EU on approving the macroeconomic adjustment programme for Cyprus - Main contents

Please note

This page contains a limited version of this dossier in the EU Monitor.

dossier	COM(2014)118 - Amendment of Implementing Decision 2013/463/EU on approving the macroeconomic adjustment programme for Cyprus.
source	COM(2014)118
date	26-02-2014

Upon a request by Cyprus, for financial assistance from the European Stability Mechanism (ESM), the ESM Board of Governors decided on 24 April 2013 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.

The macroeconomic adjustment programme for Cyprus was initially adopted by the Council by Decision 2013/236/EU on 25 April 2013. Following the entry into force of Regulation (EU) No 472/2013, the programme was readopted on the basis of Article 7(2) of Regulation (EU) No 472/2013 by Council Implementing Decision 2013/463/EU. At the same time, Decision 2013/236/EU was repealed.

In line with Article 1(2) of Decision 2013/463/EU, the Commission, in liaison with the European Central Bank (ECB), and, where appropriate, with the International Monetary Fund (IMF), has conducted the third 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 programme should be updated in the areas of financial sector reform, fiscal policy, and structural reforms. For the financial sector, the revised MoU will stipulate that a communication strategy on the roadmap for the relaxation of the capital controls and on the implementation of the banking sector strategy is to be designed by a joint Central Bank of Cyprus (CBC) and Ministry of Finance task force. In addition, the revised MoU will call for the timely reporting of banks' estimates of the potential impact of the newly introduced and upcoming European Union (EU) rules on capital requirements and non-performing loans (NPLs) on capital, profitability and coverage ratio. Finally, a new section on the reform of the legal framework of private debt restructuring is to be added. Under this policy advice, a task force is to be established to assess the magnitude of registered by untitled land sales contract, and to provide recommendations on this issue. A comprehensive reform framework establishing appropriate corporate and personal insolvency procedures is to be established. Finally, the Civil Procedure Code and Court Rules will be reviewed to ensure a smooth and effective functioning of the revised foreclosure and insolvency frameworks. With regard to fiscal policy, the general government primary deficit target in 2014 is revised to 1.8% of GDP. In the area of structural reforms, the revised MoU will include a committement to implement a first stage of the National Health System (NHS), having first defined and adopted a full roadmap to NHS. It is also required that the policies on pricing and reimbursement of medical goods and services, including those related to pharmaceutical expenditure, are to be revised. Morevoer, it is required that a Privatisation Unit is established. In addition, the revised MoU will contain a commitment that Cyprus presents an action plan for addressing the shortcoming identified in Phase 2 of the peer review by the Organisation for Economic Co-operation and Development (OECD) Global Forum on Transparency and Exchange of Information for Tax Purposes. Lastly, the new MoU includes a requirement to develop a growth strategy based on Cyprus' competitive advantages to help the Cypriot authorities to kick-off the economy.

The proposed decision will ensure full consistency between the Union multilateral surveillance framework established by the Treaty of the Functioning of the European Union (TFEU) and the policy conditionality underpinning the financial assistance. Notably, Article 10 of Regulation (EU) No 472/2013 provides for consistency in reporting and monitoring obligations.