Cyprus Must Freeze Wages to Avoid Need for Rescue, Minister Says

Cyprus must freeze public sector wages for two years if the east Mediterranean island is to avoid the need for financial help from its European partners, finance minister Kikis Kazamias said.

“The government is considering a two-year wage freeze as part of a wider fiscal consolidation package that will help Cyprus’s economy regain its credibility so that the country can enjoy effective access to international markets,” Kazamias told reporters in Nicosia today. “Otherwise, it should be regarded as certain that the country will have to resort to the European Union rescue mechanism.”

The government will consult trade unions about the wage freeze which will help save 125 million euros ($169 million), or 0.7 percent of gross domestic product in 2012, and 230 million euros in 2013 or 1.2 percent of GDP, he said. The entire package also includes an extraordinary tax on private sector employees who earn more than 2,500 euros a month and a revenue tax for companies, said Kazamias.

The new package, which includes other fiscal measures such as an increase in value added tax to 17 percent, must be implemented by Dec. 15 as required by the European Commission, he said.

To contact the reporter on this story: Stelios Orphanides in Nicosia at

sorphanides@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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