Proposal for a COUNCIL DECISION addressed to the Republic of Cyprus on specific measures to restore financial stability and sustainable growth
Date: 2013-04-18
Institutions: European Commission
Subjects: Cyprus, banking system, budget deficit, budgetary equilibrium, competitiveness, economic growth, economic reform, economic stabilisation, tax reform

EUROPEAN 
COMMISSION 

Brussels, 18.4.2013  
COM(2013) 233 final 

2013/0121 (NLE) 

Proposal for a 

COUNCIL DECISION 

addressed to the Republic of Cyprus on specific measures to restore financial stability 
and sustainable growth 

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EXPLANATORY MEMORANDUM 

Cyprus  has  been  under  increasing  pressure  in  financial  markets,  against  the  background  of 
rising concerns about the sustainability of its public finances, including its weakened financial 
sector and the scale of potential public support measures. Although some of the imbalances 
have emerged as a result of negative spill-overs from the euro-area crisis and developments in 
Greece, others have been domestic and longer-lasting. Amidst consecutive downgradings by 
credit  rating  agencies  of  Cypriot  sovereign  bonds,  the  country  became  unable  to  refinance 
itself  at  rates  compatible  with  long-term  fiscal  sustainability.  In  parallel,  the  banking  sector 
was  increasingly  cut  off  from  international  market  funding  and  major  financial  institutions 
recorded  substantial  capital  shortfalls.  The  situation  in  the  banking  sector  worsened 
dramatically in early-2013, due to a drop in confidence leading to continuous and substantial 
deposit  outflows.  In  March  2013,  the  Eurogroup  reached  a  political  agreement  on  the  key 
elements of a macroeconomic adjustment programme for Cyprus with a financial envelope of 
up to EUR 10 billion. Following financial turmoil, a bank holiday of 10 days was imposed, 
during which the sector was downsized substantially through resolution and restructuring of 
banks and separation of the Greek operations of Cypriot banks.  

Against  the  background  of  these  severe  economic  and  financial  disturbances,  the  Cypriot 
authorities  officially  requested  financial  assistance  in  the  form  of  a  loan  from  European 
Financial Stability Facility / European Stability Mechanism on 25 June 2012, as well as from 
the International Monetary Fund (IMF), with a view to supporting the return of the economy 
to  sustainable  growth,  ensuring  a  properly-functioning  banking  system,  and  safeguarding 
financial  stability  in  the  European  Union  and  in  the  euro  area.  On  27  June  2012,  the 
Eurogroup  invited  the  Commission,  in  liaison  with  the  European  Central  Bank  (ECB),  the 
Cypriot  authorities  and  the  IMF,  to  agree  on  a  macroeconomic  adjustment  programme, 
including the financing needs, and to take appropriate action to safeguard financial stability. 
On  16  March  and  25  March  2013,  the  Eurogroup  reached  a  political  agreement  with  the 
Cypriot authorities on the key elements of a programme, which included the restructuring and 
substantial  downsizing  of  the  banking  sector  and  the  reinforcement  of  efforts  on  fiscal 
consolidation,  structural  reforms  and  privatisation.  An  important  part  of  the  agreement  was 
that  the  recapitalisation  of  banks  would  be  almost  exclusively  generated  from  within  the 
banks  (i.e.  from  shareholders  and  creditors).  Deposits  up  to  EUR  100,000  were  to  remain 
unaffected. Creditors were not to suffer losses superior to the losses they would have incurred, 
had  the  banks  been  wound  up  under  normal  insolvency  proceedings.  On  2  April  2013,  an 
agreement at technical level was reached in respect of a comprehensive policy package to be 
implemented  in  a  3-year  macroeconomic  adjustment  programme;  the  key  objectives, 
measures  and  outcomes  were  laid  down  in  a  draft  Memorandum  of  Understanding  (MoU) 
between the Commission and the Republic of Cyprus. 

