?
Conditionality
The process of putting conditions in order to grant/help an EU member, to achieve the compliance of the member with the conditions, EU uses
rewards and
punishments.
- Did the EU use conditions in the member country?
- Did the country obey?
- Did EU reward or punish the state member?
“Typology: IO’s causal mechanisms of power to influence a member state”
Rational-legal authority
The neutrality and impartiality of the EU influence the policy decision-making process in the member state. It is based on specific and formal structures that are justified on instrumental or value-rational grounds. The laws are consistent and clearly established in writing.
- Did the EU’s advices/solutions were accepted because the EC
was perceived as
neutral/impartial?
- Did the laws/rules changed come on rational grounds?
4. Empirical Analysis
The main aim of this research is to analyse in-depth the EC influence in the decisions that the Republic of Cyprus had to take during a challenging period. To do that, it took a careful investigation through 27 documents. This section will try to chain the evidence together and offer possible explanations, by combining the theoretical framework in chapter 3 and the coding results,
Except testing only widespread influence, the analysis tries to offer shreds of evidence for four pillars of the Cypriot economy, which were directly affected by the recent economic crisis and which reformed in 2013. Overall, those documents' coding shows a clear image of the European Commission's influence over the Republic of Cyprus' economic reforms. More extensively, this study reaches the result that EC influenced all four subcategories of the Cypriot economy, which it investigates. The influence in the reforms regarding the banking sector and foreign direct investments were stricter than the other two pillars.
It is worth emphasising that the study results enhance the theoretical framework as the findings are in parallel with the examined bibliography. Delegation of authority, experts and information, conditionality, and rational-legal authority are some of the greatest weapons that an International Organization has. Specifically, in the case of the European Union, it seemed that they are using those characteristics to the maximum to secure their voice in the country members' policies. However, it is also necessary to punctuate that EC used some of these mechanisms more than others in Cyprus' situation, such as delegation of authority and conditionality.
4.1. General European Commission’s influence in Cyprus in economic reforms during crisis
Generally, Cyprus was a stable economy before 2011. In 2008, when the global financial crisis started, the Republic of Cyprus faced a mild recession (Orphanides, 2014). In combination with this, the island was going through an election where a communist government elected in February 2008. The Republic of Cyprus, in 2008, dominated by a left-wing communist party, the first in the borders of EU. The improper operation of the government leads the country to a critical situation. The EU warned the Republic of Cyprus about the unstainable Cypriot economy's signals continuously, but the government decided to ignore all the warnings. Until 2011, the country's financial situation was collapsing, and it was no longer possible to hide it from the public light. By 2011, the country had a severe issue with the largest Cypriot banks and lost access to the international financial markets.
The island was running out of money and could not meet its obligations. That was the first time when President Christofias decided to seek help from the European Union. However, the government refused to follow the European Commission's set conditions. Cyprus' case was unique as it was the only country asking for assistance but refused to finalize a Memorandum of Understanding (MoU). That led the Republic of Cyprus out of the financial markets for two years, and a substantial financial deficit smashed the economy.
In February of 2013, the country went through another election. Democratic Rally (DISY) and a smaller central democratic party (DIKO) formed a coalition government (Doudaki et al., 2019). The new government's first task was to finalize a bail-out agreement and apply the European Union's austerity measures. Thus, Cyprus was the only country in which EC applied a bail-in policy instead of a bail-out.
The literature combined with coding gives the opinion that the extent of influence differs for different parts. The EC concerns the extent of its influence in the necessary level only, while Cypriot government was clearly stating that EC and EU in particular, exercised their power of influencing in high demand in all the possible sectors of the economy. The international opinion did not differ a lot from Cypriot opinion. The examination of newspapers' articles demonstrated a picture closer to Cypriot notion; EC's influence at an increased level with mainly using conditionality and delegation of authority.
