The European Commission decided on Wednesday to recommend taking Cyprus off the list of countries condemned for having an excessive deficit, which will make Cyprus the first new member state to achieve this status.
In official language, the Commission recommends “that the Council abrogates the excessive deficit procedure (EDP) against Cyprus”.
The Commission said “The Council is invited to conclude on 11 July that Cyprus no longer has an excessive deficit.”
The Council refers to Ecofin, the Council of finance ministers.
The recommendation comes after the budget deficit in Cyprus fell to 2.4% of GDP in 2005 and is projected to decrease further in 2006 and 2007.
Cyprus’s debt to GDP ratio also dropped to 70.25%, in 2005 and is seen at 68% in 2007.
According to the Commission’s spring forecasts, the deficit and the debt are expected to fall further in 2006 and 2007, thus staying well below the 3% reference value and allowing the debt ratio to diminish sufficiently towards the 60% of GDP reference value. “That points to a durable correction of the excessive deficit, thanks to the substantial and largely structural measures taken by the Cypriot authorities,” said the Commission in a statement.
“The measures planned by the Cypriot authorities over the programme period should be sufficient to bring the structural deficit to about 0.5% of GDP by 2009, which is the medium-term objective chosen by the Cypriot authorities.”
First to come off the list
The European Commission added Cyprus and a number of other new member states to its list of excessive deficit countries after Cyprus recorded a budget deficit of 6.3% of GDP in 2003, largely as a result of pre-election spending by the outgoing administration as well as the distractions of the Cyprus problem. However, the government has been reducing the deficit ever since.
Once the abrogation is formalised, Cyprus will be the first of the six new Member States that were put into the EDP upon European Union membership to see the procedure abrogated.
It would also be the first procedure to be closed since the Netherlands, in June 2005. In total, there remain 11 countries in excessive deficit procedure, five of which are in the euro area.
“The Cypriot case shows that budgetary consolidation undertaken with resolve can achieve sustainable results. I encourage Cyprus to pursue this route and achieve its objective of having finances close to balance by the end of the decade given the high risk arising from the costs of an ageing population”, said Joaquín Almunia, European Commissioner for Economic and Monetary Affairs.
The 11 Member States in EDP are Germany, France, Greece, Italy, Portugal, United Kingdom, Czech Republic, Hungary, Malta, Poland, and Slovakia.
Portugal, Italy and the United Kingdom were the last ones to be included in the procedure in 2005. Their deadline for correcting the deficit ranges between 2005 and 2008.