The  macroeconomic  adjustment  programme  shall  aim  at  restoring  financial  market 
confidence,  re-establishing  sound  macroeconomic  balances  and  enabling  the  economy  to 
return to sustainable growth. To achieve these goals, the programme builds on three pillars. 
The  first  pillar  is  a  financial  sector  strategy  based  on  restructuring  and  downsizing  of  its 
financial  institutions  and  strengthening  its  supervision,  with  efforts  to  address  capital  and 
liquidity shortfalls. The second pillar is an ambitious fiscal consolidation strategy, building on 
the  consolidation  efforts  intiated  in  2012,  in  particular  through  measures  to  reduce  current 
primary  expenditure,  enhance  government  revenues,  improve  the  functioning  of  the  public 
sector  and  maintain  fiscal  consolidation  in  the  medium-term.  The  aim  is  to  correct  the 
excessive  general  government  deficit  and  put  the  gross  public  debt-to-GDP  ratio  on  a  firm 
downward path in the medium term. The authorities are committed to reducing the deficit to 
below 3% of GDP as soon as possible. The good implementation of Structural and other EU 

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Funds,  as  well  as  EU  policy  initiatives  aimed  at  enhancing  jobs  and  growth,  should  be 
preserved.  This  will  contribute  to  the  long-term  growth  path  for  Cyprus.  The  third  pillar 
consists of an ambitious structural reform agenda, with a view to supporting competitiveness 
and  sustainable  and  balanced  growth,  in  line  with  country-specific  recommendations 
addressed to Cyprus in 2012, and allowing for the unwinding of macroeconomic imbalances. 
Recalling  the  political  agreement  of  28  February  2013  on  a  Council  Recommendation  on 
Establishing  a  Youth  Guarantee,  opportunities  for  young  people  and  their  employability 
prospects should be maintained. 

The programme covers the period 2013-2016.  

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2013/0121 (NLE) 

Proposal for a 

COUNCIL DECISION 

addressed to the Republic of Cyprus on specific measures to restore financial stability 
and sustainable growth 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 136(1), in conjunction with Article 126(6) thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

Article  136(1)  of  the  Treaty  on  the  Functioning  of  the  European  Union  (TFEU) 
foresees  the  possibility  of  adopting  measures  specific  to  Member  States  whose 
currency  is  the  euro  in  order  to  ensure  the  proper  functioning  of  economic  and 
monetary union. 

On 13 July 2010, the Council adopted a Decision under Article 126(6) of the TFEU 
stating  that  an  excessive  deficit  existed  in  Cyprus1  and  issued  a  Recommendation  to 
Cyprus  under  Article  126(7)  of  the  TFEU  with  a  view  to  bringing  an  end  to  the 
situation  of  an  excessive  government  deficit  stating  that  'Cyprus's  authorities  should 
put  an  end  to  the  present  excessive  deficit situation  as  rapidly  as  possible  and  at  the 
latest by 2012'. 

In  the  Recommendation  on  the  National  Reform  Programme  2012  of  Cyprus  and 
delivering an opinion on the Stability Programme for Cyprus, 2012-20152, the Council 
recommended, inter alia, that Cyprus take action to achieve a durable correction of the 
excessive  deficit  in  2012,  ensure  sufficient  progress  with  the  debt  reduction 
benchmark,  strengthen  regulatory  provisions  for  the  efficient  recapitalisation  of  the 
financial institutions and improve competitiveness. 

Cyprus  has  been  under  increasing  pressure  in  financial  markets,  against  the 
background of rising concerns about the sustainability of its public finances, including 
the required public support measures to the weakened financial sector. Although some 
of the imbalances have emerged as a result of negative spill-overs from the euro-area 
crisis, others have been domestic and longer-lasting.3 Amidst consecutive downgrades 
by  credit  rating  agencies  of  Cypriot  sovereign  bonds,  the  country  became  unable  to 
refinance itself at rates compatible with long-term fiscal sustainability. In parallel, the 
banking sector was increasingly cut off from international market funding and major 
institutions recorded substantial capital shortfalls. 

