Explanatory Memorandum to COM(2015)237 - Amendment of Implementing Decision 2013/463/EU on approving the macroeconomic adjustment programme for Cyprus - Main contents
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| dossier | COM(2015)237 - Amendment of Implementing Decision 2013/463/EU on approving the macroeconomic adjustment programme for Cyprus. |
|---|---|
| source | COM(2015)237  |
| date | 27-05-2015 |
On 25 June 2012 Cyprus submitted a request for financial assistance from the European Stability Mechanism (ESM). On 25 April 2013 the Council decided (Council Decision 2013/236/EU) that Cyprus shall rigorously implement a macroeconomic adjustment programme, which shall address the specific risks emanating from Cyprus for the financial stability of the euro area and shall aim to rapidly re-establish a sound and sustainable economic and financial situation in Cyprus. Following the entry into force of Regulation (EU) No 472/2013, Council Decision 2013/236/EU was replaced by Implementing Decision 2013/463/EU.
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 3-year programme covers the period from mid-2013 to 31 March 2016.
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.
In line with Article 1(2) of Implementing Decision 2013/463/EU, the Commission, in liaison with the ECB, and, where appropriate, with the IMF, has conducted the sixth 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 an update of the MoU was agreed at services level in the areas of financial sector reform, fiscal policy and structural reforms. For the financial sector, following the complete liberalisation of the external restrictive measures on 6 April 2015, the authorities commited to continue to closely monitor the liquidity situation of the banking sector. In addition, the revised MoU requires additional measures to address the corporate and household indebtedness and further strengthen the framework for long-term sustainable private debt restructuring, including targets for restructuring non-performing loans and a strategic default study. Furthermore, measures are requested to reform pension and insurance supervision. With regards to the new insolvency and foreclosure framework, the revised MoU requires the authorities to monitor, on a continuous basis, the implementation and performance of the framework and ensure that it supports its objectives and principles and to adopt amendments if needed. It also includes two prior actions, namely the submission of a legal proposal enabling the sale of loans, and of a legal proposal ensuring that issued title deeds are transferred to property buyers without delay, while safeguarding against abuse.
With regard to fiscal policy, in order to reflect the fiscal performance in the first quarter of 2015, the primary balance target for 2015 should be revised up to a surplus of at least EUR 264 million (1.5% of GDP) and the primary surplus target for 2016-2018 should be readjusted, also to remain in line with the adjustment path prescribed by the Stability and Growth Pact. In the area of fiscal-structural and structural reforms, the revised MoU now foresees the implementation of a National Health System (NHS) by 2017. On revenue administration and tax compliance, the MoU foresees the operationalisation of the new integrated tax agency by setting up a single registration process and approving a new tax procedure code. On the public administration reform, the revised MoU requires, following the horizontal review, the adoption in 2015 of a reform plan that adresses the wage setting mechanism, introduces a new appraisal and promotion system, and enhances staff mobility. On the social welfare reform, the revised MoU provides for the presentation of a single view of benefits, on which basis the monitoring unit will finalise an assessment report of the welfare system reform. It also requires the authorities to submit proposals for the consolidation of disability and student benefits. On the housing market regulation, further requirements are included to accelerate the issuance of title deeds. In the area of tourism, a study will be prepared as an input to the national tourism stategy as part of the Action Plan for Growth. In the area of energy, the authorities will choose the preferred option for the gas and electricity regulatory regime and market organisation in line with the developments regarding the unbundling of the Electricity Authority of Cyprus (EAC).
The proposed decision will ensure full consistency between the European Union's multilateral surveillance framework established by the Treaty of the Functioning of the European Union (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.