The European Central Bank (ECB) notes the importance of policy measures to reduce the impact of the pandemic on financial financial stability, in its response to the Cypriot Ministry of Finance, regarding the law extending the suspension of sales voted by the Parliament.
It should be noted that the President of the Republic referred to the relevant law that provides for a new three-month suspension of sales, while in today's session, the Plenary Session of the Parliament rejected the removal of the President.
According to an announcement by the Ministry of Finance, the ECB in a letter dated 20/7/2021 informed the Minister of Finance that it decided not to express an opinion, as the draft law touches only marginally of its areas of competence.
It is also reported that the ECB decided not to issue an opinion after taking particular account of the following: the fact that the purpose of the amendments introduced by the draft law is only to extend the suspension of mortgage procedures until 31 October 2021, the scope of the draft law will be limited to first homes with an estimated value of up to 350 000 euros (reduction compared to the amount of 500 000 euros under the current law), small commercial properties with an annual turnover of up to 750 000 euros (reduction in relation to the amount of EUR 2 000 000 under the applicable law) and parcels of estimated value up to EUR 100 000 (reduction in relation to the amount of EUR 250 000 under the applicable law).
The ECB further states that the importance of policy measures to reduce the impact of the pandemic on economic and financial stability makes it equally important to manage the exit from this support.
According to the ECB, economic and financial policy measures have so far limited the implementation of credit risk and the transmission of adverse effects between the real economy and the financial system. It added that as long as significant traffic restrictions are in place to control the pandemic in eurozone countries, economic policy support to avoid bankruptcy of disadvantaged but viable companies and a significant increase in unemployment will protect the short-term financial stability.
With the gradual lifting of traffic restrictions and the improvement of the adaptation of parts of the economy to these restrictions, the ECB emphasizes that extensive policy support, especially for companies, should be phased out in order to avoid disproportionately serious consequences. Combined with the gradual transition from widespread to more targeted measures, the phasing out of policy support, depending on progress, may reduce the medium-term adverse side effects of policy support on financial stability. These adverse effects result from an increase in government and corporate debt as well as from the allocation of resources to potentially unsustainable companies. This increases the weaknesses in the balance sheets of countries, companies and banks and may create obstacles to future economic growth as a result of improper allocation of resources to the affected economies.
In the future, it is noted, a key challenge for policy support will be to adapt eligibility criteria to strengthen mechanisms for assessing the future viability of beneficiaries and to prepare for the phasing out of policy support, depending on progress.
The Ministry of Finance states that it will continue to consult with the ECB on draft legislation falling within its areas of competence under the Treaty on the Functioning of the European Union and Council Decision 98/415 / EC and to monitor the effectiveness of the divestiture framework. .
According to the Ministry, it considered it absolutely necessary to consult the European Central Bank (ECB) for the purposes of complying with Articles 127 (4) and 282 (5) of the Treaty on the Functioning of the European Union and Article 2 (1) of the European Council Decision (98/415 / EC) as it considered that this matter concerned the responsibilities of the ECB in ensuring financial stability. He also stated that he had consulted the ECB in light of the weight given by international rating agencies in assessing the Cypriot economy, in the case of LDCs, which set as a key criterion for upgrading the credit rating of the Cypriot economy the further reduction of LDCs to sustainable levels and the fact that sales are frozen for most of the time that has elapsed since March 2020.
The referral of the law on sales was rejected by the Parliament
The revocation of the law on sales in the extraordinary Plenary Session
President Anastasiadis: The law on sales is unconstitutional and with risks for the economy