(5) 

In  view  of  these  severe  economic  and  financial  conditions,  the  Cypriot  authorities 
officially  requested  financial  assistance  under  the  terms  of  a  loan  by  the  European 

1 
2 
3 

OJ L 186, 20.7.2012, p. 30. 
OJ C 219, 24.7.2012, p. 13.  
as specified in the 2012 In-depth Review for Cyprus and the 2012 country-specific recommendations 
addressed to Cyprus under the European Semester. 

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Financial Stability Facility / European Stability Mechanism on 25 June 2012, as well 
as from the IMF, with a view to supporting the return of the economy to sustainable 
growth,  ensuring  a  properly-functioning  banking  system  and  safeguarding  financial 
stability in the European Union and in the euro area. On 27 June 2012, the Eurogroup 
invited the Commission, in liaison with the ECB, the Cypriot authorities, and the IMF 
to  agree  on  a  macroeconomic  adjustment  programme,  including  the  financing  needs, 
and  to  take  appropriate  action  to  safeguard  financial  stability  in  the  current  very 
challenging  environment  with  a  risk  of  spill-over  effects  from  sovereign  market 
turbulence.  On  16  March  and  25  March  2013,  the  Eurogroup  reached  a  political 
agreement  with  the  Cypriot  authorities  on  the  cornerstones  of  a  programme.  The 
banking sector were to be restructured and downsized and efforts were to be stepped-
up  on  fiscal  consolidation,  structural  reforms  and  privatisation.  Recapitalisation  of 
banks  were  to  be  almost  exclusively  generated  from  within  the  banks  (i.e.  from 
shareholders and creditors).  

In the current circumstances Cyprus should adopt a comprehensive policy package to 
be implemented in a 3-year macroeconomic adjustment programme over a period from 
2013-Q2 to 2016-Q1. 

The  policy  package  should  aim  at  restoring  financial  market  confidence,  re-
establishing  sound  macroeconomic  balances  and  enabling  the  economy  to  return  to 
sustainable growth. It should be structured on three pillars. The first pillar should be a 
financial  sector  strategy  based  on  restructuring  and  downsizing  financial  institutions 
and  strengthening  supervision  of  the  sector,  with  efforts  to  address  capital  and 
liquidity  shortfalls.  The  second  pillar  should  be  an  ambitious  front-loaded  fiscal 
consolidation  strategy  in  particular  through  measures  to  reduce  current  primary 
expenditure,  enhance  government  revenues,  improve  the  functioning  of  the  public 
sector  and  maintain  fiscal  consolidation  in  the  medium-term,  while  minimising  the 
impact on disadvantaged people and preserving the good implementation of Structural 
and other EU Funds. The third pillar should consist of an ambitious structural reform 
agenda,  with  a  view  to  supporting  competitiveness  and  sustainable  and  balanced 
growth,  allowing  for  the  unwinding  of  macroeconomic  imbalances,  in  particular  by 
reforming  the  wage  indexation  system,  in  consultation  with  social  partners,  and 
removing  obstacles  to  the  smooth  functioning  of  markets.  Recalling  the  political 
agreement  of  28  February  2013  on  a  Council  Recommendation  on  Establishing  a 
Youth  Guarantee,  opportunities  for  young  people  and  their  employability  prospects 
should be maintained. 

Under the Commission’s updated forecast for nominal GDP growth (-0.5% in 2012, -
8.2% in 2013, -2.9% in 2014, 2.6% in 2015 and 3.7% in 2016), the debt-to-GDP ratio 
would amount to 87% in 2012, 109% in 2013, 123% in 2014, 126% in 2015 and 122% 
in 2016. The debt-to-GDP ratio would therefore increase rapidly until 2015 and move 
to a declining path thereafter, reaching an estimated 105% in 2020. Debt dynamics are 
affected  by  several  below-the-line  operations.  Under  the  Commission’s  updated 
forecast  for  nominal  GDP  growth,  the  primary  general  government  balance  is 
projected to attain a deficit of EUR 395 million (2.4% of GDP) in 2013, a deficit of 
EUR 678 million (4.3% of GDP) in 2014, a deficit of EUR 344 million (2.1% of GDP) 
in 2015 and a surplus of EUR 204 million (1.2% of GDP) in 2016. 

