This is part II of a two-part series of articles discussing the economic measures proposed by the EU and Cyprus in response to COVID-19. This material was also presented as part of CX Financia’s participation in the June 4th webinar “Global Tax Post COVID-19” organized by Tax India Online (TIOL).”
COVID-19’s economic impact on Europe will be felt for a while. In response, several measures have been enacted to ease the financial burden wrought on the region by the pandemic.
What are some of the longer-term measures being implemented to boost business in the region and ease the economic burden felt by EU Member States? And what needs to be done next?
European economic measures as a response to COVID-19
Equipped with all the instruments at its disposal, the European Commission has put in place a three-pillared approach to revitalize the region’s economy.
Pillar 1: Immediate and Flexible Measures
Firstly, the European Commission’s immediate measures allowed Member States to boost their economies and rely on the full flexibility found under the EU’s state aid rules.
These measures set out to strengthen the countries’ healthcare systems during the COVID-19 crisis, boosting the production and distribution of value chains in the sector. Of particular importance is the European Stability Mechanism’s (ESM) Pandemic Crisis Support Instrument aimed at financing healthcare, cure and prevention related expenses due to the pandemic.
At the same time, the European Commission sought to ensure that the financial sector had enough liquidity to keep the economy afloat by utilizing the full flexibility of State Aid and the Stability and Growth Pact framework in an organized and decisive manner.
Pillar 2: Safety Nets
Secondly, the European Union set forth crucial safety nets for workers, businesses and governments so that income, employment and property are not directly affected and cause permanent damage to the countries’ economies. These safety nets include the Commission’s SURE program and the European Investment Bank’s Pan-European Guarantee Fund.
Pillar 3: Recovery Fund
Lastly, Europe’s Recovery Fund will aim to jumpstart the region’s economy and provide assistance via loans and grants to those sectors hit hardest by COVID-19 and which can also generate strong economic activity and growth moving forward.
Moreover, the European Central Bank (ECB) will authorize financial institutions to temporarily operate below their required capital level, capital conservation buffer (CCB) and liquidity coverage ratio (LCR), enabling them to use the freed-up funds to support the local economies.
Second phase measures in Cyprus designed to restart and revitalize the economy
The Cypriot government has followed in the footsteps of the EU and established, as of May 27, 2020, a series of measures destined to strengthen the economy in the long run.
These measures look to encourage investment and innovation, boost liquidity throughout the economy, and provide support to SMEs and the tourism, agriculture and real estate sectors.
Improving the liquidity of both businesses and the self-employed and stimulating new investment
This package hopes to solve the crucial problem of corporate liquidity. Combined with significant interest rate subsidies on loans for businesses and housing, these measures, which include grants and other kinds of financial assistance, will help businesses cope in the long run with the difficulties currently affronted.
Moreover, the Cyprus Entrepreneurship Fund, which was originally set up in 2013, will receive an additional €800 million in funds. This will allow companies, based on their financial condition and overall capabilities, to benefit from available growth strategies to potentially increase their revenues and profits.
Accelerating existing development projects
In an effort to catalyze the construction and development sector, the government will speed up the call for tenders for ongoing development projects. The aim is to boost employment and consumer spending.
Boosting the tourism sector
The Cypriot government, which relies heavily on the income brought in each year by tourists, will invest significant funds on promotional campaigns showcasing the island as a safe destination and subsidies for airlines flying in and out of the country. Furthermore, hotels and restaurants will benefit from a 4% reduction in VAT up until January 2021.
The Cypriot government will support the agricultural sector via €22 million in grants.
During the upcoming months, the country’s immediate objective is to make sure the economy has sufficient liquidity and foster the measures required to jumpstart it. Acting swiftly and being proactive—as already exemplified by the early work carried out by both the EU and Cyprus—are crucial to achieving these overarching goals.
Up to this point, Cyprus has taken all the necessary steps to curtail the spread of the virus and support its economy via a series of financial measures similar to those being implemented across the EU.
Besides continuing to affront this crisis in a serious manner, what Cyprus has to do next is find ways to exploit all the new opportunities that will present themselves as a result of the pandemic.
COVID-19 has created a paradigm shift, one in which what was once considered safe is no longer so. This change calls for countries worldwide, especially those like Cyprus with more specialized, one-dimensional economies, to move out of their comfort zones and seek greater diversification.
Current trends point towards the growing importance of technology. During this crisis, more and more people embraced the digital world—from Zoom meetings to online delivery services to virtual classrooms and beyond. Countries open to making the most of this massive leap will benefit from a myriad of new and unique business opportunities.
Cyprus, for instance, is equipped to make the most of this brave new world via its excellent IP Box regime. Additionally, in recent years, there have been plenty of inroads made to boost the local IT and start-up community. Now it is up to the Cypriot government and businesspeople to move their attention away from traditional sectors such as tourism and real estate and invest more time and money in up-and-coming, non-traditional sectors.
Furthermore, as a result of several regulatory improvements undertaken during the past few years, the Cypriot funds’ industry is ripe for the taking. One crucial aspect moving forward, however, is to minimize the time required from the idea’s inception to the moment funds are ready to be presented to investors.
At the same time, the world has become highly interconnected, as shown by the impact COVID-19 has had on the global economy. This interconnectedness has brought to the fore the concept of impact investment. The world is starting to see more businesses pay greater attention to socioeconomic investments that have a significant impact on their local communities, healthcare of the elderly and the environment, among a host of others. For instance, investing in recycling, renewable energies and depollution is something that is being taken a lot more seriously these days.
With all of this in mind, plenty of opportunities are now available if businesses step out of our comfort zones and allow technology to take the lead and guide them through these unprecedented times. Business leaders and executives can build from this crisis’ many lessons, spreading awareness within their organizations and reforming their approaches to making the most out of this ‘new normal.’
For Part I of this series, click HERE.