Cyprus-Forum.com

[Gasman]

Yesterday

The European Commission today examined the updated stability programme of Cyprus.

12/05/2010
What is the legal background?
According to Council Regulation (EC) No 1466/97 on the strengthening of budgetary surveillance and the surveillance and coordination of economic policies, Member States must submit updated macroeconomic and budgetary projections every year. Such updates are called stability programmes in the case of countries that have adopted the euro, and convergence programmes otherwise. This regulation is also referred to as the 'preventive arm' of the Stability and Growth Pact.
What is the link to the economic and financial crisis?

This year's assessments have to be seen against the background of the sharp economic and financial crisis which has had a major impact on public finances. Reflecting the working of automatic stabilisers and discretionary stimulus measures implemented in line with the European Economic Recovery Plan (EERP) to cope with the exceptional economic circumstances, a large majority of Member States is currently subject to the excessive deficit procedure following corresponding Council decisions in 2009.

This implies that the medium-term budgetary strategies of these countries have to be assessed against the background of the recommendations to correct their excessive deficits by the deadlines set by the Council.
How is the budgetary position of Cyprus set to develop?

The stability programme update reflects the severe impact of the current crisis on public finances, with an estimated deficit of 6.1% of GDP for 2009 and a rising government debt ratio, which is forecast to breach the 60% of GDP reference value in 2010. The Cypriot update aims at gradually reducing the government deficit below the 3% of GDP reference value by 2013, mainly through revenue measures. However, the macroeconomic assumptions underlying the report are considered favourable.

Next steps
Based on its assessment, the Commission has adopted a recommendation for a Council opinion on the programme, which will be discussed at the forthcoming ECOFIN meeting of 8 June.