President of the Republic of Cyprus Demetris Christofias has called on everyone to behave in a responsible manner in order to pull through the worst and find balanced solutions.
Speaking in view on a meeting on Friday at the Presidential Palace with the political parties to discuss the economy and the third fiscal consolidation package introduced by Finance Minister on November 18, President Christofias pointed out the urgency of the situation and welcomed the fact that the political parties have expressed willingness for consensus.
President Christofias expressed certainty that the worst could be avoided if there were sacrifices, which were not unbearable.
Replying to questions, he said the Minister of Finance would be meeting with the trade unions on Friday and that the political parties would be submitting various proposals.
To comments that Cyprus could even so enter the support mechanism due to the situation of the banks, President Christofias said that “we can avoid entering the support mechanism and this is our effort.“
“We must enter a channel of optimism with the measures we will take and I would like to believe that in the end they will be balanced and we will avoid social turmoil,“ he added.
On November 18, the Finance Minister introduced a third fiscal consolidation package aiming at restoring Cyprus` credibility in the international markets. The package provides for the freezing of salary increases in the public sector (including COLA) for two years, with a yield of 355 million EUR, a scaled contribution of high earners in the private sector and the introduction of a 0.5% levy on the turnover of companies with local activities for two years.
According to the EU` new economic governance provisions, Cyprus must take concrete steps for the correction of its public finances. Otherwise, a fine of 0.2% GDP will be imposed.
The first fiscal consolidation package with a fiscal impact of 1% GDP or 180 million EUR was approved on August 27, by the House of Representatives, while a bill for the increase of VAT rate to 17% from 15%, which would yield an additional 140 million euro to the state coffers, is pending for approval.
The Cabinet also approved a second fiscal consolidation package, incorporated in the 2012 state budget, which would reduce the budget deficit below the 3 per cent Euro area benchmark (2.8%) in 2012. The package provides for the abolition of 939 vacant positions in the public sector, a 10% reduction of the starting salary of civil servants, the introduction of income criteria for the better targeting of welfare spending such as child allowance and student allowance (100 million EUR).
