Cyprus: Perspectives Of The Eurozone's Future

The presentation of a "Pact of Competitiveness" at the EU summit on 4 February by Germany and France was the plan for the Eurozone Member States to agree on a closer economic convergence in order to restore competitiveness to the euro area.

The proposed Franco-German Eurozone plan, which wanted to push reforms underpinning the strength of the single currency, came up against significant immediate resistance at the summit. Many smaller Member States resented that for the second time during the financial crisis, Germany and France had worked out a policy and then presented it to the rest of the EU leaders in order to achieve a deal. Apart from the concerns raised about the intergovernmental nature of the pact, it has to be mentioned that the involvement of EU institutions was also excluded.

The Pact includes six elements that Member States would have to implement within 6 months; automatic indexation of wages to prices, mutual recognition of diplomas and professional qualifications, as well as a common corporate tax base. Member States would also pledge to adjust pension schemes to take into account demographic developments, introduce debt-alert mechanisms into their constitutions and create a national crisis management regime for banks.

Doubts have also been expressed about the added value the pact will bring to existing EU economic governance rules, which are currently being reviewed by the European Parliament. The Commission also raised concerns as to whether the plan would be subject to existing EU treaty rules.

On 11 March 2011 Eurozone leaders gave in to fresh demands from Brussels and Germany to sign up to a competitiveness pact that will prompt countries to further coordinate their economic policies. The Pact for the euro, which establishes stronger economic policy coordination, will be presented to the European Council on 24 – 25 March 2011 with a view for non-euro area Member States to indicate whether they intend to participate in the Pact.

The implementation of the Pact is foreseen for next year followed by a number of measures to strengthen fiscal positions and growth prospects through fiscal, financial and structural reforms.

Regarding its financing capacity the European Stability Mechanism (ESM) will have an overall effective lending capacity of 500 billion euro, while 440 billion euro of the European Financial Stability Facility (EFSF) will be made fully effective during the transitional period and until the entry into force of the ESM.

Among the concrete policy commitments encountered in the Pact, the new Pact commits Euro area Member States to translate EU fiscal rules as set out in the Stability and Growth Pact into national legislation. The choice of the specific national legal vehicle to be used will be left to the Member States, but it has to make sure that it has a sufficiently binding and durable nature.

Special attention will be paid to tax policy coordination. Certainly, direct taxation remains a national competence. However, the Pact commits Member States to engage in structured discussions on tax policy issues, notably on exchange of best practices, avoidance of harmful practices and proposals to fight against fraud and tax evasion.

Furthermore, the development of a common consolidated corporate tax base needs to be realised and the Commission will present its proposals in this regard in the coming weeks.

This commitment can be demonstrated by the fact that the Member States are required to achieve these objectives within 12 months as set out in the strict timetable.

The Republic of Cyprus is in line with common action of Eurozone members and the general goals that are included in the Pact. According to statements of the President of the Republic, it is especially important that the Pact ensures that the Member States will decide autonomously the particular measures to be implemented in order to achieve the general goals.

Moreover, the President stated his opposition to tax convergence and corporate tax harmonisation proposals. He specified that Cyprus's competitiveness would be severely hit, if such measures were adopted. He clarified that the tax system was already in place before the country's accession to the EU and was approved by the EU upon entering. He also stated the opposition of Cyprus to the suspension the Cost-of-Living-Allowance (COLA).

Apart from Cyprus, the Pact met a general resentment among European governments. Portugal, Luxemburg, Austria and Spain, which all have elements of automatic inflation adjustment, opposed the proposal, whereas Italy, which has the EU's second highest debt to GDP ratio after Greece, disliked the proposal to anchor binding debt reduction targets in its constitution. Ireland, which is counting on foreign investment to help it recover from its own bail out, rejected the idea of setting a minimum corporate tax level in the Eurozone and Belgium, whose government cannot afford a social crisis, objected to ending inflation and indexing of wages.

Interestingly China has offered its support. China's central bank governor, Zhon Xiaochnan stated: China has confidence in the Eurozone. Although some Eurozone nations have hardships, we will vigorously support them in surmounting their present fiscal difficulties and improving their economies.

The next step remains the formal adoption of the Pact on 24 March by the Eurozone leaders including those Member States not participating in the euro if they wish. In any case, concrete commitments should be included in the National Reform documents and have to be presented to the European Council.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions