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Review mission finds Cyprus’s economic programme on track but challenges remain
Staff teams from the European Commission, European Central Bank, and the International Monetary Fund (IMF) visited Nicosia during 6-17 May 2014 for the fourth review of Cyprus's economic programme, which is supported by financial assistance from the European Stability Mechanism (ESM) and the IMF. The mission concluded that the programme remains on track. Fiscal targets for the first quarter of 2014 were met with a considerable margin, reflecting better-than-projected revenue performance and prudent budget execution. Progress has also been made with the recapitalisation and consolidation of the cooperative credit sector, bank restructuring, and the implementation of structural reforms. Unemployment remains very high, however, and large non-performing loans are constraining the ability of banks to supply credit to the economy. While the recession this year is expected to be somewhat less severe than anticipated, the economy is still projected to contract by 4.2% in 2014 and return to subdued growth of only 0.4% in 2015. Approval of this review would pave the way for the disbursement of EUR 600 million by the ESM, and about EUR 86 million by the IMF.
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| The support programme enables Cyprus to restore the health of its economy and to create a more sustainable economic model. |
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Siim Kallas, acting Vice-President for Economic and Monetary Affairs and the Euro
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Signing of the Inter-governmental agreement on the Single Resolution Fund
On 21 May, representatives of 26 EU Member States signed an intergovernmental agreement on the transfer and mutualisation of contributions to the Single Resolution Fund (SRF) that will be established as part of the EU's banking union. The agreement complements the regulation recently agreed with the European Parliament on the creation of a Single Resolution Mechanism (SRM), which establishes the fund and also features a central decision-making board. The SRM aims to ensure the orderly resolution of failing banks without recourse to taxpayers’ money, instead relying on the bail-in of shareholders and creditors, and possible recourse to the SRF, which will be fully financed by bank contributions. Under the intergovernmental agreement, the SRF will be built up over eight years, reaching a target level of at least 1% of the amount of covered deposits of all credit institutions authorised in all the participating Member States. It is estimated that this will amount to about EUR 55 billion. The European Parliament will vote on the SRM Regulation in July, which after adoption by the Council, is expected to enter into force in July or September. Meanwhile, the intergovernmental agreement will undergo national ratification procedures, with a view to ensuring that the SRM – comprising both the single Board and single Fund – will be operational as of 2016.
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Commission starts disbursements to Ukraine under the EU Macro-Financial Assistance
On 20 May Ukraine received a first loan tranche of EUR 100 million under the EU Macro-Financial Assistance (MFA) for the country, which is worth EUR 1.61 billion in total. A further EUR 500 million will be disbursed shortly. The MFA programme is intended to cover part of Ukraine's urgent external financing needs, thereby reducing the economy’s short-term balance of payments and fiscal vulnerabilities. The MFA is part of the package to support Ukraine announced by the European Commission on 5 March, and is conditional on policy actions outlined in two bilateral Memoranda of Understanding as well as on the successful implementation of the Stand-By Arrangement with the IMF approved on 30 April. The EU policy conditions focus on public finance management and anti-corruption, trade and taxation, energy sector and financial sector reforms.
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Vice-President Kallas commends Portugal’s exit from financial assistance programme while cautioning against complacency
Acknowledging Portugal’s decision to exit its financial assistance programme as planned, acting Vice-President for Economic and Monetary Affairs and the Euro Siim Kallas said “major progress has been made in addressing the economic imbalances that have been weighing the country down for many years.” In a statement issued on 17 May, Kallas praised the decisive action taken by the Portuguese government to put public finances back on a sustainable trajectory, stabilise and strengthen the financial sector, and implement structural reforms that have begun to lift Portugal’s competitiveness and remove obstacles to investment and job creation. While noting that Portugal is the third euro area country to successfully graduate from its financial assistance programme, Kallas cautioned against complacency. An unwavering commitment to sound budgetary policies and growth-enhancing reforms will still be required to deliver a more robust recovery and bring down the unacceptably high level of unemployment, Kallas said.
