Explanatory Memorandum to COM(2013)602 - Approving the macroeconomic adjustment programme for Cyprus - Main contents
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| dossier | COM(2013)602 - Approving the macroeconomic adjustment programme for Cyprus. |
|---|---|
| source | COM(2013)602  |
| date | 26-08-2013 |
On 24 April 2013 the ESM Board of Governors decided to grant, in principle, stability support to Cyprus and approved the Memorandum of Understanding on Specific Economic Policy Conditionality (hereinafter referred to as the 'MoU') and its signing by the Commission on behalf of the ESM. On 8 May 2013 the ESM Board of Directors approved the financial assistance facility agreement.
The macroeconomic adjustment programme aims at restoring financial market confidence, re-establishing sound macroeconomic balances and enabling the economy to return to sustainable growth. To achieve these goals, the programme builds on three pillars. The first pillar is a financial sector strategy based on restructuring and downsizing of its financial institutions and strengthening its supervision, with efforts to address capital and liquidity shortfalls. The second pillar is an ambitious fiscal consolidation strategy, building on the consolidation efforts initiated in 2012, in particular through measures to reduce current primary expenditure, enhance government revenues, improve the functioning of the public sector and maintain fiscal consolidation in the medium-term. The aim is to correct the excessive general government deficit and put the gross public debt-to-GDP ratio on a firm downward path in the medium term. The authorities are committed to reducing the deficit to below 3% of GDP by 2016. The good implementation of Structural and other EU Funds, as well as EU policy initiatives aimed at enhancing jobs and growth should be preserved. This will contribute to the long-term growth path for Cyprus. The third pillar consists of an ambitious structural reform agenda, with a view to supporting competitiveness and sustainable and balanced growth, in line with country-specific recommendations addressed to Cyprus in 2012, and allowing for the unwinding of macroeconomic imbalances. Recalling the Council Recommendation of 22 April 2013 on establishing a Youth Guarantee[1], opportunities for young people and their employability prospects should be enhanced.
The 3-year programme covers the period from mid-2013 to mid-2016.
In line with Article 1(2) of Decision 2013/236/EU, the Commission, in liaison with the ECB, and, where appropriate, with the IMF, has conducted the first review to assess the progress on the implementation of the agreed measures as well as their effectiveness and economic and social impact. As a result the MoU has been updated in the areas of financial sector reform, fiscal policy and structural reforms. For the financial sector, the revised MoU includes agreement on publishing a roadmap for the gradual relaxation of capital controls, based on milestones and consistent with the banks' liquidity situation. Moreover, the revised MoU requires establishing the legal framework for a new governance structure to manage the stake of the State in the cooperative credit sector. Finally, an action plan on customer due diligence and entity transparency has been agreed as part of Cyprus' anti-money laundering efforts. With regard to fiscal policy, the revised MoU contains a commitment to adopt a compensation scheme for provident fund and retirement funds in the Cyprus Popular Bank, which should ensure comparable treatment with such funds in the Bank of Cyprus. Also, it is established that in order to ensure the effective implementation of EU funds, the Cypriot authorities should ensure that the necessary national funds remain available to cover national contributions. Finally, in line with Regulation (EU) No 472/2013, the revised MoU requires Cyprus to submit a request for technical assistance for the programme period and undertake a comprehensive audit of its public finances. In the area of structural reforms, the revised MoU details the planned reform of public assistance, which should ensure that social assistance serves as a safety net to ensure a minimum income for those unable to support the basic standard of living, while safeguarding incentives to take up work. Moreover, it is required that Cyprus prepares detailed policy proposals with regard to addressing shortcomings in its activation policies and that Cyprus takes swift action to create opportunities for young people and improve their employability prospects, in line with the objectives of the Council Recommendation on Establishing a Youth Guarantee.
Following the entry into force of Regulation (EU) No 472/2013, the macroeconomic adjustment programme is now to be adopted in the form of a Council implementing decision. For reasons of legal clarity and certainty, the Commission therefore proposes to readopt the programme on the basis of Article 7(2) of Regulation (EU) No 472/2013. The substance of the programme is in essence identical to the one approved by Council Decision 2013/236/EU, but also incorporates the results of the review carried out in accordance with Article 1(2) of Decision 2013/236/EU. At the same time, it is proposed to repeal Council Decision 2013/236/EU.
The proposed decision will ensure full consistency between the Union multilateral surveillance framework established by the TFEU and the policy conditionality underpinning the economic adjustment programme. Notably, Article 10 of Regulation (EU) No 472/2013 provides for consistency in reporting and monitoring obligations.