Cyprus beloond voor begrotingsbeleid: Almunia stopt met procedure tegen excessieve tekorten op de betalingsbalans (en)

The European Commission today has decided to recommend that the Council abrogates the excessive deficit procedure (EDP) against Cyprus after the deficit fell to 2.4% of GDP in 2005 and is projected to decrease further in 2006 and 2007. Cyprus's debt to GDP ratio also dropped to 70¼%, in 2005 and is seen at 68% in 2007. Cyprus would be the first of the six new Member States that were put into the EDP upon European Union membership, to see the procedure abrogated. It would also be the first procedure to be closed since the Netherlands, in June 2005. In total, there remain 11 countries in excessive deficit procedure, five of which are in the euro area.

"The Cypriot case shows that budgetary consolidation undertaken with resolve can achieve sustainable results. I encourage Cyprus to pursue this route and achieve its objective of having finances close to balance by the end of the decade given the high risk arising from the costs of an ageing population", said Joaquín Almunia i, European Commissioner for Economic and Monetary Affairs.

The Commission today has recommended to the Ecofin Council to close the excessive deficit procedure against Cyprus in view of the sustainable correction of the deficit and of the downward path assumed by the debt.

The deficit of Cyprus fell to 2.4% of GDP in 2005 and the government debt-to-GDP ratio also decreased to 70¼% last year. According to the Commission's spring forecasts, the deficit and the debt are expected to fall further in 2006 and 2007, thus staying well below the 3% reference value and allowing the debt ratio to diminish sufficiently towards the 60% of GDP reference value. That points to a durable correction of the excessive deficit, thanks to the substantial and largely structural measures taken by the Cypriot authorities.

The underlying budgetary position (as measured by the deficit corrected for cyclical effects) also improved markedly in 2005 and is expected to develop favourably also in 2006. According to the Council Opinion of 14 March 2006 on the updated convergence programme of Cyprus for 2005-2009, the measures planned by the Cypriot authorities over the programme period should be sufficient to bring the structural deficit to about ½% of GDP by 2009, which is the medium-term objective chosen by the Cypriot authorities.

Therefore, the Council is invited to conclude on 11 July that Cyprus no longer has an excessive deficit.

First new Member State out of EDP

This would be the first time the excessive deficit procedure would be closed for one of the six new Member States that were put in the procedure by Council decisions of 5 July 2004, upon EU accession on account of running deficits higher than 3%.

Cyprus had a deficit of 6¼% in 2003. The Council recommended a correction below 3% by 2005 in a credible and sustainable manner while ensuring that the rise in the debt ratio was brought to a halt in 2004 and reversed thereafter. This has been achieved.

With the abrogation of the procedure on Cyprus, there would be 11 Member States in EDP: Germany, France, Greece, Italy, Portugal, United Kingdom, Czech Republic, Hungary, Malta, Poland, and Slovakia. Portugal, Italy and the United Kingdom were the last ones to be included in the procedure in 2005. Their deadline for correcting the deficit ranges between 2005 and 2008.

The text of the Commission's assessment of Cyprus can be found at

http://ec.europa.eu/economy_finance/about/activities/sgp/country/cyprus_en.htm

The following table compares Cyprus's budgetary targets contained in the December 2004 and December 2005 Convergence Programmes as well as the Commission's services spring economic forecasts of May 8 this year.

[Graphic in PDF & Word format]