(6) 

(7) 

(8) 

(9) 

Increasing the long-term resilience of the Cypriot banking sector is critical to restoring 
financial stability in Cyprus and - given the strong interlinkages – preserving financial 
stability in  the euro  area  as  a whole.  Substantial downsizing and restructuring  of the 
Cypriot  banking  sector  is  under  way.  The  House  of  Representatives  adopted 

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legislation establishing a comprehensive framework for the recovery and resolution of 
credit  institutions.  Using  this  new  framework,  the  Cypriot  banking  sector  has  been 
downsized  immediately  and  significantly.  To  preserve  the  liquidity  of  the  Cypriot 
banking sector, temporary administrative measures have been imposed. 

(10)  The implementation  of comprehensive and ambitious reforms in financial, fiscal and 
structural areas should safeguard the medium-term sustainability of the Cypriot public 
debt. 

(11)  The  Commission,  in  liaison  with  the  ECB,  and  if  relevant  the  IMF,  should  verify  at 
regular  intervals  the  rigorous  implementation  of  the  macroeconomic  adjustment 
programme  through  missions  and  regular  reporting  by  the  Cypriot  authorities,  on  a 
quarterly basis.  

(12)  Throughout the implementation of the policy package, the Commission should provide 

additional policy advice and technical assistance in specific areas. 

(13)  The Cypriot authorities should involve, in accordance with current national rules and 
practices,  the  social  partners  and  civil  society  organisations  in  the  preparation, 
implementation, monitoring and evaluation of the financial assistance programme.  

(14)  Any form of financial assistance received to help implementing the policies under the 
macroeconomic  adjustment  programme  must  be  in  line  with  European  Union  legal 
requirements  and  policies,  in  particular  with  the  Union  economic  governance 
framework. Any intervention in support of financial institutions must be carried out in 
accordance  with  the  European  Union’s  rules  on  competition.  The  Commission  will 
ensure that any measures laid down in a Memorandum of Understanding in the context 
of requested ESM financial assistance is fully consistent with the present decision.  

HAS ADOPTED THIS DECISION:  

1. 

2. 

3. 

Article 1 

In  order  to  facilitate  the  return  of  the  Cypriot  economy  to  a  path  of  sustainable 
growth  and  to  fiscal  and  financial  stability,  Cyprus  shall  rigorously  implement  a 
macroeconomic adjustment programme, the main elements of which are laid down in 
Article 2 of this decision. The macroeconomic adjustment programme (hereafter the 
"programme") shall address the specific risks emanating from Cypus for the financial 
stability  of  the  euro  area  and  shall  aim  at  rapidly  re-establishing  a  sound  and 
sustainable  economic  and  financial  situation  in  Cyprus  and  restore  its  capacity  to 
finance itself fully on the financial markets. The programme shall take due account 
of the recommendations addressed to Cyprus under Articles 121, 126, 136 and 148 
TFEU  as  well  as  its  actions  to  comply  with  them,  while  aiming  at  broadening, 
strengthening and deepening the required policy measures. 

The Commission, in liaison with the ECB, and if relevant the IMF, shall monitor the 
progress  made  in  the  implementation  of  the  programme.  Cyprus  shall  give  the 
Commission  and  the  ECB  its  full  cooperation.  It  shall  in  particular  provide  to  the 
Commission  and  the  ECB  all  the  information  that  they  deem  necessary  for  the 
monitoring of the programme. 

The  Commission,  in  liaison  with  the  ECB  and,  where  appropriate,  with  the  IMF, 
shall  examine  with  the  Cypriot  authorities  any  changes  and  updates  to  the 
programme  that  may  be  needed  in  order  to  take  proper  account  of,  inter  alia,  any 
significant  gap  between  macroeconomic  and  fiscal  forecasts  and  realised  figures 

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1. 

2. 

3. 

4. 

5. 

6. 

