EU screens Cyprus for fiscal imbalances

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Cyprus is one of 12 member states the EU will conduct an in-depth review (IDRs) under the Alert Mechanism Report (AMR), a screening measure to detect potential macroeconomic imbalances.

This year’s AMR concludes that in-depth reviews (IDRs) are warranted for: Croatia, Cyprus, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal, Romania, Spain, and Sweden.

These Member States were subject to an IDR in the previous annual Macroeconomic Imbalance Procedure (MIP) surveillance cycle and were considered to be experiencing imbalances (Croatia, France, Germany, Ireland, the Netherlands, Portugal, Romania, Spain, and Sweden).

Cyprus was one of three countries that were considered to be experiencing excessing imbalances (along with Greece and Italy).

The new IDRs will assess how those imbalances have developed, analyse their gravity, evolution, and the policy response delivered, and assess possible remaining policy needs.

The Autumn Package for 2022 also included the Annual Sustainable Growth Survey, opinions on euro area Draft Budgetary Plans (DBPs), policy recommendations for the euro area and the Commission’s proposal for a Joint Employment Report.

This package draws on information and data found in the Autumn 2021 Economic Forecast, which noted that the European economy is moving from recovery to expansion but is now facing new challenges.

For Cyprus, the Commission finds its fiscal stance is expected to be supportive.

Also, regarding the post-programme surveillance reports for Cyprus, Spain, Portugal and Ireland, the Commission notes retain their capacity to service their outstanding debt.

In general, the Commission said this year’s Annual Sustainable Growth Survey steers the EU away from crisis management towards a sustainable and fair recovery that strengthens the EU economy’s resilience.

On the outlook from the draft budgetary plans of the euro area, the Commission notes that member states are unwinding their temporary emergency measures and increasingly focusing support measures on sustaining the recovery.

In its recommendation on the economic policy of the euro area, the Commission recommends that member states take action over 2022-23, individually and collectively within the Eurogroup, to continue to use and coordinate national fiscal policies to underpin a sustainable recovery effectively.

The recommendation calls for a moderately supportive fiscal stance to be maintained in 2022 across the euro area and for fiscal policy measures to gradually pivot towards investments that promote a resilient and sustainable recovery.

The Joint Employment Report (JER) confirms that the labour market is recovering, though employment is not yet back to pre-crisis levels.

The COVID-19 crisis-affected young people, workers in non-standard forms of employment, the self-employed and third-country nationals.

Sectors with high demand are already experiencing labour shortages.

Cyprus Budgetary Plan

According to the opinion on Cyprus’s Draft Budgetary Plan, the country’s fiscal stance “is projected to be supportive” in 2022, as recommended by the Council.

This projection is based on the Commission’s forecast and includes Cyprus’s Draft Budgetary Plan’s information.

“Cyprus plans to provide continued support to the recovery by making use of the Recovery and Resilience Facility to finance additional investment,” the opinion said.

“Broadly as recommended by the Council, Cyprus plans to almost preserve nationally financed investment.

“The Commission recalls the importance of the composition of public finances and the quality of budgetary measures, including through growth-enhancing investment, notably supporting the green and digital transition.

“Investments and reforms funded by the Recovery and Resilience Facility are expected to fulfil these objectives and contribute to support the long-term sustainability of public finances.

“Taking into account the strength of the recovery, Cyprus is invited to regularly review the use, effectiveness and adequacy of the support measures and stand ready to adapt them as necessary to changing circumstances.”