# Council Implementing Decision of 9 December 2014 amending Implementing Decision 2013/463/EU on approving the macroeconomic            adjustment programme for Cyprus (2014/919/EU)         

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U.K.

# Council Implementing Decision

# of 9 December 2014

# amending Implementing Decision 2013/463/EU on approving the macroeconomic adjustment programme for Cyprus

# (2014/919/EU)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Regulation (EU) No 472/2013 of the European Parliament and of the Council of 21 May 2013 on the strengthening                           of economic and budgetary surveillance of Member States in the euro area experiencing or threatened with serious difficulties                           with respect to their financial stability(1), and in particular Article 7(2) and (5) thereof,                        

Having regard to the proposal from the European Commission,

Whereas:

(1)Regulation (EU) No 472/2013 applies to Member States already in receipt of financial assistance, including those from the                              European Stability Mechanism (ESM), at the time of its entry into force.

(2)Regulation (EU) No 472/2013 sets the rules for the approval of the macroeconomic adjustment programme for Member States in                              receipt of financial assistance. Those rules need to be consistent with the provisions of the Treaty Establishing the European                              Stability Mechanism (TESM).

(3)Upon a request by Cyprus on 25 June 2012 for financial assistance from the ESM, the Council decided on 25 April 2013 by Council                              Decision 2013/236/EU(2) that Cyprus was to rigorously implement a macroeconomic adjustment programme.

(4)On 24 April 2013 the ESM Board of Governors decided to grant, in principle, stability support to Cyprus and approved the Memorandum                              of Understanding on Specific Economic Policy Conditionality and its signing by the Commission on behalf of the ESM.

(5)In accordance with Article 1(2) of Decision 2013/236/EU, the Commission, in liaison with the European Central Bank (ECB),                              and, where appropriate, with the International Monetary Fund (IMF), conducted the fifth review to assess the progress of the                              implementation of the agreed measures, as well as their effectiveness and economic and social impact. As a consequence of                              this review, an update was made to the existing macroeconomic adjustment programme, reflecting the steps taken by the Cypriot                              authorities by the second quarter of 2014.

(6)Following the entry into force of Regulation (EU) No 472/2013, the macroeconomic adjustment programme was adopted in the form                              of a Council Implementing Decision. For reasons of legal clarity and legal certainty, the programme was readopted on the basis                              of Article 7(2) of Regulation (EU) No 472/2013. The substance of the programme remained identical to the one approved by Decision                              2013/236/EU, but also incorporated the results of the review carried out in accordance with Article 1(2) of Decision 2013/236/EU.                              At the same time, Council Decision 2013/236/EU was repealed.

(7)Council Implementing Decision 2013/463/EU(3) was already amended by Council Implementing Decision 2014/169/EU(4). In light of the latest developments, it should be amended again.

(8)The Commission, in liaison with the ECB and the IMF, has conducted the fifth review to assess the progress of the implementation                              of the agreed measures, as well as their effectiveness and economic and social impact. As a result, changes should be made                              in the areas of financial sector reform, fiscal policy and structural reforms, in particular with regard to: (i) providing                              an updated plan for the gradual relaxation of external restrictions, which the authorities commit to starting only after the                              successful completion of the comprehensive assessment and a smooth transition to the Single Supervisory Mechanism (SSM); (ii)                              further measures to strengthen the banks' management of non-performing loans; (iii) a requirement to conclude the follow-up                              on the 2013 audit regarding individual financial institutions, impose sanctions if applicable, and make the final decision                              public; (iv) the provision of further measures to improve the Cooperative Group's operational capacity; (v) the adoption by                              the Council of Ministers of the new comprehensive framework establishing appropriate corporate and personal insolvency procedures,                              as well as the adoption by the House of Representatives of the amendments to the legal framework in relation to foreclosures                              of mortgaged properties (those are two prior actions), with details on the required elements of those two new frameworks;                              (vi) a revision of the 2014 primary fiscal deficit target of no more than EUR 210 million (1,3 % of GDP) to reflect the fiscal                              performance in the first half of 2014, the submission of a proposal ensuring the fiscal neutrality of the welfare system reform                              and the achievement of the 2015 fiscal deficit target, while the primary surplus target for 2017 was revised down to 2,5 %                              of the GDP in order to smooth the fiscal adjustment over 2017-2018; (vii) the setting of further steps to operationalise the                              privatisation process in the Cyprus Ports Authority and the Electricity Authority of Cyprus; (viii) the appointment of the                              new Commissioners and the two Assistant Commissioners of the new tax department, the establishment of a common taxpayer database,                              and the adoption of necessary regulations to make the enhanced collection powers operational; (ix) the reform of immovable                              property taxation to be implemented in 2015; (x) the inclusion of further requirements to speed up the issuance of title deeds                              in the housing market; (xi) providing a draft action plan for the elimination of court backlogs, detailed statistics on backlogs                              and duration of proceedings, as well as establishing an administrative Court; (xii) the assessment of articles in the current                              law of the Cyprus Tourism Organisation that may hamper competition; and (xiii) a preliminary assessment of the technical and                              economic potential for further increasing electricity production by renewable energy sources and of the cost price of different                              sources of renewables compared to conventional primary energy sources, together with the inclusion of measures to improve                              the capacity and independence of the Cyprus Energy Regulatory Agency.

