Cyprus’s Supreme Court sitting in full chamber reserved its judgment on Friday, in a case which economic analysts termed as perhaps the most consequential and far reaching, which is related to the viability of the country’s economy.
The decision concerns the legality of austerity measures the government imposed as part of its bailout agreement with international lenders in March 2013.
The measures, which resulted in the reduction of salaries and pensions by 12.5 percent and in levies to raise money for the public coffers, were demanded by the Eurogroup and the International Monetary Fund, which pulled the Cypriot economy back from the brink of collapse.
However, hundreds of civil servants applied to the Administrative Court and secured a decision that the cuts were unconstitutional as their salaries were considered to be part of their property, which under the Cypriot constitution nobody could touch in any way.
They demanded backward restitution of their salaries and other benefits affected by the austerity measures, which the Ministry of Finance said could cost the state close to 1 billion euros.
The cost could ultimately reach 3 billion euros or 30 percent of next year’s budget revenue, should all public servants applied to the Administrative Court to be reimbursed for their losses.
A decision by Supreme Court upholding the decision of the lower court could wipe out a 944-million-euro budgetary surplus generated by the government in the first nine months of this year.
It would also give rise to demands totaling 2 billion euros should all public servants asked to be compensated for their losses and have their salaries restored to the level before the economic crisis.
Such a development could upset the budget, which provides for a revenue of 10 billion euros in 2020, and affect the ability of Cyprus to repay its sovereign debt, now standing at about 96 percent of the gross domestic product (GDP).
Cyprus’s Attorney General, addressing Friday’s session of the Supreme Court, asked for the reversal of the lower court’s decision, arguing that the decision of the government to cut the salaries or pensions of public servants did not affect the gist of their property and the gist of their right to enjoy it.
He said the government had decided to impose cuts on salaries and pensions in the public interest in a move to save the country from economic collapse under the law of necessity.
He also reminded the judges that they had voluntarily accepted a 20 percent cut of their salaries, a fact that constituted an admission that the state had a right to reduce salaries.
Lawyers for the public servant applicants argued that the decision should be left standing, as the state should have enacted appropriate legislation prior to cutting salaries.
The Court’s President Myron Nicolatos said that the Supreme Court would consider all arguments and give its decision in a “reasonable space of time.” (one euro currently equals to 1.12 U.S. dollars)