Cyprus celebrates its early exit from EU bailout programme

Attention now focuses on Greece, with discussions in Athens today

 

Eurozone finance ministers celebrated in Brussels as Cyprus exited its bailout programme – the fourth EU country to do so, while Greece’s creditors continued to stall over its latest rescue package.

The ministers, gathered for a Eurogroup meeting in Brussels, confirmed that Cyprus would exit its three-year, €10bn (£7.7bn) programme on 23 March. The IMF’s president, Christine Lagarde, congratulated Cyprus on its “accomplishments under the economic adjustment programme, which has delivered an impressive turnaround”.

Cyprus’s bailout exit follows those of Ireland, Spain and Portugal, who were all offered aid packages in the wake of the economic downturn. Nicosia eventually only spent €7.25bn of the total €10bn earmarked in the bailout, and its economy returned to growth in 2015, a year earlier than its creditors foresaw.

Indeed, Cyprus has outperformed on almost every major economic indicator, as it has refocused its economy on tourism, shipping, construction and business services. Its debt is lower than forecast (106 per cent in 2015 rather than 126 per cent), it has a budget surplus (down from a 5.5 per cent deficit in 2013), and the current account is almost in balance. 

The bailout was launched in March 2013, when Cypriot banks collapsed and the country imposed capital controls to prevent complete financial meltdown. While the economy slumped by 5.9 per cent in 2013 and shrank by another 2.5 per cent in 2014, provisional figures show that it rose by 1.4 per cent in 2015, and it is forecast to grow by 1.5 per cent this year.  

The exit comes despite concerns that Cyprus failed to take steps towards the privatisation of the island’s state-owned telecommunications operator, CYTA, when it was blocked in parliament. As a result, Cyprus will not receive the final €175m of its funds, and will only see a closure of the bailout programme at the end of the month, when the three-year rescue expires.

By contrast with Cyprus, Greece was yesterday caught in a new row between the EU and IMF over how strictly to hold Greece to the reform commitments of its own bailout. The Washington-based IMF is demanding that Athens agree reforms worth €9bn, or 4.5 per cent of GDP, before it signs off on its third bailout, worth up to €86bn in loans. But the EU – represented by the EU’s rescue fund the European Stability Mechanism, the ECB and the European Commission – says the demands are unnecessary.

Alexis Tsipras, the Greek Prime Minister, has accused the IMF of employing “stalling tactics” and “arbitrary” estimates to delay a reforms review crucial to unlock the bailout. However, both IMF and EU representatives are due in Athens today, suggesting they are moving closer to each other’s positions. 

Jeroen Dijsselbloem, the Eurogroup president, also indicated that talks could start as soon as April on Greek debt relief. Mr Dijsselbloem, who is also the Dutch finance minister, said the talks could start as soon as lenders verify Athens has carried out promised reforms.

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