(including  employment),  negative  spill-over  effects,  as  well  as  macroeconomic  and 
financial  shocks.  In  order  to  ensure  the  smooth  implementation  of  the  programme 
and to help the correction of imbalances in a sustainable way, the Commission shall 
provide  continued  advice  and  guidance  on  fiscal,  financial  market  and  structural 
reforms.  The  Commission  shall  periodically  assess  the  economic  impact  of  the 
programme  and  shall  recommend  necessary  corrections  with  a  view  to  enhancing 
growth and job creation, securing the necessary fiscal consolidation, and minimising 
harmful social impacts. 

Article 2  

The key objectives of the Cypriot programme are: the restoration of the soundness of 
the  Cypriot  banking  sector;  the  continuation  of  the  on-going  process  of  fiscal 
consolidation; and the implemention of structural reforms to support competitiveness 
and sustainable and balanced growth. 

Cyprus  shall  pursue  fiscal  consolidation  consistent  with  its  obligations  under  the 
excessive  deficit  procedure  by  means  of  high-quality  permanent  measures  while 
minimising the impact on disadvantaged people. 

Cyprus shall adopt the measures specified in paragraphs 4 to 15.  

In order to reduce the deficit to below 3% of GDP as soon as possible, Cyprus shall 
stand  ready  to  take  additional  consolidation  measures.  Specifically,  in  the  event  of 
underperformance  of  revenues  or  higher  social  spending  needs  due  to  adverse 
macroeconomic effects, the government shall stand ready to take additional measures 
to  preserve  the  programme's  objectives,  including  by  reducing  discretionary 
spending,  while  minimising  the  impact  on  disadvantaged  people.  Over  the 
programme  period,  cash  revenues  above  the  programme  projections,  including  any 
windfall  gains,  shall  be  saved  or  used  to  reduce  debt.  If  instead  over-performance 
materialises, to the extent that it is deemed permanent, this can reduce the need for 
additional measures in the outer years.  

Cyprus shall preserve the good implementation of Structural and other EU Funds. 

With a view to restoring the soundness of the financial sector, Cyprus shall continue 
to  thoroughly  reform  and  restructure  the  banking  sector  and  reinforce  viable  banks 
by restoring their capital, addressing their liquidity situation and strengthening their 
supervision. The programme shall foresee the following measures and outcomes:  

(a) 

ensuring  that  the  liquidity  situation  of  the  banking  sector  will  be  closely 
monitored  and  appropriate  measures  to  maintain  sufficient  liquidity  in  the 
system  in  line  with  Eurosystem  rules  will  be  taken.  The  recently-imposed 
temporary  restrictions  on  the  free  movement  of  capital  (inter  alia,  limits  on 
cash  withdrawals,  electronic  payments  and  transfers  abroad)  will  be  closely 
monitored. The goal is that controls will remain in place no longer than strictly 
necessary  to  prevent  serious  and  immediate  risks  for  financial  stability.  The 
medium-term  funding  and  capital  plans  of  domestic  banks  relying  on  central 
bank  funding  or  receiving  state  aid  should  realistically  reflect  the  anticipated 
deleveraging in the banking sector, and reduce dependency on borrowing from 
the  central  banks,  while  avoiding  asset  fire  sales  and  a  credit  crunch.  The 
regulations  on  the  minimun  liquidity  requirements  will  be  updated  to  prevent 
concentration in euro-denominated assets in the future; 

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(b) 

(c) 

(d) 

establishing  an  independent  valuation  of  the  assets  of  Bank  of  Cyprus  and 
Cyprus  Popular  Bank  and  quickly  intergrating  the  operations  of  Cyprus 
Popular Bank into Bank of Cyprus. The valuation shall be completed quickly 
so as to enable the unfreezing of the relevant parts of the uninsured deposits at 
the Bank of Cyprus; 

adopting  the  necessary  regulatory  requirements  regarding  an  increase  in  the 
minimum core tier 1 capital adequacy ratio to 9% by end of 2013; 

taking  steps  to  minimise  the  cost  to  the  taxpayers  of  bank  restructuring. 
Undercapitalised commercial and cooperative credit institutions shall raise, to 
the  largest  extent  possible,  capital  from  private  sources,  including  but  not 
limited  to  bank  shareholders  and  creditors,  before  state-aid  measures  are 
granted. Any restructuring or resolution plans shall be formally approved under 
state-aid rules, before such state aid is provided; 

