Cyprus finances improved most since pandemic, ESM finds

Economy economyTop News Cyprus finances improved most since pandemic, ESM finds Nicosia (3) skyline Relevant News Cyprus finances improved most since pandemic, ESM finds 7 July 2026 Fourth tourist remanded over Ayia Napa assault, puncher identified 7 July 2026 Pyla complex sewage threatens public health, Oroklini residents say (photos) 7 July 2026 Theano Thiopoulou 7 July 2026 FacebookXWhatsAppEmailPrintViber Overall eurozone fiscal data shows significant divergences in the fiscal performance of member states in recent years. Roughly half of eurozone countries, including the five countries that received financial support from the European Stability Mechanism (Cyprus, Greece, Ireland, Portugal and Spain), have achieved substantial improvement in their public finances since the pandemic, reducing public debt and narrowing fiscal deficits, according to the Euro Area Stability Watch 2026 report published yesterday by the European Stability Mechanism (ESM). This development, according to the report, is mainly due to a strong economic recovery and higher tax revenues. The improvement in these states’ fiscal position is reflected both in credit rating upgrades and in the continued narrowing of yield spreads on their government bonds against equivalent German bonds. By contrast, the report notes, the rest of the eurozone countries, including several core European economies, have faced greater difficulty improving their public finances. These challenges are mainly linked to increased financing needs for defence spending and infrastructure investment, as well as rising interest payments due to higher borrowing costs. The report states specifically that the eurozone is entering this new period having shown notable resilience against recent crises, but with smaller margins for absorbing new shocks. Employment stands at historically high levels, government bond yield spreads remain contained, banks have strong capital adequacy, and joint European support mechanisms are stronger than in the past. However, this resilience is not guaranteed, as these advantages coexist with significant weaknesses. Key risks First, fiscal space is gradually narrowing, partly due to increased defence spending needs. Second, the region remains structurally exposed to energy price shocks stemming from geopolitical tensions. Such shocks increase inflation and uncertainty, weigh on competitiveness and investment, and could cause long-term negative effects on productivity. Finally, close financial ties with the United States leave European investors vulnerable to a potential repricing of US government bonds and equities. Rising political uncertainty, long-term concerns over US fiscal sustainability, and high equity valuations underpinned by expectations of gains from artificial intelligence applications, create the conditions for a sudden correction in asset prices originating in the United States. The adverse scenario The report’s first chapter shows that, under the adverse scenario examined, the eurozone economy could enter recession, while inflation could approach 5%. These estimates do not take into account any monetary policy responses or discretionary fiscal policy interventions. Investment is expected to take a severe hit, exports to decline, and losses in economic activity to be permanent, with real gross domestic product (GDP) remaining around 2% below the baseline scenario over the long term. Under an adverse scenario involving prolonged geopolitical tensions and a sharp repricing of US assets, the eurozone approaches recession, while inflationary pressures intensify. The annual growth rate falls to 0.1%, and inflation rises to an average of 3.6% in the 2026-2027 period. It could approach 5%. In the long term, prolonged uncertainty and high energy prices weigh on investment and competitiveness, leading to permanent output losses. Read more: Economic growth halted due to geopolitical developments Subscribe to our Newsletter Latest News Fourth tourist remanded over Ayia Napa assault, puncher identified Pyla complex sewage threatens public health, Oroklini residents say (photos) FIFA World Cup 2026 – Round of 16 – Portugal vs Spain Cyprus problem to feature in Costa-Erdoğan Ankara meeting Things to do on Tuesday, July 7 ‘See you in court, Mr. Zuckerberg’: Cypriot lawyer sues Meta over free speech Oil prices fall, but Cyprus electricity bills rise 6% Follow en.philenews on Google News and be the first to know all the news about Cyprus and the world.