# Council Implementing Decision of 24 March 2014 amending Implementing Decision 2013/463/EU on approving the macroeconomic adjustment            programme for Cyprus (2014/169/EU)         

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U.K.

# Council Implementing Decision

# of 24 March 2014

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

# (2014/169/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 macroeconomic adjustment programme for Member States in receipt                              of financial assistance, which rules need to be consistent with the provisions of the Treaty Establishing the ESM.

(3)Upon a request of 25 June 2012 by Cyprus for financial assistance from the ESM, the Council decided on 25 April 2013 by 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 (hereinafter referred to as the ‘MoU’) and its signing by the                              Commission on behalf of the ESM.

(5)In accordance with Article 1(2) of Implementing Decision 2013/463/EU(3), the Commission, in liaison with the European Central Bank (ECB), and, where appropriate, with the International Monetary                              Fund (IMF), has conducted the third review to assess the progress with the implementation of the agreed measures as well as                              their effectiveness and economic and social impact.

(6)As a result, Implementing Decision 2013/463/EU should be updated in the areas of financial sector reform, fiscal policy and                              structural reforms, in particular with regard to (i) the design of a communication strategy by a joint Central Bank of Cyprus                              (CBC) and Ministry of Finance task force on the roadmap for the relaxation of the capital controls and on the implementation                              of the banking sector strategy; (ii) the timely reporting of banks’ estimates of the potential impact of the newly introduced                              and upcoming Union rules on capital requirements and non-performing loans (NPLs) on capital, profitability and coverage ratio;                              (iii) the establishment of a task force to assess the magnitude of registered but untitled land sales contracts, and to provide                              recommendations on this issue; (iv) the reform of corporate and personal insolvency procedures; (v) the review of the Civil                              Procedure Code and Court Rules to ensure a smooth and effective functioning of the revised foreclosure and insolvency frameworks;                              (vi) a revision of the primary deficit target for 2014 to 1,8 % of GDP; (vii) the implementation of a first stage of the National                              Health System (NHS), having first defined and adopted a full roadmap to NHS; (viii) the revision of policies on pricing and                              reimbursement of medical goods and services, including those related to pharmaceutical expenditure; (ix) the establishment                              of a Privatisation Unit; (x) the presentation of an action plan for addressing the shortcoming identified in Phase 2 of the                              peer review by the Organisation for Economic Cooperation and Development (OECD) Global Forum on Transparency and Exchange                              of Information for Tax Purposes; (xi) the development of a growth strategy based on Cyprus’ competitive advantages to help                              the Cypriot authorities to kick-starting the economy. The implementation of comprehensive and ambitious reforms in financial,                              fiscal and structural areas should safeguard the medium-term sustainability of the Cypriot public debt.

(7)Throughout the implementation of Cyprus’ 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.

(8)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 the supervision and regulation; undertake a reform                                    of the debt restructuring framework; and gradually lift capital restrictions 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. Temporary restrictions on the free                                    movement of capital (inter alia, limits on cash withdrawals, payments and transfers) shall be closely monitored. 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. The implementation of the roadmap for the gradual relaxation of restrictive measures shall continue,                                    also taking into account the credit institutions’ liquidity situation. A well-targeted communication strategy shall be designed                                    aiming to communicate regularly information regarding that roadmap and the progress made in the implementation of banking                                    sector strategy.                           

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 the gradual easing of restrictive measures, and shall 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 the progress in their implementation of the plans;                           

(d)ensuring that a credit register is created and operational, that the current regulatory framework on asset impairment and                                    provisioning, and on the treatment of collateral in provisioning is amended, as necessary, and that the Union rules on capital                                    requirements and non-performing loans are implemented in a timely fashion;                           

(e)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;                           

(f)implementing the strategy for the future structure, functioning, and viability of the cooperative credit institution sector,                                    as designed by the Central Bank of Cyprus in consultation with the Commission, the ECB and the IMF;                           

(g)enhancing the monitoring of the indebtedness of the corporate and household sectors and establishing a framework for targeted                                    private sector debt restructuring to facilitate new lending and diminish credit constraints. The banks’ arrears management                                    policies and practices shall be reviewed and the Directive on Arrears Management and the Code of Conduct shall be amended,                                    as needed. Administrative measures that interfere with the setting of bank lending rates shall not be introduced;                           

(h)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 practices;                           

(i)integrating stress-testing into regular off-site bank supervision;                           

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

(k)ensuring the implementation of the restructuring measures that shall enhance the viability of the cooperative credit sector,                                    following the establishment of the legal framework for the new governance structure for the management of the State’s stake                                    in the sector; and                           

(l)ensuring the revision of the governance directive, which will specify, among other matters, the interaction between banks’                                    internal audit units and bank supervisors.’                           