(9)Throughout the implementation of Cyprus's comprehensive policy package, the Commission should provide additional policy advice                              and technical assistance in specific areas. A Member State subject to a macroeconomic adjustment programme experiencing insufficient                              administrative capacity is to seek technical assistance from the Commission, which may constitute, for that purpose, groups                              of experts.

(10)The Cypriot authorities should seek the view, in accordance with current national rules and practices, of social partners                              and civil society organisations in the preparation, implementation, monitoring and evaluation of the macroeconomic adjustment                              programme,

HAS ADOPTED THIS DECISION:

# Article 1U.K.

Article 2 of Implementing Decision 2013/463/EU is amended as follows:

Paragraph 5 is replaced by the following:

‘5.With a view to restoring the soundness of its financial sector, Cyprus shall continue to implement the restructuring of the                                    banking and cooperative credit institution sectors, continue to strengthen supervision and regulation in the context of the                                    ongoing transition to the SSM, undertake a reform of the debt restructuring framework, and gradually remove restrictive measures                                    in line with its roadmap, while safeguarding financial stability.                           

The programme shall provide for the following measures and outcomes:                           

(a)ensuring that the liquidity situation of the banking sector shall be closely monitored. The temporary restrictions on the                                    free movement of capital (inter alia, limits on payments and transfers) shall be closely monitored. The gradual relaxation                                    of the external restrictive measures shall be consistent with financial sector stability and preserve comfortable liquidity                                    buffers. The Cyprus Central Bank (CBC) will conduct on-site inspections of the implementation of the restrictions, and take                                    appropriate supervisory actions, as needed. Further liberalisation of external restrictive measures will only be considered                                    by the authorities after the successful completion of the comprehensive assessment and a smooth transition to the SSM. The                                    goal is that controls shall remain in place only for as long as is strictly necessary to mitigate serious risks for the stability                                    of the financial system. After the result of the comprehensive assessment, the roadmap for the gradual relaxation of restrictive                                    measures will be updated and published. The funding and capital plans of domestic banks relying on central bank funding or                                    receiving state aid shall realistically reflect the anticipated deleveraging in the banking sector, and reduce dependency                                    on borrowing from the central bank, while avoiding asset fire sales and a credit crunch;                           

(b)adapting the minimum capital requirements, taking into account the parameters of the balance sheet assessment and the Union-wide                                    stress test;                           

(c)ensuring that any restructuring plans shall be formally approved under State aid rules, before any State aid is provided.                                    Banks with a capital shortfall may, if other measures do not suffice, ask for recapitalisation aid from the State in accordance                                    with State aid procedures. Banks with restructuring plans shall report on the progress in their implementation of the plans;                           

(d)ensuring that the credit register is created and operational;                           

(e)taking into account the transition to the SSM, ensuring the full implementation of the regulatory framework with respect to                                    loan origination, asset impairment and provisioning;                           

(f)introducing mandatory disclosure requirements to ensure that banks regularly communicate to authorities and to markets on                                    the progress in restructuring their operations;                           

(g)ensuring the revision of the governance directive, which will specify, among others, the interaction between banks' internal                                    audit units and bank supervisors;                           

(h)strengthening the banks' governance, including by prohibiting lending to independent board members or their connected parties;                           

(i)ensuring the necessary staff and amendments in light of the new responsibility taken on by the CBC, including by ensuring                                    a separation between resolution and supervisory functions, the transposition into national law of the Single Rulebook, including                                    Directive 2014/59/EU of the European Parliament and of the Council(5) and Directive 2014/49/EU of the European Parliament and of the Council(6);                           

