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Cyprus avoids excessive deficit procedure from EU

EU Commissioner Pierre Moscovici

The European Commission will not open an excessive deficit procedure for Cyprus, despite the increase in the deficit brought about by the state guarantees provided in the sale of certain co-op bank assets to Hellenic Bank.

“Concerning Cyprus, our report says the deficit in 2018 reached 4.8 per cent of GDP,” said Economic and Financial Affairs Commissioner Pierre Moscovici. “However, this was entirely due to banking support measures that were necessary to maintain financial stability.”

The commission report said the structural balance reached a surplus of 2 per cent of GDP in 2018 and is expected to remain above the medium-term objective of a balanced budgetary position in structural terms in 2019 and 2020.

“However, since the government debt-to-GDP ratio exceeds the 60 per cent reference value and the double condition is not met – i.e. that the deficit remains close to the reference value and that its excess over the reference value is temporary – those relevant factors cannot be taken into account in the steps leading to the decision on the existence of an excessive deficit for Cyprus.”

At the same time, Cyprus is expected to be fully compliant with all requirements of the Stability and Growth Pact in 2019 and 2020, including the projected overachievement of the medium-term budgetary objective and the projected sizeable general government surplus, thus ensuring compliance with the deficit criterion and the debt reduction benchmark, the commission said.

“In light of the above, the opening of an excessive deficit procedure would not serve a meaningful purpose for fiscal surveillance. Therefore, the commission considers that further steps leading to a decision on the existence of an excessive deficit should not be taken.”

 

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