(e) 

ensuring that a credit register is created, that the current regulatory framework 
on  loan  processes  is  reviewed  and  amended,  if  necessay,  and  that  legislation 
strengthening the governance of commercial banks is adopted; 

(f) 

strengthening  banks'  governance, 
independent board members or their connected parties; 

including  by  prohibiting 

lending 

to 

(g)  maximising  recovery  for  non-performing  loans,  while  minimising  incentives 
for  strategic  default  by  borrowers.  This  will  include  easing  constraints  on  the 
seizure  of  collateral  and  proper  monitoring  and  managing  of  non-perfroming 
loans.  The  Central  Bank  of  Cyprus  will  issue  guidance  to  classify  as  non-
performing all loans past due by more than 90 days; 

(h) 

(i) 

aligning  the  regulation  and  supervision  of  cooperative  credit  institutions  to 
those of commercial banks; 

ascertaining  the  viability  of  cooperative  credit  institutions  and  developing,  in 
consultation  with  the  Commission  and  informing  the  ECB  and  the  IMF,  a 
strategy  for  the  future  structure,  functioning  and  viability  of  the  cooperative 
credit  institution  sector.  The  implementation  of  the  strategy  should  be 
completed by mid-2015; 

(j) 

augmenting the monitoring of the indebtedness of the corporate and household 
sectors and establishing a framework for targeted private sector restructuring; 
and  

(k) 

further  enhancing  the  anti-money  laundering  framework  and  ensuring  full 
entity transparency, in line with best practice. 

7. 

Over  2013,  the  authorities  shall  rigorously  implement  the  2013  Budget  Law  with 
additional permanent measures of at least EUR 351 million (2.1% of GDP). Cyprus 
shall amend the 2013 Budget Law to include the additional consolidation measures. 
Cyprus shall adopt the following measures: 

(a)  On the expenditure side, the budget shall include the reduction of expenditure 
on housing schemes by at least EUR 36 million and a further scaled reduction 
of public sector wages, the streamlining of certain social benefits; 

(b)  On the revenue side, the additional measures shall include increases in property 
taxes, the statutory corporate income tax rate, the tax rate on interest income, 
the bank levy, and in the fees for public services;  

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(c)  Cyprus  shall  reform 

tax  system  for  motor  vehicles,  based  on 
environmentally-friendly  principles  and  with  a  view  to  raising  additional 
revenues;  

the 

(d)  Cyprus shall introduce measures to control healthcare expenditure and improve 
cost  efficiency  in  the  healthcare  sector  by  enhancing  public  hospitals' 
efficiency,  competitiveness  and  cost-effectiveness.  In  addition,  Cyprus  shall 
introduce  a  co-payment  system  for  a  limited  number  of  medical  services  and 
pharmaceuticals; and 

(e)  Cyprus  shall  ensure  full  implementation  of  consolidation  measures  adopted 

since December 2012. 

8. 

The following measures shall apply as of 1 January 2014: 

(a)  On the expenditure side, the budget shall include: a reduction in total outlays 
for social transfers through better targeting to yield at least EUR 28.5 million; a 
further  reduction  in  the  public  and  broader  public  sector  wages;  the 
introduction of a fee on public transportation card for students and pensioners; 
and  structural  reform  measures  in  the  educational  sector  to  reduce  wage 
expenditure; and 

(b)  On  the  revenue  side,  the  budget  for  2014  shall  include:  an  extension  of  the 
temporary  contribution  on  gross  earnings  of  public  and  private  sector 
employees up to 31 December 2016; increases in the VAT; increases in excise 
duties;  and  an  increase  in  the  contributions  to  General  Social  Insurance 
Scheme. 

9. 

