Brussels, 18/09/2013 (Agence Europe) - The Cypriot government would like the restrictions on the movement of capital, introduced in March 2013, to be fully removed at the start of 2014. Brussels, however, refuses to set a deadline, with a high-ranking European official commenting on Wednesday 18 September that the important thing was for the underlying problems to be addressed.
A chorus of members of the Cypriot government called on Wednesday for a gradual removal of the capital restrictions. Cypriot President Nicos Anastasiades said in an interview with Bloomberg that they would be lifted by January 2014. Reacting to his statement, Cypriot Finance Minister Harris Georgiades commented in the Financial Times: “The president has raised the stakes for us” and he saw the lifting of capital controls “certainly being done in the early months of 2014”.
A gesture of support from the Commission. On the same day as it published its report on implementation of the Cypriot structural adjustment programme (see EUROPE 10913), the Commission issued official proposals to give Cyprus an additional €200 million in funding from EU structural funds for 2014-2020 (see separate article).
The high-ranking EU official commented: “The situation in Cyprus is extremely difficult, not worse than expected, but clear that economically in Cyprus it is tough”. The recession forecasts of GDP shrinking by 13% in 2013 and 2014 remain unchanged, but there is “still a risk that the economy will contract more than expected”. The structural adjustment programme in the country is being applied to the letter: “We'll make plan A work”, despite a few delays and set-backs in the field of structural reforms. Unemployment is higher than the April forecast of 15.5% in 2013 and 16.9% in 2014 and is now expected to reach 17% in 2013 and 19.5% in 2014.
The only bank stress tests on the cards are those at European level. Restructuring of the country's biggest bank, Bank of Cyprus (BoC), is now in the hands of its management board. Recapitalisation of Hellenic Bank is due to be complete by the end of this month without public funds, and cooperative banks may be fed public finance from the €1.5 billion loan from the European stability mechanism (ESM) to this effect, due to be released by the end of the month (see EUROPE 10921). Despite high levels of toxic debts (30% as of 31 March, according to the International Monetary Fund) and a significant outflow of capital (around €8 billion between March and August, according to the IMF), the banks' capital buffers seem strong enough for them to achieve the high-quality capital levels of 9% of assets by 2016. The Commission refused to comment on any plan B should the banks fail to achieve this. (EL/transl.fl)