4.2. Banking Sector
Cyprus' banking sector commenced via private initiatives, except for three government-controlled specialised credit institutions (Central Bank of Cyprus, 2012). This field was one of the main pillars of the Cypriot economy. The banking field's last decades have an expanding trend, particularly during the accession in the European Union. In 2009, it reached a size of 822.4% as a percentage of the country's annual GDP (ECB, 2010). The reason for this enormous augmentation was the systematically offered higher deposit rates from banks, which were relatively higher than other European countries, twice as much. The banking sector was always one of the leading forces behind the headway of economic performance, but it is quite large relative to the economy's size. Although, it turned out to be more of an Achilles' heel for the country. This field that smacked more from this economic crisis than others. Bad policy decisions and fraternal relations with Greece were two main reasons for the bankruptcy. Cyprus' government-controlled banks had a money surplus, and they decided to invest all the surplus in buying bonds from Greece. Therefore, when the economic crisis hit the Greek government, like a domino effect came to Cyprus as the country lost all its invested money. The non-performance loans (NPL), which are the loans that are not paying back the lent money to the bank, made the banks forced banks to abruptly raise provisions, worsening their capital
ratios (Orphanides, 2014). The conclusion was that the liquidity decrease and the banks could not perform anymore.
The government did recognise the cruciality of the period and decided to turn to EC for assistance. President Anastasiades mentioned various times in his speeches that the Cyprus government is highly trusting the EC, and that is why the country is abiding with all the conditions.
"The government is fully committed to the policies stipulated in this document and its attachments. We are confident that by the end of the program, we will achieve robust growth - eventually supported by the development of prospective gas resources - and lasting stability that will enable us to maintain social cohesion and create entrepreneurial opportunities for
our people." (Appendix, document 18)
This kind of statements from the President, on first reading, can indicate the notion of some level of rational-legal authority as the country highly trusted the EU. Based on the theory, this concept exists when the IO's legal authority comes rationally; it is perceived as legitimate and influences members to respect and validate the IO's recommendations. However, that maybe is not the case, as Cyprus had no other choices. The government tried to get help from countries such as Russia and the USA, but that strategy failed.
The solution came with strict terms for the people of Cyprus. The suggested solution from EC was a Memorandum of Understanding, which was composed of a bail-in solution. The Republic of Cyprus was the only member country that went through a bail-in solution. Cyprus had to find €7 billion from its system and to achieve this. The Eurogroup proposed a horizontal haircut in deposits. A haircut of 6.75% for deposits up to €100,000 and 9.9% for uninsured deposits (Michaelides, 2014; Demetriades 2018). The second suggestion was closing the Marfin Laiki Bank (the second-largest commercial bank in Cyprus). However, Marfin
Laiki's functions would have to be entirely merged in Bank of Cyprus, which means that the bank will not work anymore, but the deposit haircuts must apply in that case. That was the only agreement that EC could agree to give €10 billion in Cyprus.
As was mentioned above, Cyprus had no other choices, and the EU new that. Between 15 and 25 of March in 2013, the MoU signed by the actors. Cyprus followed all the recommendations of the EU step by step. As Reuters on 22 March in 2013 referenced, "Without a deal by Monday, the European Central Bank has threatened to cut off cash for Cypriot banks, certain spelling collapse and possible ejection from the euro.". This statement shows that the position of Cyprus was crucial. It indicates the conditionality mechanism as the EU threatened Cyprus with some punishment if it did not obey the rules.
