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Creditors likely to object to public sector pay cut reversal

The head of the fiscal council said on Wednesday he expected the finance ministry to prepare scenarios and ways to tackle the potential impact of a court decision to restore public sector wage cuts imposed in 2012 amid an austerity drive to avert economic collapse.

At the same time, it emerged that a meeting between the government, party leaders and the attorney-general will be held on Monday to discuss the legal parameters of the administrative court’s decision, as the state prepared to file an appeal at the supreme court.

Speaking before the House ethics committee, fiscal council head Demetris Georgiades voiced concern as to how the court’s decision would be received by Cyprus’ creditors in relation to the country’s ability to repay its debts.

On March 29, the administrative court upheld appeals filed by civil servants, ruling that a freeze of incremental pay rises, a 3 per cent contribution to pensions, and a reduction in civil servants’ pay was in violation of article 23 regarding the protection of the right to property.

As things stand, Georgiades said, the state cannot impose any austerity measures on the public sector in case of emergency, a fact that would probably raise eyebrows among the island’s international lenders.

Georgiades would not go into the substance of the court decision.

“What we said is we expect the finance ministry to chart the various potential outcomes, the potential cost of each outcome, and what measures would be put in place,” he told MPs.

Finance Minister Harris Georgiades said Tuesday they were working on measures to counteract the impact of the decision if it was upheld by the supreme court.

Apart from fiscal measures, a meeting with parties this week discussed the possibility of amending the constitution to allow for pay cuts in case of emergencies.

Finance ministry official Panicos Constantinou said no new taxes should be expected.

“We are preparing certain scenarios, we cannot say anything specific but the scenarios are being drafted,” Constantinou said.

The chairman of the fiscal council raised the wider matter of the protection afforded by the constitution to the revenues of civil servants.

“It is not only the cost, which will be several hundred million, it is how our lenders will see us in the future because the person who lends wants to know the ability to repay,” he said. “If they know that in Cyprus the payroll is safeguarded by the constitution and you cannot take measures, we will be viewed from a different angle.”

The decision came as the state had already decided to start returning the lost income to civil servants gradually, a process that will be completed by the end of 2022 or the beginning of 2023.

The measures helped reduce the government’s staff expenses to €2.2bn in 2015 from €2.9bn in 2011.

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