Recommendation for a COUNCIL DECISION abrogating Decision 2010/401/EU on the existence of an excessive deficit in Cyprus
Date: 2016-05-18
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Cyprus, budget deficit, budgetary equilibrium, gross domestic product, public debt, stability programme

   EUROPEAN COMMISSION  Brussels, 18.5.2016  COM(2016) 295 final   Recommendation for a COUNCIL DECISION abrogating Decision 2010/401/EU on the existence of an excessive deficit in Cyprus  
 
 
Recommendation for a 

COUNCIL DECISION 

abrogating Decision 2010/401/EU on the existence of an excessive deficit in Cyprus 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 126(12) thereof, 

Having regard to the recommendation from the Commission, 

Whereas:  

(1) 

(2) 

(3) 

(4) 

On  13  July  2010  following  a  recommendation  from  the  Commission,  the  Council 
decided,  by  Decision  2010/401/EU1  in  accordance  with  Article  126(6)  of  the  Treaty 
that an excessive deficit existed in Cyprus. The Council noted that according to data 
notified  by  the  Cypriot  Authorities  in  April  2010,  the  general  government  deficit  in 
Cyprus  reached  6.1%  of  GDP  in  2009,  thus  exceeding  the  3%  of  GDP  Treaty 
reference value. The general government gross debt was planned to reach 62% of GDP 
in 2010, thus above the 60%-of-GDP Treaty reference value. 

On the same date, in accordance with Article 126(7) of the Treaty and Article 3(4) of 
Council Regulation (EC) No 1467/97, the Council, based on a recommendation from 
the  Commission,  addressed  a  recommendation  to  Cyprus  with  a  view  to  bringing  an 
end  to  the  situation  of  an  excessive  government  deficit  by  2012  at  the  latest.  That 
Council recommendation was made public. 

On  27  January  2011,  the  Commission  concluded  that,  on  the  basis  of  information 
available at the time, Cyprus had taken action representing adequate progress towards 
the correction of the excessive deficit within the time limits set by the Council. On 11 
January 2012, the Commission again confirmed that Cyprus had taken effective action 
towards a timely and sustainable correction of the excessive deficit. 

The  Cypriot  authorities  requested  financial  assistance  from  the  European  Union,  the 
Member States whose currency is the euro and the International Monetary Fund (IMF) 
with a view to supporting the return of Cyprus' economy to sustainable growth. On 25 
April 2013, the Council addressed a decision to Cyprus on specific measures to restore 
financial  stability  and  sustainable  growth2.  In  parallel,  the  European  Stability 
Mechanism (ESM) granted a financial assistance facility to Cyprus. In this context, a 
Memorandum  of  Understanding  on  Specific  Economic  Policy  Conditionality  (the 
"Memorandum  of  Understanding")  was  signed  on  26  April  2013  by  the  Cypriot 
authorities and the Commission, acting on behalf of the ESM. 

1 

2 

Council Decision 2010/401/EU of 13 July 2010 on the existence of an excessive deficit in Cyprus (OJ L 
186, 20.7.2010, p. 30). 
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). 

 
 
 
 
                                                 
(5) 

(6) 

(7) 

(8) 

(9) 

On  16  May  2013,  in  accordance  with  Article  3(5)  of  Council  Regulation  (EC)  No 
1467/97,  the  Council  concluded  that  effective  action  had  been  taken  but  that 
unexpected  adverse  economic  events  with  major  unfavourable  consequences  for 
government finances had occurred after the adoption of the recommendation in 2010. 
Therefore, 
the  Commission, 
considered  that  the  conditions  envisaged  in  Article  3(5)  of  Regulation  (EC)  No 
1467/97 were fulfilled and issued a revised recommendation to Cyprus under Article 
126(7)  TFEU,  with  a  view  to  bringing  the  excessive  deficit  situation  to  an  end  by 
2016.  

the  Council,  following  a  recommendation  from 

On  6  September  2013,  the  Commission  concluded  that  Cyprus  had  taken  effective 
action  towards  correcting  the  excessive  deficit  by  2016  as  recommended  by  the 
Council on 16 May 2013. 

In  line  with  Article  10(2),  letter  (a),  of  Regulation  (EU)  No  472/2013,  Cyprus  was 
exempted from a separate reporting under the excessive deficit procedure and reported 
in the framework of its macroeconomic adjustment programme. 

In  March  2016,  Cyprus  exited  its  three-year  macroeconomic  adjustment  programme 
which included the implementation of an ambitious reform agenda and contributed to 
ensuring  financial  stability,  improving  public  finances  and  restoring  sustainable 
economic growth. 