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Financial regulation: Commission presents a first comprehensive review of the EU's reform agenda
With most financial reform measures now adopted, the European Commission has now published a first comprehensive review of the financial regulation agenda as a whole. The economic review published on 15 May notes that the reforms enable supervisors to oversee markets that had been beyond their reach and provide transparency for all market participants. They also establish ambitious new standards to limit excessive risk-taking and make financial institutions more resilient. When there is risk-taking, the burden is shifted away from taxpayers to those who stand to gain financially from the risky activities. The reforms make financial markets work more effectively in the interests of consumers, small and medium-sized enterprises and the economy as a whole. Moreover, evidence suggests that the total expected benefits of the financial regulation agenda will outweigh the expected costs, both on a rule-by-rule basis and when considering the reforms as a whole. However, as the EU financial regulation agenda is a gradual process and some legislative measures have yet to enter into force, a final assessment would be premature. This economic review is, therefore, mostly qualitative in nature and marks the beginning of a longer process of systematic review and evaluation of the reforms.
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Vice-President Kallas attends EBRD annual meeting focusing on how to re-ignite reform process in transition countries of Eastern Europe
Vice-President Siim Kallas represented the EU at the annual meeting of the European Bank for Reconstruction and Development (EBRD) in Warsaw on 14-15 May. The theme of the meeting, as Kallas referred to in his speech, was 25 years since the fall of communism in Eastern Europe, and discussions focussed on how the Bank could help re-ignite the reform process in transition countries. At the Governors opening session, Polish Prime Minister Donald Tusk noted how the reform of institutions and the adoption of European standards – particularly transparency and respect for the rules of the democratic process – had enabled Poland to release the potential of the private sector during the life-changing progress made over the last 25 years. The EBRD Governors endorsed the Bank’s ‘Medium Term Directions’, which include building transition resilience, promoting integration and addressing common regional and global challenges, and agreed to time-limited EBRD operations in Cyprus. The next Annual Meeting in 2015 will be held in Tblisi, Georgia, focusing on the Bank’s fifth Capital and Resources Review.
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Euro area GDP up by 0.2%, EU up by 0.3%
Seasonally adjusted GDP rose by 0.2% in the euro area and by 0.3% in the EU during the first quarter of 2014, compared with the previous quarter, according to flash estimates published on 15 May by Eurostat, the EU’s statistical office. In the fourth quarter of 2013, GDP grew by 0.2% in the euro area and by 0.4% in the EU. Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 0.9% in the euro area and by 1.4% in the EU in the first quarter of 2014, after rising by 0.5% and 1.0% respectively in the previous quarter.
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“Voices for Europe”: strong backing for the euro and EMU
On the eve of the European elections, 17 leading financial officials from across the EU – including euro area finance ministers and representatives of the European Central Bank, European Investment Bank, European Stability Mechanism and the European Commission – underline the significance of Europe’s common currency and its Economic and Monetary Union (EMU). The video testimonials in "Voices for Europe" call for European unity and send an important political message to citizens: Europe is our future.
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New EU rules adopted to make it easier for companies to recover millions in cross-border debt
New EU rules making it easier for companies to recover claims across borders have been adopted by EU Ministers. On 13 May, the Council signed off on the agreement recently reached with the European Parliament to establish a European Account Preservation Order – a Regulation that will be directly applicable in the Member States (except in the UK and Denmark which have an opt-out in this area). The European Account Preservation Order will help businesses recover millions in cross-border debts by allowing creditors to place a claim for the amount owed on a debtor’s bank account. Today around one million small businesses face problems with cross-border debts and up to EUR 600 million a year in debt is unnecessarily written off because businesses find it too daunting to pursue expensive, confusing lawsuits in other EU countries. The new rules are the result of a proposal made by the Commission in July 2011 and are expected to enter into force in June 2014.
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ECFIN engages with citizens at Europe Day commemoration
As every year, the Commission opened its Berlaymont building in Brussels to commemorate Europe Day. More than 15 000 visitors used the opportunity on 17 May to visit the building and get first-hand information on EU issues. This event commemorates 9 May 1950, the day when the French foreign minister Robert Schuman invited the countries of Europe to take part in a common political project. Europe Day is organised every year to celebrate European integration. This year, the event once again provided an opportunity for the Directorate-General for Economic and Financial Affairs (DG ECFIN) to talk to interested citizens. ECFIN staff members were on hand to discuss and inform the public on topical issues, such as the EU response to the crisis, EU economic governance, Europe 2020 and the latest EU economic forecast. Posters, leaflets and booklets of general interest were distributed, and many visitors tested their knowledge on the EU and euro area countries, as well as on the key facts of the Economic and Monetary Union (EMU).
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| Directorate-General for Economic and Financial Affairs |
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