By Jean Christou
Cyprus is on track to exit the adjustment programme before the original deadline of 2016, European Central Bank (ECB) president Mario Draghi said on Wednesday, something which he said was remarkable
Draghi was speaking at an official dinner hosted for him and the ECB’s governing council by President Nicos Anastasiades at the presidential palace in Nicosia.
“It is safe to say that he programme has been yielding very concrete results, in fact even better results that were forecasted two years ago,” said Draghi. “The restructuring and recapitalisation of the banking sector has led to a significant improvement in the health of the financial system. Indeed it is remarkable that Cyprus is on track to exit the excessive deficit procedure two years ahead of the 2016 deadline. All these achievements are impressive and command respect from the rest of Europe.”
Draghi warned however that there was no room for complacency as the island’s economy still faced problems and needed additional steps to normalise the banking sector and to speed up the reduction in the high rate of non-performing loans.
“Cyprus has also had to do its part. We know that the Cyprus people have made considerable sacrifices. It is therefore encouraging to see that there are signs of stabilisation and recovery on the horizon,” he said.
The ECB chief acknowledged that several eurozone countries, Cyprus among them were undergoing a difficult adjustment period but said that in the euro area “we are all in together and there has been considerable solidarity”.
But the Cyprus economy and its financial sector in particular continued to face major challenges. “The repeated postponement of the effective introduction of foreclosure law and the low progress in preparing a new insolvency framework are key concerns,” the ECB chief said.
Cyprus’ €10 billion bailout programme has been delayed due to Parliament suspending implementation of the foreclosures law several times so far this year. The latest suspension ends on March 19. MPs argue that new insolvency laws, which are in the works, will ease their concerns about mass repossessions by the banks under the foreclosures law.
None of the party leaders attended the official dinner for the ECB members on Wednesday night, some like the Greens and DIKO, in protest while others cited prior commitments, and ruling DISY’s Averof Neophytou was abroad.
During his speech at the dinner, Anastasiades pledged Cyprus’ continued commitment to reforms with “decisiveness and determination”. “I remain positive that we will soon deliver what is expected from us,” he said.
He conceded that the large number of non-performing loans (NPL) and the inability of banks to supply credit to the economy were still worrying for Cyprus.
“The new foreclosure law is expected to be a strong tool for the banking industry in order to provide incentives to the large borrowers to honour their obligations,” he said, adding that the new insolvency framework had been designed to create a safety net for vulnerable groups directly affected by the crisis.
Anastasiades welcomed the recent decisions at European level to focus on investments which will provide the foundation for growth and jobs in Europe, and also the ECB’s quantitative easing (QE) programme designed to accelerate growth by pumping more than €1 trillion of new money into the euro economy over the next 18 months. He hailed Draghi for the “radical and bold decision”.
He said it was a decision which accommodated, under certain conditions, the need to combine the policies of fiscal consolidation and structural reform efforts with the need to create direct growth prospects for Europe’s economies.
“This decision can also be seen as an immediate response to those who are strongly criticising the EU for one-sided policies. This policy will especially have a significantly positive impact on economies like ours. Therefore, we are looking forward to participating in this new ECB programme as soon as possible,” said Anastasiades. Cyprus could benefit to the tune of €500 million.
“We support those reforms at the level of the Union. At the end of the day, Cyprus has paid a big price, not only from the wrong policies of our own banking sector and fiscal situation, but from the weaknesses of the economic governance and supervision of the eurozone and the EU,” said Anastasiades.
The President also said the recession in Cyprus seemed to have run its course, being limited to a 2.3 per cent growth contraction instead of the forecast 4.8 per cent
For 2015, he said the economy was expected to show the first signs of recovery by returning to growth. The unemployment rate, “although still at unacceptably high levels”, had also started declining for the first time since 2008, Anastasiasdes said.
Draghi, who was welcomed on the steps of the palace by Finance Minister Harris Georgiades when he arrived there, discussed the Cyprus adjustment programme with Anastasiades prior to the dinner.
Also at that meeting were Central Bank Governor Chrystalla Georghadji, government spokesman Nicos Christodoulides and Undersecretary to the President Constantinos Petrides.
According to sources cited by the Cyprus News Agency, the foreclosures and insolvency legislation was at the heart of the meeting. The report said that according to the sources, the Cabinet expected to approve the fifth and last bill in the insolvency framework in the coming days and that it was hoped the fifth review of the Cyprus adjustment programme could then be completed by mid-April, paving the way to put it back on track and allowing Cyprus to avail of the QE programme. The sources also said Draghi reportedly would welcome Cyprus’ participation in the QE and that it would constitute a vote of confidence by the ECB in the island’s economy and would help Cyprus to a quicker exit from the memorandum.
Members of the ECB governing council are Cyprus as part of their schedule to hold two meetings outside of Frankfurt each year. ECB board committees were held meetings earlier on Wednesday at the Filoxenia conference centre ahead of the session of central bankers on Thursday to launch the QE programme, which is due to begin this month. Greece was also expected to be on the agenda of the meeting.