Cyprus Bailout Terms: payback for lacklustre Europeanisation?

It has been suggested that the barely disguised and 'vindictive destruction' and 'robbery' implicit in the EC bailout of Cyprus is driven by a desire for revenge over the rejection of the Annan Plan following the accession agreement for Cyprus.


While this undoubtedly has left resentment amongst some EC and member state officials and governments it is going too far to suggest that this is what motivated the bailout (see my Blog entry below).


It might be argued more convincingly that the detailed measures of the bailout's Memorandum of Agreement are in some measure a chance for EC officials to push forward the sometime reluctant 'Europeanisation' of Cyprus.


Studies of the island's accession to the EU note that while the technical needs of EU legislation have been met with bureaucratic alacrity the cultural and practical shifts needed to make this real have been slower in coming (see my page Back in Brussels).


The reforms and restructurings detailed in the Memorandum include not only the paring-down and 'carving-out' of the banking system and the introduction of more comprehensive supervisory regimes and anti-money laundering practices. 


It also specifies a wide range of measure that aim to Europeanise Cypriot systems of administration, labour market regulation, revenue-raising and state expenditure.  These include measures,


  • to reform revenue raising - through increases in corporate, interest and road taxes;
  • to restucture the bloated public sector pension system and raise the de facto retirement age from 63 to mirror increasing longevity;
  • to impel the health service to greater efficiency and reduced deficits, including the smoothing of health worker hours across the calendar year;
  • to put in place a robust anti-graft framework with regard to public tenders;
  • to create efficient state owned enterprises and a clear inventory of state assets;
  • to embark on revenue raising of €1.4bn by 2018 through the privatisation of telecomms, electricity and ports; 
  • to reduce tax evasion and VAT fraud and identify the real owners of trusts and companies registered in Cyprus;
  • to implement the OECD's detailed country study on Tax Information Exchange and Transparency in Cyprus;
  • to introduce active labour market policies to (delightfully) 'activate benefit recipients by facilitating their reinsertion in the labour market';
  • and to carry out an audit of potential restrictive practices in the professions.

The Memorandum of Agreement also calls for strategic plans for tourism development and a roll-out plan and regulatory and institutional frameworks for natural gas exploitation. 


Given the absolute centrality of these sectors for the economy this seems somewhat superflous but maybe speaks to the Commission's delight in frameworks and strategies and presumably a perception of a lack in this regard in Cypriot government and administrative circles.


If it didn't come at such a price and if it were not couched in the language of a bureaucratic dictat - even though 'negotiated' - and were it not so intrusive into the workings of the banking, regulatory and state systems  of Cyprus I am sure that there are more than a few people in Cyprus who would applaud the individual measures and reforms the European Commission insists upon in exchange for the €9bn of European Stability Mechanism loans it is making available.  


(For a summary of the provisional draft of the Memorandum of Agreement see my page Memorandum.)