Economic response to Covid-19
Being part of the European Union means Cyprus can utilise the combined power of 27 Member States for recovery from unexpected financial shocks, as well as long-term economic growth and fiscal stability.
The EU’s Single Market environment, adoption of the euro currency and support from EU economic and fiscal policy coordination ensures Cyprus’ economy remains stable and competitive.
Europe’s recovery from the financial consequences of the Covid-19 pandemic is of vital importance to Cyprus’ economic interests.
The EU is responding to the coronavirus crisis with a recovery package of €1.8 trillion consisting of Europe's next long-term Multiannual Financial Framework (MFF) budget and the temporary recovery instrument, Next Generation EU.
It is the largest package ever financed through the EU budget and it will power an economic resurgence that reflects the Commission’s European Green Deal roadmap for a sustainable economy and accelerate the digitalisation of Europe's economy.
The European Commission’s recovery plan for Europe utilises several revenue sources to help repair the economic damage caused by the pandemic, and there are specific support for necessary investments in Cyprus that would promote sustainable growth and protect the economy from future risks.
The socio-economic impact of the pandemic is unprecedented, for citizens, businesses and in particular for the vulnerable in society. The EU has delivered a powerful collective response to cushion the economic blow of the pandemic and to set the foundations for a resilient recovery.
Cyprus is set to receive an estimated €1 billion in Recovery and Resilience Facility grants and €0.2 billion in Recovery and Resilience Facility loans, with the possibility of requesting more RRF loans in the future.
Other EU funds for Cyprus will be the €112 million available in 2021 under REACT-EU and €92 million from the Just Transition Fund. Also, Cyprus will also receive €959 million in Cohesion Policy allocations from the latest long-term EU budget, as well as just over €366 million in direct payments from the European Agricultural Guarantee Fund (EAGF). There will also be €172 million available through the European Agricultural Fund for Rural Development.
Furthermore, the European Commission has also disbursed €603 million in financial support to Cyprus under the SURE instrument. The support was provided in the form of loans granted on favourable terms and will assist Cyprus in covering the costs related to its Temporary COVID-19 Wage Subsidy Scheme.
The EU Budget
The EU’s long term budget usually covers a period of up to seven years and it is called the Multiannual Financial Framework (MFF). The budget is based on proposals from the European Commission that are negotiated and agreed by Member States at the European Council and the Council of the EU. It also has to be approved by MEPs at the European Parliament.
The MFF is used to implement the EU’s internal and external policies and the 2021-2027 budget is worth €1,074 billion (in 2018 prices), although it is supplemented by the temporary Next Generation EU recovery package of €750 billion (in 2018 prices) to help repair economic and social damage caused by Covid-19.
However, the EU budget doesn’t aim to redistribute wealth, but rather it focuses on the needs of Europeans as a whole and Cyprus’ access to the Single Market is estimated to be substantially more than its contributions.
The framework for coordinating economic policies across the European Union is provided by the European Semester. This framework allows EU Member States to outline their economic and budget plans and have progress monitored at specific times throughout the year.
Member States still have autonomy to implement their own financial policies and tax regimes but the Semester ensures they keep within an agreed set of rules called the Stability and Growth Pact (SGP).
The Semester was introduced in 2010 in response to the global economic crisis of the time. It includes mechanisms to identify potential risks to stability and imbalances such as property market bubbles, like the one that contributed to Cyprus economic crash in 2012-2013.
The annual Semester cycle runs from November to October with ‘packages’ for each Member State published in autumn, winter and spring detailing priorities, guidelines, recommendations and reports.
Economic and Monetary Union
The Economic and Monetary Union (EMU) helps integrate EU economies so they can provide stability and stronger, more sustainable, inclusive growth to improve the lives of EU citizens.
It involves the coordination of economic and fiscal policies, a common monetary policy, and a common currency, the euro.
All EU Member States are part of the economic union but some, including Cyprus, that have adopted the euro, are collectively called the euro area or eurozone.
Responsibility for economic policy within the EMU is divided between Member States and EU institutions including the European Commission, which monitors performance and compliance.
The European Central Bank is the EU institution responsible for implementing an effective, closely coordinated, monetary policy for the euro area, within the objectives of price stability and safeguarding the currency’s value.
National governments control other economic policy areas including fiscal policy that concerns government budgets, and tax policies that determine how income is raised.
The banking union, established in response to the global financial crisis in 2008, strengthens Economic and Monetary Union. It creates a more transparent, unified, safer market for banks and helps protect depositors by ensuring they behave prudentially and that action is taken quickly to prevent banks from failing.
Ministry of Finance, Cyprus