Friday

8th Dec 2023

Cyprus economy to shrink 12.5% despite EU bailout

Cyprus' economy will shrink by 12.5 percent over the next two years and its government needs to sell part of its gold reserves in order to meet the conditions of an EU-IMF bailout, whose final details are to be agreed over the weekend.

According to internal papers prepared by the troika of international lenders and seen by Reuters and the Financial Times, Cyprus' total financing needs are now €23 billion, six billion more than was originally estimated last year.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

The €10 billion loans from the eurozone and the International Monetary Fund (IMF) will not increase, however.

Only Cyprus' own contribution will do so.

The extra money is to come from wiping out deposits in Laiki Bank, revamping the pensions system, increasing taxes and selling €400 million worth of "excess gold reserves," the troika says.

Gold prices fell around one percent on Wednesday when the troika report was leaked. But a spokesman for the Cypriot central bank said that no gold sale had been "raised, discussed or debated" with the bank's board.

Cyprus' total gold reserves amounted to 13.9 tonnes at the end of February, according to the World Gold Council.

EU finance ministers meeting in Dublin on Friday and Saturday are to iron out the final details of the bailout, while national parliaments in Finland, Germany and the Netherlands are expected to vote on the programme in the coming weeks.

A spokesman for the German finance ministry on Wednesday (10 April) said the Bundestag will have a first look at the Cyprus bailout next week.

The German opposition has been just as tough on Cyprus' money laundering and tax haven policies as the coalition government and even threatened to derail the deal if it is not given enough reassurances that Cyprus' "business model" will be overhauled.

Even with its €10 billion bailout, the troika projects a steep fall in domestic consumption and a "non-negligible risk" of a series of households and companies going bankrupt.

This will in turn further aggravate unemployment, consumer confidence and the overall business environment, it says.

"Also, the deep restructuring of the Cypriot banking sector could have strong spill-overs on related professional business services and financial services exports," the document notes.

If revenues from tax increases and bank restructuring turn out to be less than expected, Nicosia cannot hope for more money from its eurozone peers, says the document.

Instead, the Cypriot government "has committed to stand ready to take additional measures," including more spending cuts.

Revenues from recently discovered offshore gas reserves may positively impact the bailout programme, but given that their exploitation remains uncertain due to a territorial conflict with Turkey, the troika did not include them in its projection.

Spain's Nadia Calviño backed to be EIB's first female chief

With less than a month to go before the start of a new leadership of the European Investment Bank, the world's largest multilateral lender, the path seems finally clear for one of the candidates, Spanish finance minister Nadia Calviño.

Analysis

Is there hope for the EU and eurozone?

While some strengths may have been overlooked recently, leading to a more pessimistic outlook on the EU and the euro area than the truly deserve, are there reasons for optimism?

Latest News

  1. How Moldova is trying to control tuberculosis
  2. Many problems to solve in Dubai — honesty about them is good
  3. Sudanese fleeing violence find no haven in Egypt or EU
  4. How should EU reform the humanitarian aid system?
  5. EU suggests visa-bans on Israeli settlers, following US example
  6. EU ministers prepare for all-night fiscal debate
  7. Spain's Nadia Calviño backed to be EIB's first female chief
  8. Is there hope for the EU and eurozone?

Stakeholders' Highlights

  1. Nordic Council of MinistersArtist Jessie Kleemann at Nordic pavilion during UN climate summit COP28
  2. Nordic Council of MinistersCOP28: Gathering Nordic and global experts to put food and health on the agenda
  3. Friedrich Naumann FoundationPoems of Liberty – Call for Submission “Human Rights in Inhume War”: 250€ honorary fee for selected poems
  4. World BankWorld Bank report: How to create a future where the rewards of technology benefit all levels of society?
  5. Georgia Ministry of Foreign AffairsThis autumn Europalia arts festival is all about GEORGIA!
  6. UNOPSFostering health system resilience in fragile and conflict-affected countries

Join EUobserver

Support quality EU news

Join us