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Cyprus Saves 2.1% of Its GDP Through ESM Loan

Cyprus Saves 2.1% of Its GDP Through ESM Loan

Cyprus’ budgetary savings, generated as a result of borrowing from the ESM/EFSF instead of turning to the markets, stood at 2.1% of its GDP or €0.4 billion, according to ESM calculations published on Wednesday, August 9.

The ESM contributed €6.3 billion to Cyprus’ bailout programme out of a total of €10 billion, approved in 2013, Cyprus News Agency reports.

 In all its programmes, the ESM/EFSF passes on its low funding cost which provides a significant amount of savings in programme countries’ budgets, year after year.

Cyprus, Greece, Ireland, Portugal and Spain obtained loans from the EFSF/ESM at much lower interest rates than those that would theoretically have been offered by the market.

“This generated -and continues to generate - substantial budgetary savings, helping to provide additional leeway to implement fiscal and structural reforms to foster growth, and thereby ultimately supporting market access and debt sustainability. This is a real solidarity contribution by euro area partners which is often disregarded” said the ESM.

The budgetary savings for Cyprus stood at 2.1% of GDP or €0.4 billion in 2016, 1.9% of GDP or €0.3 billion in 2015, 1.6% of GDP or €0.3 billion in 2014 and 0.7% or €0.1 billion in 2013.

Given the massive size of the financial support, the financial advantage is by far the largest for Greece, amounting to 5,6% of GDP in 2016, combining ESM, EFSF and another 0.7% of savings from the deferral of interest rates (which will however come due after 2022).

 It is also noted that at the peak of the crisis, savings were even larger: towards the end of 2013, countries such as Ireland and Spain (and to a lesser extent Portugal) were already approaching the conclusion of their programmes and were benefiting from lower spreads due to the effective crisis response and good programme implementation.

 The ESM said that the impact of cheap lending outlives the period of the programmes and will last for many years to come. Savings have slightly decreased recently for Ireland in view of their improved financing conditions. However this effect is expected to be temporary, when the more expensive loans provided initially under EFSF mature.


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