Monday

25th Jun 2018

Bailout paper gives Cyprus four years to balance budget

  • Only the President and the speaker of parliament will be able to fly business class on short flights (Photo: angeloangelo)

Cyprus has four years to implement austerity plans and to balance its budget, according to a leaked copy of bailout terms proposed by international lenders.

The 24-page Memorandum of Understanding (MoU) published in Cypriot press on Monday (1 April) sets out a detailed programme including tax rises, spending cuts, privatisation of state assets and healthcare and pension reforms.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... our join as a group

In its 2013 budget, the Cypriot government will be required to find an additional €351 million in tax rises and spending cuts.

The MoU says that reining in the Cypriot budget is "of overriding importance in order to stabilise the economy and to restore the confidence of companies, citizens and foreign investors in the longer-term economic prospects of Cyprus."

An earlier MoU between Cyprus and the "troika" of lenders (the European Commission, European Central Bank and International Monetary Fund) was drafted in November 2012.

But the deal has been altered in order to reflect developments since a new centre-right government came to power in February.

The latest document, which sets out a four year programme for Cyprus from 2013-2016, includes a 3 percent cut across the board to all public sector wages and pensions.

The Cypriot government is also expected to draw up plans to cut the number of civil servants by 1,800 by 2016, while the retirement age will go up by two years to 65.

As part of a series of tax increases, Cyprus is meant to raise its corporate tax rate to 12.5 percent and its VAT to 19 percent.

Together with higher consumption taxes, even winners of the country's national lottery will feel the pain, with a 20 percent levy on all winnings over €5,000.

In order to help collect tax revenue, the MoU says Cypriot-based trusts and offshore firms will have to provide "timely access to information on beneficial ownership" and a reliable "audit trail of financial transactions."

On health, fewer people are to receive free care, while those who pay are to see their fees go up by 30 percent.

Any future changes to the minimum wage will have to be agreed by the troika.

Assets slated for privatisation include the national telecom provider, CyTA, the state's electricity firm EAC and its ports authority, the CPA.

The MoU also calls on Cyprus to draw up "a roll-out plan for the infrastructure required for the exploitation of natural gas, taking into account the current large uncertainties and risks in this context."

Cyprus could make billions of euros a year extra if it gets access to gas deposits in the Mediterranean Sea.

But the "uncertainties and risks" include Turkey's blockade of gas exploration so long as the 40-year-old Cypriot-Turkish conflict remains unsolved.

The memo, which still needs the approval of the Cypriot government, also contains humbling measures on government expenditure.

It says that politicians and officials who travel overseas should get 15 percent less spending money.

It adds they should stop travelling in first or business class, except on transatlantic flights and except for the President himself and for the parliament speaker.

Meanwhile, the Cypriot stock exchange is expected to re-open this week for the first time since talks on the EU 's €10 billion rescue package began in earnest two weeks ago.

Last week the government put in place strict capital controls on all bank transfers in and out of Cyprus, alongside a €300 limit on daily cash withdrawals, in a bid to prevent a flight of capital from the country.

According to the European Commission's Winter Forecast released in February, the Cypriot economy is expected to shrink by 3.5 percent in 2013.

However, analysts fear that the controls will remain in place for months and could lead to a deep recession of between 5-15 percent.

If the worst case scenario comes to be, it could derail the EU bailout deal and lead to a restructuring of Cyprus' debts.

Cypriot banks re-open without panic

Cyprus' banks opened without panic on Thursday after a 10 day lockout as the government struggled to agree a €10 billion rescue package.

Cyprus economy to shrink 12.5% despite EU bailout

Cyprus' economy will shrink by 12.5 percent and its government needs to sell part of its gold reserves in order to meet the conditions of an EU-IMF bailout, a leaked paper says.

Opinion

The risks behind the 'green bond' boom

The EU should not overuse the financial system in order to achieve environmental goals, or it risks the emergence of a green bond bubble which would be detrimental to the financial sector and hinder the achievement of climate targets.

Opinion

Eurozone needs institutional reform

Both the examples of Greece and Italy test the limits of a system with inherent weaknesses that feeds internal gaps, strengthens deficits and debts in the European South, and surpluses in the European North respectively.

News in Brief

  1. Nine countries to sign up for Macron's military initiative
  2. Re-elected Erdogan potentially in power until 2028
  3. Macron's popularity drops among French pensioners
  4. Tajani calls for €6bn investment to halt migration
  5. Major demo in London for second EU referendum
  6. Venice Commission: Hungary should repeal NGO law
  7. Trump threatens to slap 20 percent tariff on EU cars
  8. EU closes deficit procedure against France

Stakeholders' Highlights

  1. UNESDAThe European Soft Drinks Industry Supports over 1.7 Million Jobs
  2. Mission of China to the EUJointly Building Belt and Road Initiative Leads to a Better Future for All
  3. Macedonian Human Rights MovementMHRMI Launches Lawsuits Against Individuals and Countries Involved in Changing Macedonia's Name
  4. IPHRCivil society asks PACE to appoint Rapporteur to probe issue of political prisoners in Azerbaijan
  5. ACCASocial Mobility – How Can We Increase Opportunities Through Training and Education?
  6. Nordic Council of MinistersEnergy Solutions for a Greener Tomorrow
  7. UNICEFWhat Kind of Europe Do Children Want? Unicef & Eurochild Launch Survey on the Europe Kids Want
  8. Nordic Council of MinistersNordic Countries Take a Stand for Climate-Smart Energy Solutions
  9. Mission of China to the EUChina: Work Together for a Better Globalisation
  10. Nordic Council of MinistersNordics Could Be First Carbon-Negative Region in World
  11. European Federation of Allergy and AirwaysLife Is Possible for Patients with Severe Asthma
  12. PKEE - Polish Energy AssociationCommon-Sense Approach Needed for EU Energy Reform

Latest News

  1. Progressive CAP alternative only hope for sustainability
  2. Ponytailed green MEP joins 'the other side of the table'
  3. EU leaders still in search of migration plan
  4. Migration row at centre of EU summit This Week
  5. Merkel's woes cast shadow on EU's future
  6. Europe's tech race - trying to keep pace with US and China
  7. Merkel and Juncker's mini-summit risks fiasco
  8. Greece and creditors proclaim 'end of crisis'

Stakeholders' Highlights

  1. Nordic Council of MinistersNordic Region to Lead in Developing and Rolling Out 5G Network
  2. Mission of China to the EUChina-EU Economic and Trade Relations Enjoy a Bright Future
  3. ACCAEmpowering Businesses to Engage with Sustainable Finance and the SDGs
  4. Nordic Council of MinistersCooperation in Nordic Electricity Market Considered World Class Model
  5. FIFAGreen Stadiums at the 2018 Fifa World Cup
  6. Mission of China to the EUChina and EU Work Together to Promote Sustainable Development
  7. Counter BalanceEuropean Ombudsman Requests More Lending Transparency from European Investment Bank
  8. FIFARecycling at the FIFA World Cup in Russia
  9. Nordic Council of MinistersOECD Report: Gender Equality Boosts GDP Growth in Nordic Region
  10. Centre Maurits Coppieters“Peace and Reconciliation Is a Process That Takes Decades” Dr. Anthony Soares on #Brexit and Northern Ireland
  11. Mission of China to the EUMEPs Positive on China’s New Measures of Opening Up
  12. Macedonian Human Rights MovementOld White Men are Destroying Macedonia by Romanticizing Greece

Join EUobserver

Support quality EU news

Join us