Commission concludes on excessive deficit in Cyprus

The European Commission concluded on Tuesday on the existence of excessive deficits in Cyprus, Denmark and Finland and recommended deadlines for their correction to the Council.

In a press release, the Commission notes 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, while the government debt is expected to reach 62% of GDP in 2010, thus breaching the 60% reference value of the Treaty.

While the deficit can be qualified as exceptional, as it results from a severe economic downturn, the excess over the reference value can neither be qualified as close to 3% of GDP or temporary, it says.

The Commission recommends to the Council to set a deadline of 2012 for correction. In particular, Cyprus should reduce the 2010 deficit to below 6.0% of GDP and ensure an annual structural adjustment of 1.75% of GDP over the period 2010-2012.

These steps, taken under Article 126(5-7) of the Treaty, represent the follow-up of the reports under Article 126(3) that the Commission presented on 12 May.

Commissioner for Economic and Monetary Affairs Olli Rehn said ''the entry into the excessive deficit procedure of these countries, which until recently had surpluses, shows the severity of the economic and financial crisis we have gone through.''

''Part of the deterioration comes as a consequence of the stimulus measures taken under the European Economic Recovery Plan, which has been instrumental in containing the crisis. But now it is time to focus on returning to sound public finances. The need for fiscal consolidation varies per country, however, and the deadlines and fiscal efforts we recommend today reflect these differences,'' he added.