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A crucial trial with €844 million at stake

October 14, 2019 at 7:00am
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If public servants in Cyprus win their case against the government over the implementation of legislation providing salary cuts following the financial crisis, the overall cost for the state would be €844 million.

The legislation was passed in December 2012 on the grounds that the Cypriot economy was in an extraordinary situation and the cuts were seen as necessary to rectify state finances.

This is what the Finance Ministry’s latest Financial Risk Report notes, adding that savings from reduced earnings and pensions for 2018 amounted to €256.6 million. The corresponding amount for 2017 was €265.3 million.

“Financial risks arise in the event of a court ruling against the Republic since this would be followed by compensation to the applicants,” the report warns.

“And if the monetary compensation is high then public finances are adversely affected and consequently the failure to meet set fiscal targets is there along with all negative consequences,” it adds.

A second fiscal risk is pending lawsuits of third parties whose economic state of play had been adversely affected by March 2013 decisions (haircut on deposits, for example) to restructure the banking sector.

A third fiscal risk is lawsuits for financial claims from government and maintenance contracts.

A fourth fiscal risk is third party claims for accidents/ injuries that have occurred and, in the plaintiffs’ assessment, the Republic of Cyprus bears responsibility.

The plaintiffs believe financial loss took place whether it relates to the estimated value of the expropriated land and/or potential loss of profits from non-use of such assets.

Another interesting point in the report concerns loans guaranteed by the state. It notes that 93.83% (2018: 93.30%) of total outstanding loans on March 31, 2019 were collateralised, while the remaining 6.17% (2018: 6.70%) were categorised by the financial organisations involved as non-performing.

 

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Quangos and municipalities to assess fiscal risks