In  order  to  ensure  the  long-term  sustainability  of  public  finances,  Cyprus  shall 
implement  fiscal-structural  reforms,  comprising,  inter  alia,  the  following  measures 
and outcomes: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

reforms  of  the  general  and  public  sector  pension  system  in  order  to  put  the 
pension  system  on  a  sustainable  path,  while  addressing  the  adequacy  of 
pensions. If necessary, reforms will be further reinforced; 

control  the  growth  of  health  expenditure  in  order  to  strengthen  the 
sustainability  of  the  funding  structure  and  the  efficiency  of  public  healthcare 
provision; 

an improvement in the efficiency of public spending and the budgetary process 
by  means  of  an  effective  medium-term  budgetary  framework  as  part  of  an 
improved  public  finance  management,  fully  compliant  with  the  Directive  on 
requirements  for  budgetary  frameworks  and 
the  Treaty  on  Stability, 
Coordination and Governance (TSCG); 

adoption  of  an  adequate  legal  and  institutional  framework  for  Public  Private 
Partnerships designed according to best practices; 

elaboration of a programme to achieve a solid corporate governance system for 
state-owned and semi-public enterprises and initiation of a privatisation plan to 
help improve economic efficiency and restore debt sustainability; 

elaboration and implementation of a comprehensive reform plan to improve the 
effectiveness  and  efficiency  of  tax  collection  and  administration,  including 
measures  to  safeguard  the  full  and  timely  applicability  of  laws  and  standards 
governing international tax cooperation and the exchange of tax information; 

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10. 

11. 

12 

13. 

14. 

15. 

(g) 

(h) 

(i) 

reform of the immovable property tax; 

reform  of  the  public  administration  to  improve  its  functioning  and  cost-
effectiveness,  notably  by  reviewing  the  size,  employment  conditions  and 
functional organisation of public service in order to ensure an efficient use of 
government resources and a quality service provision to the population; and 

reforms of the overall structure and the levels of welfare benefits, with the aim 
of producing an efficient use of resources and ensuring an appropriate balance 
between welfare assistance and incentives to take up work. 

Cyprus shall implement a reform of the system of wage indexation, after consultation 
with  the  social  partners,  and  consistent  with  the  objectives  of  improving  the 
economy's competitiveness and reflecting developments in labour productivity. The 
planned reform of public assistance should ensure that social assistance serves as a 
safety net to ensure a minimum income for those unable to support a basic standard 
of  living,  while  safeguarding  incentives  to  take  up  work.  Any  change  in  the 
minimum wage shall be in line with the economic and labour market developments, 
and after consultation with the social partners. 

Cyprus shall adopt the remaining necessary amendments to sector specific legislation 
in order to fully implement the Services Directive. Unjustified obstacles in services 
markets,  in  particular  in  relation  to  regulated  professions  shall  be  eliminated.  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. 

Cyprus shall reduce to less than 2000 the title deed issuance backlog by end of 2014 
and shall implement guaranteed timeframes for the issuance of building certificates 
and title deeds. 

Cyprus  shall  amend  the  forced  sale  of  mortgaged  property  and  allow  for  private 
auctions within the shortest feasible timespans by the end of 2013. 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 the tourism sector. 
These initiatives shall include a review of the Tourism Strategy for 2011-2015, based 
on  a  study  on  how  to  improve  the  tourism  sector  business  model,  and  a  thorough 
analysis of the best means of achieving sufficient air connectivity for Cyprus.  

In  the  energy  sector,  Cyprus  shall  transpose  and  fully  implement  the  Third  Energy 
Package.  In  addition,  a  comprehensive  development  plan  for  the  rearrangement  of 
the Cypriot energy sector shall be formulated. The plan shall encompass: 

(a) 

(b) 

(c) 

a roll-out plan for the infrastructure required for the exploitation of gas; 

an  outline  of  the  regulatory  regime  and  market  organisation  for  the  energy 
sector and gas exports; and 

a  plan  to  establish  the  institutional  framework  for  the  management  of 
hydrocarbon  resources,  including  a  resource  fund,  which  should  receive  and 
manage the public revenues from offshore gas exploitation and which is set up 
based on internationally-recognized best practices.  

EN 

Article 3 

10 

   EN 

This Decision is addressed to the Republic of Cyprus. 

This Decision shall be published in the Official Journal of the European Union. 

Done at Brussels,  

Article 4 

For the Council 
The President 

EN 

11 

   EN