Paragraph 7 is replaced by the following:

‘7.During 2014, the Cypriot authorities shall fully implement the permanent measures included in the 2014 Budget Law which shall                                    amount to at least EUR 270 million. They shall also ensure the full implementation of the consolidation measures adopted since                                    December 2012.’                           

The following paragraph is inserted:

‘7a.For the fiscal policy in 2015-16, the Cypriot authorities shall pursue a general government balance in line with the adjustment                                    path respecting the excessive deficit procedure (EDP) recommendation.’                           

Paragraph 8 is amended as follows:

point (a) is replaced by the following:

if necessary, further reforms of the general and public sector pension system to ensure the viability of the pension system                                                   in the long term, while addressing the adequacy of pensions;’                                             

point (e) is replaced by the following:

elaboration of a programme 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;’                                             

Paragraphs 10 to 13 are replaced by the following:

‘10.Cyprus shall ensure the implementation of the agreed measures to address the identified shortcomings in its activation policies.                                    Cyprus shall take swift action to create opportunities for young people and improve their employability prospects, in line                                    with the objectives of the Council Recommendation on establishing a Youth Guarantee(4). The design, management and implementation of the measures targeted to youth shall be well integrated within the broader                                    system of activation policies and be coherent with the reform of the social welfare system and the agreed budgetary targets.                           

11.Cyprus shall stand ready to adopt any further necessary amendments to sector-specific legislation required in order to fully                                    implement Directive 2006/123/EC of the European Parliament and of the Council(5). The Cypriot authorities shall further improve the functioning of the regulated professions. The competition framework shall                                    be improved by enhancing the functioning of the competent competition authority and by reinforcing the independence and powers                                    of the National Regulatory Authorities.                           

12.Cyprus shall ensure a reduction in the title deed issuance backlog, take action to accelerate the swift clearing of encumbrances                                    on title deeds to be transferred to purchases of immovable property, and define deadlines for the issuance of building certificates                                    and title deeds.                           

13.Cyprus shall amend the rules on the forced sale of mortgaged property and shall allow for private auctions within the shortest                                    feasible timespan. 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 the                                    concrete action plan leading to the attainment of the quantified targets identified, inter alia, in the revised Tourism Strategy                                    for 2011-15. Cyprus shall implement an aero-political strategy leading to the adaptation of Cyprus’ external aviation policy,                                    taking into account the EU external aviation and the EU aviation agreements, while ensuring sufficient air connectivity.’                           

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

a comprehensive outline of the regulatory regime and market organisation for the restructured energy and gas sector, including                                          an appropriate sales framework for the off-shore gas supply aimed at maximising revenues; and’.                                    

Paragraph 15 is replaced by the following:

‘15.Cyprus shall submit an updated request to the Commission for technical assistance during the programme period. The request                                    shall identify and specify the areas of technical assistance or advisory services which the Cypriot authorities consider essential                                    for the implementation of its macroeconomic adjustment programme.’.                           

The following paragraph is added:

‘16.When developing a comprehensive and coherent growth strategy that would allow the kick-starting of the economy, Cyprus shall                                    integrate it into its national institutional framework leveraging on the on-going public administration, public financial                                    management reform, other commitments in Cyprus’ macroeconomic adjustment programme and relevant Union initiatives taking into                                    account the Partnership agreement for the implementation of the European Structural and Investments Funds.’.                           

# Article 2U.K.

This Decision is addressed to the Republic of Cyprus.

Done at Brussels, 24 March 2014.

*For the Council*                            

*The President*                            

A. Tsaftaris                            

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 Recommendation of 22 April 2013 on establishing a Youth Guarantee (OJ C 120, 26.4.2013, p. 1).                           

5

Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market                              (OJ L 376, 27.12.2006, p. 36).’