Brussels, 12 May 2010
Commission assesses Cypriot stability programme
Today the European Commission examined the updated stability programme1 of Cyprus, which was submitted to the Commission on 13 April 2010. This follows the Commission's previous assessments of the stability and convergence programmes of 25 Member States on 17 March (see IP/10/288), 24 March (see IP/10/346) and 14 April (see IP/10/422). The evaluation takes place against the background of the economic and financial crisis which has led to a sharp deterioration of public finances since 2009 and triggered the opening of the Excessive Deficit Procedure (EDP) for a large majority of Member States.
"I welcome the fact that the Cypriot authorities show their willingness through the stability programme to bring the general government deficit below 3%, even though the Excessive Deficit Procedure is not yet fully underway. However, the programme aims to correct mainly by the revenue side, while expenditure is at a historically high level. Also, there are downside risks to the adjustment path from favourable growth assumptions", said Economic and Financial Affairs commissioner Olli Rehn.
The stability programme update of Cyprus reflects the severe impact of the current crisis on its 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 favourable macroeconomic assumptions throughout the programme period may imply a lower contribution of economic growth to fiscal consolidation than envisaged and the adjustment path.
Based on this evaluation, the invitations to Cyprus refer to the budgetary policy and the need to define a more expenditure-driven consolidation strategy, the implementation of the fiscal framework and the need to control pension and health care expenditure as a means to improve the long-term sustainability of public finances.
The Commission recommendation for a Council opinion on the Cypriot programme is available at:
Comparison of key macroeconomic and budgetary projections
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 in the case of those that have not yet done so. This regulation is also referred to as the 'preventive arm' of the Stability and Growth Pact.