It is observable in all documents how the EU used the mechanism of conditionality to promote its favourable measures in Cyprus economic reforms. Newspaper articles mainly focused on how differently EC treated Cyprus' case and how strict it was for them. The Guardian released on 19 March an article stating the following; "The European Central Bank has just released a statement, saying that it remains committed to providing liquidity to Cyprus's banks 'within the existing rules'" . The EC, in one of their proposals in 2013, stated “The House of Representatives adopted legislation establishing a comprehensive framework for the recovery and resolution of credit institutions. Using this new framework, the Cypriot banking sector has been downsized immediately and significantly. To preserve the liquidity of the Cypriot banking sector, temporary administrative measures have been imposed.” (Appendix, Document 4). These quotes show that mechanisms of conditionality and delegation of authority were highly present during the first negotiations between EC and Cyprus. The first statement shows again that to give a grant, the EU clearly states that the member country has to obligate to the rules. Delegation of authority is visible in the second quote where the EC
decided the path of Cyprus in order to preserve the viability of the banking sector and explained it as law formulation which was needed for the recovery and resolution of credit institutions.
In all the documents, the mechanism of "conditionality" is distinctly stated. The conditions in the banking sector case were the commitment of Cyprus in bail-in strategy, as well as merging the two leading banks of the Republic of Cyprus. Added to that, the condition of raising the interest rate in bank loans, separating the NPL and the performing loans to proceed in confiscations of NPL properties. Without complete compliance, the EU was not open to providing help. As was described in the theoretical framework part, conditionality allows the EU to enhance its power over the country member with its consent. To be effective, the relation between the EU and Cyprus had to be precise. The shreds of evidence point out that the "conditionality" mechanism was effective on this occasion, and that was the key for Cyprus to overcome the economic crisis.
In many parts of this agreement, the EU used the "delegation of authority" mechanisms very often. Delegation of authority consists of directives and regulations, in which the EC practice the policy decisions for the member country. In this research, the frequent usage of the mechanism is obvious. The EU takes advantage of its structure to implement the policies regarding the economy of Cyprus. Troika had the right to judge, monitor and take decisions for further changes which were not stated clearly in the agreement for a certain period. When the country stabilises its economy again, then Troika will not have the right to act on the country's behalf. The EC president Barroso after the signing of the MoU in his speech told that he decided that a task force would set up to control the Cypriot authorities in order to achieve the EU visions (Appendix, Document 14). The theoretical framework mentions that the agents can frequently act opportunistically without considering the states good or the common goal but rather focusing on their visions. In a joint press conference with the President of the EC, President Anastasiades mentioned that the decisions have been made from the Eurogroup and
not Cyprus (Appendix, Document 24). These statements signal the existence of delegation in the coded documents. The EC tried to acquire more leeway than what has been given to it, and scholars claimed that as a problem in EC (Delreux and Andriaensen, 2018; Bauer and Becker, 2014). However, it is also mentioned in documents that Cyprus gave the authority to the institution because it wanted to change the existing status quo and trusted the control mechanisms of the EC.
Additionally, in several documents, it is observable that budgets given to Cyprus were closely controlled by the EU, which was not the case for other countries which faced the MoU. Therefore, it can be assumed that even though in some documents, the indicator of common interest is present in the speeches of the two officials it is clear that EU was acting for the organisation's vision. The principle had to oblige to ensure its stability. As scholars claimed, the EC indeed tries to acquire more room to manoeuvre than the principal delegates initially (Delreux and Andriaensen, 2018; Meunier and Nicolaides, 1999; Bauer and Becker, 2014). The banking sector was the field that the EU wanted to influence more. Delegation of authority was noticeable when the EC was explicitly referring to the sector; "In the context of the Programme, the authorities will continue to closely monitor the liquidity situation of banks, which will aim at reinforcing their collateral buffers. Institutions borrowing from the Central Bank will establish and submit quarterly medium-term funding plans, taking into consideration the expected path of deleveraging that would avoid asset fire sales or a credit crunch." (Appendix, Document 19). However, it is essential to report the Cyprus government's position in this mechanism as in the documents coming from their part; they showed that they knew and accepted that mechanism. Although, in a later speech, President Anastasiades gave the sense that the officials were unhappy with EU invasiveness. He said, "The violent restructuring of the Cyprus banking sector, as decided by our partners, the continued negative external environment, the necessary correction of unbalanced public finances, are factors that