In  accordance  with  Article  4  of  the  Protocol  on  the  excessive  deficit  procedure 
annexed to the Treaties, the Commission provides the data for the implementation of 
the procedure. As part of the application of this Protocol, Member States are to notify 
data  on  government  deficits  and  debt  and  other  associated  variables  twice  a  year, 
namely before 1 April and before 1 October, in accordance with Article 3 of Council 
Regulation (EC) No 479/20093.  

(10)  The  Council  should  take  a  decision  to  abrogate  a  decision  on  the  existence  of  an 
excessive deficit on the basis of notified data. Moreover, a decision on the existence of 
an excessive deficit should be abrogated only if the Commission forecasts indicate that 
the  deficit  will  not  exceed  the  3%  of  GDP  Treaty  reference  value  over  the  forecast 
horizon4. 

(11)  Based on data provided by the Commission (Eurostat) in accordance with Article 14 
of Regulation (EC) No 479/2009, following the April 2016 notification by Cyprus, the 
2016  Stability  Programme  and  the  Commission  2016  spring  forecast,  the  following 
conclusions are justified: 

– 

– 

In  2015,  the  general  government  deficit  amounted  to  1.0%  of  GDP,  bringing 
the deficit below the 3% of GDP reference value of the Treaty one year ahead 
of  the  deadline  set  by  the  Council.  This  improvement  was  driven  by  fiscal 
consolidation  efforts  and  the  fading-out  of  the  one-off  impact  of  financial 
sector stabilisation measures on the deficit of 2014. 

The  2016  Stability  Programme,  submitted  by  the  Cypriot  government  on  13 
May 2016, plans a general government deficit of 0.4% of GDP in 2016 and of 
0.5%  of  GDP  in  2017.  The  Commission  2016  spring  forecast  projects  a 

3 

4 

Council  Regulation  (EC)  No  479/2009  of  25  May  2009  on  the  application  of  the  Protocol  on  the 
excessive  deficit  procedure  annexed  to  the  Treaty  establishing  the  European  Community  (OJ  L  145, 
10.6.2009, p. 1). 
In line with the “Specifications on the implementation of the Stability and Growth Pact and Guidelines 
on the format and content of Stability and Convergence Programmes” of 3 September 2012. See: 
http://ec.europa.eu/economy_finance/economic_governance/sgp/pdf/coc/code_of_conduct_en.pdf 

 
 
                                                 
 
– 

– 

headline balance of -0.4% of GDP in 2016, and of 0% of GDP in 2017 under 
unchanged  policies.  Thus,  the  deficit  is  set  to  remain  below  the  Treaty 
reference value of 3% of GDP over the forecast horizon. 

The  Commission  estimates  the  structural  balance,  which  is  the  general 
government  balance  adjusted  for  the  economic  cycle  and  net  of  one-off  and 
other temporary measures, to have improved by 6.6% of GDP over the period 
2013-2015. 

The general government gross debt-to-GDP ratio increased to 108.9% in 2015 
from 102.5% in 2013 on account of the public support granted to the financial 
sector  and  contraction  of  the  nominal  GDP.  The  Commission  2016  spring 
forecast  projects  the  general  government  gross  debt  to  remain  stable  in  2016 
and to decrease to 105.4% of GDP in 2017 mainly due to increase in nominal 
GDP. 

(12)  As from 2016, the year following the correction of the excessive deficit, Cyprus will 
be subject  to the preventive  arm of  the Stability and Growth  Pact and should ensure 
compliance  with  its  medium-term  objective,  the  expenditure  benchmark  and  make 
sufficient  progress  towards  compliance  with  the  debt  criterion  in  accordance  with 
Article 2(1a) of Regulation (EC) No 1467/97 of July 1997. In this context, it appears 
that Cyprus is expected to be compliant with its medium term objective in 2016 while 
some  deviation  is  projected  in  2017.  Cyprus'  structural  balance  is  projected  to 
deteriorate  more  than  what  is  allowed  under  the  transitional  debt  rule.  Further 
measures will be needed in 2017. 

(13) 

In accordance with Article 126(12) of the Treaty, a Council Decision on the existence 
of  an  excessive  deficit  is  to  be  abrogated  when  the  excessive  deficit  in  the  Member 
State concerned has, in the view of the Council, been corrected. 

(14) 

In  the  view  of  the  Council,  the  excessive  deficit  in  Cyprus  has  been  corrected  and 
Decision 2010/401/EU should therefore be abrogated, 

HAS ADOPTED THIS DECISION: 

From an overall assessment it follows that the excessive deficit situation in Cyprus has been 
corrected. 

Article 1 

Decision 2010/401/EU is hereby abrogated. 

Article 2 

This Decision is addressed to the Republic of Cyprus. 

Done at Brussels, 

Article 3 

For the Council 
The President