ESM’s Regling: Cyprus should utilize EU Pandemic funds to promote reforms

Cyprus should utilize EU pandemic funds to promote reforms that would diversify its economy, Klaus Regling, the European Stability Mechanism General Director told the Economist 16th Cyprus Summit.

“Cyprus will receive a substantial amount of money from the EU funds. This money presents Cyprus with a good opportunity to continue its structural reform effort,” Regling said during the conference that took place virtually on Tuesday.

Referring to Cyprus’ fiscal support package to alleviate the impact of the pandemic to the economy, Regling said the package would protect employment and economic activity, but added that every EU member-state needs to recognize that these immediate measures should be accompanied by measures that would support the economy on the long-term.

“Cyprus is an open economy, exposed to a number of external risks,” he said, recalling that the Tourism sector contracted by an annual 85% so far due to the pandemic.

“Cyprus would make its economy more resilient by decreasing its dependence on tourism and diversifying further into other areas,” the ESM chief stressed.

Furthermore, Regling described the high level of non-performing loans in the Cyprus banking sector, as a “particular challenge,” noting that new flow of NPLs due to the recession associated with the pandemic would come on top of the already high NPL rate.

He also referred to economic reforms on the EU level, noting that additional steps would make the Economic Monetary Union more resilient, such as the ESM reform, the completion of the capital markets union and the banking union.

On his part, former Cyprus Finance Minister Harris Georgiades said that the economy is in uncharted waters as forecasting is very difficult in the midst of the pandemic.

But he noted that he is optimistic due to the “very good news” associated with the development of vaccines to combat Covid-19.

Georgiades also said he is upbeat because Cyprus entered the health crisis after years of strong growth and with strong fiscal buffers, which enabled the government to run the most significant support package since the 2013 crisis.

“The significant lesson showed that governments should contain public expenditure in good times creating fiscal space and buffers which can be mobilised in times of crisis,” the former Finance Minister stressed.

Jeroen Dijsselbloem, who was heading Eurogroup in 2013 at the time the controversial decisions concerning the bailout of Cyprus were taken, spoke of impressive stimulus packages as a response to the pandemic both at the level of the EU and the member-states.

But he noted that it is extremely urgent to complete the baking union that would enable risk sharing, as well as the capital markets union.

The Dutch former Minister said he is optimist that the EU has been strengthening its institutions in times of crisis, adding the EU Resilience and Recovery Fund has “opened up a window for sovereign debt on a European level.”