Brussels, 31/03/2016 (Agence Europe) - Thursday 31 March, Cyprus reached the end of a three-year economic adjustment programme.
The island has “managed to restore economic growth and repair public finances much faster than expected. Cyprus' financial sector - which was the main source of the crisis - was restructured, recapitalised and downsized, and the legal and regulatory framework was modernised”, Director General of the European Stability Mechanism (ESM) Klaus Regling said in a press release.
Initially, the ESM had committed an envelope of up to €9 billion in assistance. Due to the better than anticipated results, the island has not needed all of this envelope, taking a total of €6.3 billion. Of this figure, just €1.5 billion was used to recapitalise the co-operative banks.
The Popular Bank (Laiki) was immediately dismantled and divided into two. The shareholders, “senior” creditors and uninsured depositors above a threshold of €100,000 in Laiki and the Bank of Cyprus were obliged to absorb heavy losses (see EUROPE 10814). This situation forced the Cypriot authorities to bring in unprecedented measures to restrict the movement of capital, which were gradually relaxed and completely removed in April 2015, two years after they were set in place.
However, Regling went on to stress that “the end of the programme is not the end of the reform agenda in Cyprus. More efforts are needed to reduce the non-performing loan ratio”. A few days previously, in an interview with the Cypriot press, he had stressed that this non-performing loans ratio, representing 47% of all loans, was still the highest in Europe. As tools have been made available to tackle the phenomenon, they should be put to use, Regling added.
At the last Eurogroup meeting on 7 March, the Eurozone finance ministers revealed that a prior action required by the Cypriot aid plan - the privatisation of the telecommunications operator - had not been implemented (see EUROPE 11506). The Cypriot authorities are expected to action this after the general elections. On 7 March, they also informed the IMF that they wished to leave the economic adjustment programme with immediate effect, whereas the Washington institution's aid plan had been scheduled to run until 14 May. The IMF had lent €1 billion to Cyprus.
The island returned to economic growth in 2015 (1.6% of GDP), which will be a little stronger in 2017 (2%). The public deficit has fallen from 6% of GDP in 2012 to 1% in 2015. The island is financing itself on the markets (a 10-year yield stood at 3.8% at the end of 2015) and has a liquidity buffer of €1 billion. The “institutions” (Commission, ECB, IMF, ESM) also supported the country's decision to leave the programme without a safety net in the form of a preventative credit line from the ESM.
Commission Vice-President Valdis Dombrovskis said that Cyprus had implemented its programme with clear determination. “We are confident that Cyprus will be able to face any remaining challenges”, added Commissioner for Economic and Financial Affairs Pierre Moscovici.
The island, which is now autonomous in matters financial, will be the subject of post-programme monitoring until it has paid back 75% of the loans it received. The island will repay the principal of the EMS loan between 2025 and 2031.
Furthermore, as of 1 April, Cyprus will no longer be eligible for the quantitative easing programme for the buyback of predominantly public securities from the ECB. (Original version in French by Elodie Lamer)