The Country-specific Recommendations are documents prepared by the European Commission for each country, analysing its economic situation and providing recommendations on measures it should adopt over the coming 18 months. They are tailored to the particular issues the Member State is facing and cover a broad range of topics: the state of public finances, reforms of pension systems, measures to create jobs and to fight unemployment, education and innovation challenges, etc. The final adoption of Country-specific Recommendations prepared by the Commission is done at the highest level by national leaders in the European Council.
Following the request from Cyprus on 25 June 2012, a comprehensive Economic Adjustment Programme was agreed with the European Commission, the European Central Bank, the International Monetary Fund and the Cypriot authorities on 2 April 2013.
The key objective of the Programme is to help Cyprus's return to a sustainable growth path with better employment prospects and to guarantee financial stability. The programme builds on the 2012 country-specific recommendations for Cyprus, which have been partly implemented to date, making the steadfast implementation of the programme essential for durable growth in the long-run. Full implementation of the programme will also be key to ensure progress towards all Europe 2020 targets.
Cyprus has already made important progress in the implementation of the policies laid down in the programme, particularly when it comes to fiscal consolidation and downsizing the banking sector. The authorities adopted sizeable measures prior to signing the programme, while policies set as prior actions have been met. The necessary downsizing and restructuring of the banking sector is under way, which has already reduced the size of the banking sector from 550% of GDP to 350%.
Key challenges and risks in the period ahead relate to developments in domestic credit conditions and the reorganisation of the financial sector, with possible spillovers onto related professional and financial services, as well as rapidly deteriorating labour market conditions. Upside risks relate to potential investment activity in the energy sector. More generally, the transition to a more diversified growth model will be challenging for the economy in the coming years. Proper implementation of EU funds, as well as increasing job opportunities for young people and preserving their employability prospects will contribute to laying the foundations for sustainable long-term growth for Cyprus.
2013 European Commission's recommendations for Cyprus
The European Commission, European Central Bank and the International Monetary Fund agreed an Economic Adjustment Programme with the Cypriot authorities in April 2013. In order to avoid duplication with reform measures set out in the programme, the Commission has not issued any additional recommendations to Cyprus in the framework of the European Semester.