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Cypriot Bonds Held By The Eurosystem Decline To €6.38 Billion

by THEFUTURE.TEAM

August 26, 2024

The European Central Bank’s ongoing efforts to deleverage its balance sheet have led to a significant reduction in the value of Cypriot sovereign bonds held by the Eurosystem. As of mid-August 2024, these bonds, which are part of the Public Sector Purchases Programme (PSPP) and the Pandemic Emergency Purchases Programme (PEPP), have declined to €6.38 billion, representing 28% of Cyprus’ public debt. This reduction aligns with the ECB’s broader strategy to curb inflation by reducing market liquidity, including ending reinvestments in its Asset Purchase Programme (APP).

The Eurosystem’s bond holdings in Cyprus are split between two key programmes: the Public Sector Purchases Programme (PSPP) and the Pandemic Emergency Purchases Programme (PEPP). The PSPP portfolio has seen a reduction to €3.99 billion, driven by the redemption of maturing bonds worth €304 million. This portfolio’s weighted average maturity now stands at 7.62 years. Meanwhile, the value of Cypriot bonds held under the PEPP has also declined to €2.39 billion, with cumulative net purchases dropping by €76 million in July alone.

The ECB’s approach is part of its restrictive monetary policy cycle, aimed at curbing inflation across the Eurozone. In a decisive move in August 2023, the ECB announced the discontinuation of reinvestments under the wider Asset Purchase Programme (APP), of which the PSPP is a part, from July 2023 onwards. This decision is a clear signal of the ECB’s intent to reduce liquidity in the market, a strategy that complements its broader efforts to tighten monetary conditions and manage inflationary pressures.

The implications of this policy for Cyprus are significant. With Cypriot bonds held by the Eurosystem now accounting for 28% of the country’s public debt, the reduction in ECB support could exert upward pressure on Cyprus’s borrowing costs. This scenario may necessitate more robust fiscal policies from the Cypriot government to maintain financial stability.

Looking ahead, the ECB has outlined its plans to continue reducing the PEPP portfolio by €7.5 billion per month on average during the second half of 2024, with a complete discontinuation of reinvestments by the end of the year. This signals a continued tightening of monetary policy that will likely impact not just Cyprus but all Eurozone economies.

Illegal Employment on the Rise in Cyprus as Undeclared Work Declines

by THEFUTURE.TEAM

September 16, 2024

A recent report on the labour market in Cyprus has revealed a worrying increase in illegal employment, even as the rate of undeclared work shows signs of decline. The findings, which were discussed during a parliamentary session, have raised concerns among lawmakers and authorities alike about the ongoing challenges in combating labour exploitation and maintaining fair employment practices.

According to data presented by the Ministry of Labour, the issue of illegal employment—workers being hired without proper work permits or contracts—has escalated in recent months. This rise comes at a time when efforts to reduce undeclared work, where employees are not registered or insured, have seen moderate success. Despite progress in regulating the labour market, illegal employment remains a significant issue, especially in industries such as construction, agriculture, and hospitality.

Understanding the Distinction Between Illegal and Undeclared Employment

Illegal employment refers to the hiring of individuals who are not legally permitted to work, often due to their immigration status or lack of proper documentation. These workers are typically vulnerable to exploitation, receiving lower wages and lacking access to basic protections such as healthcare and social security benefits. In contrast, undeclared work involves the employment of individuals who may be legally allowed to work but are not officially registered, depriving them of insurance coverage and other legal protections.

While authorities have made strides in reducing undeclared work, particularly through stricter inspections and penalties, the rise in illegal employment presents a new challenge. Lawmakers pointed out that illegal employment poses even greater risks, as it not only harms the workers involved but also undermines the integrity of the labour market and contributes to unfair competition among businesses.

Factors Driving Illegal Employment

Several factors contribute to the increase in illegal employment, according to the Ministry of Labour. One key driver is the influx of migrant workers, many of whom lack the necessary documentation to work legally in Cyprus. Without proper channels for legal employment, these individuals often turn to unregulated jobs where they are vulnerable to exploitation.

The growing demand for cheap labour, particularly in sectors like construction and agriculture, also plays a significant role. Employers seeking to cut costs may resort to hiring illegal workers, bypassing the legal requirements for contracts, wages, and benefits. This practice not only puts workers at risk but also creates an uneven playing field, where businesses that comply with legal standards struggle to compete with those exploiting illegal labour.

Efforts to Combat Illegal Employment

In response to these findings, the government has pledged to intensify its efforts to combat illegal employment. This includes increasing inspections, imposing harsher penalties on employers found guilty of hiring illegal workers, and strengthening collaboration with immigration authorities. Additionally, there is a push to create more pathways for legal employment for migrant workers, ensuring they can enter the labour market with proper documentation and protections.