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Cyprus has made limited progress

Cyprus has made limited progress with implementing the 2016 country-specific recommendations said the European Commission in its country report on Cyprus issued earlier today.

Cyprus has made limited progress says European CommissionA DOWNBEAT report from the European Commission notes that Cyprus has made “limited progress with implementing the 2016 country-specific recommendations” and continues to face “excessive imbalances in the form of a weak financial sector and large stocks of private, public, and external debt.”

“Despite a major restructuring of the banking sector and improved capital positions, the ratio of non-performing loans as a share of GDP remains at very high levels and does not show a clear downward trend” the European Commission has said.

Reporting on a number of property-related matters, the European Commission’s report notes that:

“The tax-benefit system in Cyprus is among the least effective in the EU in reducing inequality and its effectiveness may deteriorate even further following the abolition of the property tax in 2017.”

“NPLs are to large extent concentrated in construction and real estate sectors and banks are increasingly resorting to debt-to-asset swaps in loan restructuring transactions. This leads to an accumulation of real estate assets in their balance sheets, which in turn increases their vulnerability to property price developments.”

“The depressed housing market has deterred the selling of assets, thereby slowing down debt reduction and incentivising strategic defaults. A large proportion of loans have real estate property as collateral. However, asset disposals, namely asset sales, remain unattractive due to declining housing prices. In addition, the difficulties in issuing and transferring title deeds have deterred demand for housing and weighed on the liquidity of property markets.”

In its conclusions, the European Commission points out that “Measures have been taken to increase loan restructuring, implement foreclosure and insolvency frameworks, make the judiciary more efficient, and allow for the sale of loans. However, efforts are still needed to remove bottlenecks in the foreclosure and insolvency frameworks, improve contract enforcement, ensure well-defined property rights, and help banks resume a healthy flow of credit to the economy. Ensuring fiscal discipline is also crucial for debt-reduction.”

Further reading

Country Report Cyprus 2017 Including an In-Depth Review and the prevention and correction of macroeconomic imbalances.

Readers' comments

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  • Deanna says:

    And so it continues, and always will. The problem with the eurozone dream is that it took no account of the different culture of the southern/med. countries.

  • CostasApacket says:

    Progress is limited by vested interests and a total lack of desire or urgency to change old ways.

  • clive fletcher says:

    If Cyprus, along with Greece, left the Eurozone and reverted to their original currencies, of which both countries have considerable amounts stored in warehouses, they could trade their way out of debit through mainly the tourist trade. Do it before the euro time bomb explodes.

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