Brussels, 26/01/2016 (Agence Europe) - Cyprus will leave its international financial assistance plan at the end of March without a preventative credit line, the country's finance minister, Harris Georgiades, predicted on Monday 25 January, at a hearing at the committee on economic and monetary affairs of the European Parliament.
“We won't need a conditional credit line”, he told the MEPs. Although he wishes to draw a line under the financial assistance of the eurozone and the IMF, it will not be the end of the story as regards reforms on the island. “I hardly consider the effort can't stop on the exit of the programme, there is much more to do”, he explained, referring to privatisations and public sector reform. The Cypriot programme of reforms is “much more ambitious than the troika programme”.
The minister told the MEP Miguel Viegas (GUE/NGL, Portugal) that the programme had not plunged the country into recession. “The recession started in 2009 and the programme started in 2013 (…) and we are exiting the programme in growth”, he added, explaining that the unemployment rate had increased nearly fourfold before the programme. Unemployment “remains high, but that rapid increases been arrested”, he said. Georgiades believes that the success of the implementation of the programme was to reform the economy rather than to tax it. Cyprus reduced and consolidated its expenditure instead of increasing taxes. “Through tax stability and with the recapitalisation of banks, we were able to offer a sense of confidence to the private sector, the single most ingredient to the recovery of our economy”, the minister said. The MEP Elisa Ferreira (S&D, Portugal) pointed out that according to the Commission's analysis, recovery was driven mainly by private consumption.
In response to Dutch MEP Cora Van Nieuwenhuizen (ALDE), who asked him about the anticipated revenue from gas development, he explained that the government is not banking on any revenue at all. “We chose to assume zero revenue (…) so that when they come, gas revenues would be an added boost and not something we would be dependent on”, the minister replied.
Answering the Greek MEP Georgios Kyrtsos (EPP), who asked him whether the problems faced by the Italian and Greek banks could affect the Cypriot banking sector, the minister replied that the activities of the banks in the periphery had been sold so that the Cypriot banks are now focused on the local market. Recognising that there were still many non-performing loans in the banks, Georgiades said that economic recovery would help businesses and individuals to pay off their debts.
When asked by the MEP Gunnar Hokmark (EPP, Sweden) to share his experience of the bank crises, the minister said that the single supervision of the financial institutions needs to be “reasonable” so that it does not fluctuate from a period of loose supervision to a period of suffocating supervision.
Cyprus under fire over its taxation practices
The minister's presence also gave the MEPs the opportunity to sound him out on the taxation agenda they have drafted in the framework of the economic and TAXE II committees.
Sven Giegold (Greens/EFA, Germany) was particularly scathing. He started by pointing out that in Cyprus, there is one business to every four people, an “entrepreneurial spirit” he welcomed with a dose of cynicism. The MEP referred in particular to the tax regime on intellectual property which, he says, offers a very low rate of taxation, but does not require any substantial economic activity on the island. In response to Hugues Bayet (S&D, Belgium), who made a similar observation, the minister said that the 12.5% corporate taxation rate was attractive, but legitimate. “We fully comply with all EU rules and legislation and we fully support movements towards fiscal transparency and tax cooperation, but we would not be in agreement with any approach that would shift tax policy from national level to EU level and we will not be alone in that”, he said, stressing that he is not the minister of a tax haven.
He went on to say that he is a strong believer in low taxes and that he would encourage the member states to be more competitive in their tax regimes. He was attacked on this point by MEP Pervenche Berès (S&D, France), who said that this was unfair competition. However, the Minister said that if the public budget is balanced, he sees no problem with favourable taxation. However, he went on to say that he would agree to consider the hypothesis of a minimum level of taxation if this was combined with a maximum level of public expenditure. (Original version in French by Elodie Lamer)