Download EM 5398/14 - European Memoranda

5398/14
COM (2014) 118 FINAL
EXPLANATORY MEMORANDUM ON EUROPEAN UNION DOCUMENT
PROPOSAL FOR A COUNCIL IMPLEMENTING DECISION AMENDING
IMPLEMENTING DECISION 2013/463/EU ON APPROVING THE MACROECONOMIC
ADJUSTMENT PROGRAMME FOR CYPRUS
March 2014
Submitted by HM Treasury
SUBJECT MATTER
1. This Explanatory Memorandum (EM) covers the proposal for a Council Implementing
Decision to amend the macroeconomic adjustment programme for Cyprus.
2. The European Commission, in liaison with the European Central Bank (ECB) and the
International Monetary Fund (IMF), has conducted the third review of the financial
assistance programme to Cyprus. In light of the review, the Council Decision would
amend the Memorandum of Understanding (MoU) for the programme, in order to
reflect the progress to date and the remaining policy challenges for Cyprus.
3. The proposed changes apply to financial sector reform, fiscal policy, and structural
reforms. They are explained below.
4. On fiscal policy: the general government primary deficit target in 2014 is to be revised
to 1.8% of GDP, from 4.25% of GDP. This reflects a smaller-than-expected output
contraction in 2013 and the 2014 Budget. The targets for subsequent years remain
unchanged. The revised MoU states that, for fiscal policy in 2015-2016, the Cypriot
authorities shall pursue a general government balance in line with the adjustment path
respecting the Excessive Deficit Procedure (EDP) recommendation. This requires a
headline deficit of no more than 6.3% of GDP in 2015 and 2.9% of GDP in 2016.
5. On the financial sector:
 A communication strategy on the roadmap for relaxation of capital controls, and
on implementation of the banking sector strategy, is to be designed by a joint
Central Bank of Cyprus and Ministry of Finance task force.
 Banks are to report on the potential impact on capital, profitability and coverage
ratio of the newly introduced, and upcoming, European Union rules on capital
requirements and non-performing loans.
 Plans on reform of the legal framework for private debt restructuring are to be
reviewed.
 A task force is to be established to assess the magnitude of registered, but
untitled, land sales contracts, and to provide recommendations on this issue.
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A comprehensive reform framework for appropriate corporate and personal
insolvency procedures is to be established.
The Civil Procedure Code and Court Rules are to be reviewed to ensure a
smooth and effective functioning of the revised foreclosure and insolvency
frameworks.
6. On structural reform:
 The first stage of a National Health System (NHS) is to be implemented,
following a roadmap. The revised MoU extends the deadline for this from end2015 to mid 2016.
 Policies on pricing and reimbursement of medical goods and services are to be
revised.
 A Privatisation Unit is to be established.
 An action plan is to be set out for addressing the shortcoming identified in
Phase 2 of the peer review by the Organisation for Economic Co-operation and
Development Global Forum on Transparency and Exchange of Information for
Tax Purposes.
 A growth strategy based on Cyprus' competitive advantages is to be developed.
7. The proposed Decision will ensure full consistency between the Union multilateral
surveillance framework established by the Treaty of the Functioning of the European
Union (TFEU) and the policy conditionality underpinning the financial assistance.
8. Article 10 of Regulation (EU) No 472/2013 provides for consistency in reporting and
monitoring obligations.
SCRUTINY HISTORY
9. EM 13151/13 on the proposal for a Council Implementing Decision on approving the
macroeconomic adjustment programme for Cyprus and repealing Council Decision
2013/236/EU was submitted for Parliamentary scrutiny by HM Treasury on 9
September 2013.
10. EM 8648/13 on the Council Decision addressed to the Republic of Cyprus on specific
measures to restore financial stability and sustainable growth was submitted for
Parliamentary scrutiny by HM Treasury on 6 May 2013.
MINISTERIAL RESPONSIBILITY
11. The Chancellor of the Exchequer has responsibility for United Kingdom policy on
European Union monetary and economic issues. The Foreign and Commonwealth
Secretary is responsible for overall United Kingdom policy towards the European
Union.
INTEREST OF DEVOLVED ADMINISTRATIONS
12. Policy concerning the EU Budget is a reserved matter under the UK’s devolution
settlements and no devolved administration interests arise. The devolved
administrations have therefore not been consulted in the preparation of this EM.
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LEGAL AND PROCEDURAL ISSUES
i.
Legal basis
13. Article 7(2) of Regulation (EU) No 472/2013 of the European Parliament and Articles
121(6) and 136 TFEU.
ii.
Legislative procedure
14. Qualified Majority Voting (for the Council Decision).
iii.
Voting procedure
15. Per Article 15 of Regulation (EU) No 472/2013, only members of the Council
representing euro area Member States may take part in the vote, which is by Qualified
Majority Voting. The vote of the member of the Council representing the Member State
concerned will not be taken into account in such a vote.
iv.
Impact on United Kingdom Law
16. None – this Decision is addressed to Cyprus only.
v.
Application to Gibraltar
17. Not applicable.
vi.
Analysis of Fundamental Rights Compliance
18. This proposal does not appear to engage any of the rights laid down in the European
Convention on Human Rights or in the First or the Thirteenth Protocol.
APPLICATION TO THE EUROPEAN ECONOMIC AREA
19. Not applicable.
SUBSIDIARITY
20. The EU has competence under the Treaty for multilateral surveillance of economic
policies. Member States remain responsible for their national budgetary policies
subject to the provisions of the Treaty.
POLICY IMPLICATIONS
21. The Implementing Decision does not have any direct policy implications for the UK,
and the UK does not have a vote. Cyprus is a Commonwealth member and the UK
supports its efforts to address its financial difficulties.
REGULATORY IMPACT ASSESSMENT
22. Not applicable.
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FINANCIAL IMPLICATIONS
23. There are no direct financial implications to the UK arising from this document.
Financial assistance to Cyprus is provided by the European Stability Mechanism
(ESM), in which the UK does not participate.
CONSULTATION
24. Not applicable.
TIMETABLE
25. The revised version of the Proposal for a Council Implementing Decision was
endorsed by the Economic and Financial Committee on 28 February 2014. It will be
voted on by euro area Member States at AGRIFISH Council on 24 March 2014.
NICKY MORGAN
ECONOMIC SECRETARY TO THE TREASURY
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