Proposal for a Council Decision addressed to the Republic of Cyprus on specific measures to restore financial stability and sustainable growth

Cyprus has been under increasing pressure in financial markets, against the background of rising concerns about the sustainability of its public finances, including its weakened financial sector and the scale of potential public support measures. Although some of the imbalances have emerged as a result of negative spill-overs from the euro-area crisis and developments in Greece, others have been domestic and longer-lasting. Amidst consecutive downgradings by credit rating agencies of Cypriot sovereign bonds, the country became unable to refinance itself at rates compatible with long-term fiscal sustainability. In parallel, the banking sector was increasingly cut off from international market funding and major financial institutions recorded substantial capital shortfalls.

The situation in the banking sector worsened dramatically in early-2013, due to a drop in confidence leading to continuous and substantial deposit outflows. In March 2013, the Eurogroup reached a political agreement on the key elements of a macroeconomic adjustment programme for Cyprus with a financial envelope of up to €10 billion. Following financial turmoil, a bank holiday of 10 days was imposed, during which the sector was downsized substantially through resolution and restructuring of banks and separation of the Greek operations of Cypriot banks.

Against the background of these severe economic and financial disturbances, the Cypriot authorities officially requested financial assistance in the form of a loan from European Financial Stability Facility / European Stability Mechanism on 25 June 2012, as well as from the International Monetary Fund (IMF), with a view to supporting the return of the economy to sustainable growth, ensuring a properly-functioning banking system, and safeguarding financial stability in the European Union and in the euro area. On 27 June 2012, the Eurogroup invited the Commission, in liaison with the European Central Bank (ECB), the Cypriot authorities and the IMF, to agree on a macroeconomic adjustment programme, including the financing needs, and to take appropriate action to safeguard financial stability.

• Primary Source

EUR-Lex: COM(2013)233: Follow the progress of this proposal through the decision-making procedure http://eur-lex.europa.eu/legal-content/EN/HIS/?uri=COM:2013:233:FIN

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