The Board of Governors of the European Stability Mechanism (ESM) approved on Tuesday the updated Memorandum of Understanding (MoU) with Cyprus, following a positive assessment of the seventh review of Cyprus’s macroeconomic adjustment programme.
The Luxembourg-based ESM is now expected to unlock the disbursement of €500 mln to Cyprus on Wednesday morning.
“Cyprus has taken another step towards a successful completion of its ESM programme in the first quarter of 2016,” said ESM Managing Director Klaus Regling.
“The government has implemented the reform programme and the results are clear: not only with a correction of imbalances and a stabilisation of the financial sector but also a gradual return to growth and reduction in unemployment. This is the same pattern that we have seen in previous successful exits from ESM/EFSF programmes.”
“The need for reform does not expire as we reach the final stages of this programme: Cyprus has many challenges ahead, most importantly a pressing need to vigorously reduce the very high level of problem loans which are burdening the banks and limiting their capacity to support to the economy,” Regling concluded.
Once this €500 mln tranche is released, the total amount of disbursed ESM financial assistance for Cyprus will add up to €6.3 bln out of the approximately €9 bln committed by the ESM at the start of the financial assistance programme.
Cyprus is expected to end its reliance on the programme in March 2016, three years after the bailout was effected by the Troika of international lenders – the IMF, ECB and the European Commission.
The ESM was established in October 2012 and has the mandate to preserve financial stability in the euro area by providing financial assistance to member states with severe financing problems. These may include loans, precautionary credit lines, the purchase of bonds of ESM members in primary and secondary markets, and the recapitalisation of financial institutions directly and through loans to governments.
The shareholders of the ESM are the 19 euro area member states, including Cyprus. It has a total subscribed capital of approximately €700 bln, which comprises €80 bln in paid-in capital and €620 bln in committed callable capital. The ESM’s maximum lending capacity is €500 bln.
