COVID19: Cyprus should use EU Pandemic funds for reforms

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Nicosia should utilize EU pandemic funds to promote reforms that would diversify its economy, Klaus Regling, the European Stability Mechanism General Director told the Economist 16th Cyprus Summit.

“Cyprus will receive a substantial amount of money from the EU funds. This money presents Cyprus with a good opportunity to continue its structural reform effort,” Regling said during the virtual conference.

Referring to Cyprus’ fiscal support package to alleviate the impact of the pandemic, Regling said the package would protect employment and economic activity.

He said every EU member-state needs to recognise that these immediate measures should be accompanied by measures that support the economy in the long-term.

“Cyprus is an open economy, exposed to a number of external risks,” Regling said, recalling that tourism contracted by an annual 85% so far due to the pandemic.

“Cyprus would make its economy more resilient by decreasing its dependence on tourism and diversifying further into other areas,” the ESM chief said.

Regling described the high level of non-performing loans in the Cyprus banking sector, as a “particular challenge,” noting a new flow of NPLs due to the recession associated with the pandemic would come on top of the already high NPL rate.

He said additional steps would make the Economic Monetary Union more resilient, such as ESM reform, the completion of the capital markets and banking union.

Former Cyprus Finance Minister Harris Georgiades said the economy is in uncharted waters as forecasting is very difficult in the pandemic.

But he is optimistic due to the “very good news” associated with the development of vaccines to combat Covid-19.

Georgiades also said he is upbeat because Cyprus entered the health crisis after years of strong growth and with strong fiscal buffers, which enabled the government to run the most significant support package since the 2013 crisis.

“The significant lesson showed that governments should contain public expenditure in good times creating fiscal space and buffers which can be mobilised in times of crisis.”

Jeroen Dijsselbloem, head of the Eurogroup in 2013 when decided to impose a haircut of Cyprus bank deposits, spoke of impressive stimulus packages as a response to the pandemic by the EU and its Member States.

But he said it is “extremely urgent” to complete the banking union that would enable risk sharing, as well as the capital markets union.

He said the EU has been strengthening its institutions in times of crisis, adding its Resilience and Recovery Fund has “opened up a window for sovereign debt on a European level.” (source CNA)