(j)strengthening the management of non-performing loans, taking into account the developments and timelines of the SSM. This                                    notably includes: a revision of the Code of Conduct and of bank arrears management policies and practices; the monitoring                                    restructuring targets set by the CBC; measures to allow lenders to obtain adequate financial information on the financial                                    situation of borrowers, and to file for, obtain, and realise an attachment of financial assets and earnings of delinquent                                    borrowers; measures to allow and facilitate the transfer by lenders to third parties of existing individual loans, together                                    with all collateral and securities, without having to obtain the consent of the borrower;                           

(k)easing constraints on the seizure of collateral. This shall accompany the preparation of legislation on the basis of a comprehensive                                    reform framework establishing appropriate corporate and personal insolvency procedures, as well as ensuring the smooth and                                    effective functioning of the revised foreclosure and insolvency frameworks. In addition, once reformed, the new private sector                                    debt restructuring legal framework shall be reviewed and additional measures shall be defined as needed;                           

(l)completing the harmonisation of the regulation and supervision of cooperative credit institutions with those of commercial                                    banks;                           

(m)ensuring the Cooperative Group provides for timely and complete implementation of the agreed restructuring plan and takes                                    further measures to improve its operational capacity notably in the areas of arrears management, Management Information System,                                    governance, and management capacity;                           

(n)continuing to further strengthen the anti-money laundering framework and implementing an action plan ensuring the application                                    of improved practices with regard to customer due diligence and entity transparency, in line with best practice.’.                           

In Paragraph 8, point (e) is replaced by the following:

## ‘(e)adoption of a law to achieve a solid corporate governance system for State-owned and semi-public enterprises and implementation                                    of a privatisation plan to help improve economic efficiency and restore debt sustainability;’.

Paragraph 13 is replaced by the following:

‘13.The pace of court case handling shall be improved and court backlogs shall be eliminated by the end of the programme. Cyprus                                    shall take initiatives to strengthen the competitiveness of its tourism sector, by implementing a concrete action plan leading                                    to the attainment of the quantified targets identified, inter alia, in the recently revised Tourism Strategy for 2011-2015,                                    and by assessing Cyprus Tourism Organisation Law, namely those articles that may hamper competition in the tourism sector.                                    Cyprus shall implement an aero-political strategy leading to the adaptation of Cyprus's external aviation policy, taking into                                    account EU external aviation and the EU aviation agreements, while ensuring sufficient air connectivity.’.                           

In paragraph 14, point (b) is replaced by the following:

## ‘(b)a comprehensive outline of the regulatory regime and market organisation for the restructured energy and gas sector, including                                    a preliminary assessment of the potential for increasing electricity production by renewable energy sources; and’.

Paragraph 16 is replaced by the following:

‘16.When developing a comprehensive and coherent growth strategy, Cyprus shall take into account the ongoing public administration                                    reform, the public financial management reform, other commitments in Cyprus's macroeconomic adjustment programme and relevant                                    Union initiatives taking into account the Partnership Agreement for the implementation of the European Structural and Investment                                    Funds. The growth strategy will be developed, coordinated and enforced through the single body that will evolve out of the                                    Task Force for Growth already established and will be anchored in the national institutional framework.’.                           

# Article 2U.K.

This Decision is addressed to the Republic of Cyprus.

Done at Brussels, 9 December 2014.

*For the Council*                            

*The President*                            

P. C. Padoan                            

1

OJ L 140, 27.5.2013, p. 1.                           

2

Council Decision 2013/236/EU of 25 April 2013 addressed to Cyprus on specific measures to restore financial stability and                              sustainable growth (OJ L 141, 28.5.2013, p. 32).                           

3

Council Implementing Decision 2013/463/EU of 13 September 2013 on approving the macroeconomic adjustment programme for Cyprus                              and repealing Decision 2013/236/EU (OJ L 250, 20.9.2013, p. 40).                           

4

Council Implementing Decision 2014/169/EU of 24 March 2014 amending Implementing Decision 2013/463/EU on approving the macroeconomic                              adjustment programme for Cyprus (OJ L 91, 27.3.2014, p. 40).                           

5

Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery                              and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC,                              2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and                              (EU) No 648/2012, of the European Parliament and of the Council (OJ L 173, 12.6.2014, p. 190).                           

6

Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes (OJ L 173, 12.6.2014, p. 149).’