The rule of law is often treated as a concept concerned purely with the functioning of institutions, democracy and the protection of rights. In reality, it is one of the most important economic pillars of a modern country. The quality of a country's institutions directly affects investment, entrepreneurship, the financing of the economy and, ultimately, the pace of growth.
Legal certainty, the effective functioning of the courts, the fight against corruption and the predictable application of the law create the environment within which investment, entrepreneurship and economic activity can develop. The staff working document accompanying the European Commission's 2026 rule of law report, in its chapter on Cyprus, highlights both the reforms currently under way and the problems that continue to affect the effective functioning of the country's institutions.
The link between the rule of law and the economy is direct. No investor commits capital in an environment where rules are not applied, contracts are not enforced, or court decisions are subject to excessive delay. Conversely, when laws are clear and their application effective, businesses can plan their activities with confidence, take on investment risk and create new jobs.
The cost of delay
The European Commission notes that serious challenges remain in Cyprus regarding the effectiveness of the justice system. Despite gradual progress in clearing the backlog of pending cases and the introduction of new procedural rules, the length of court proceedings remains among the highest in the European Union. According to the report's figures, the average time to adjudicate civil and commercial cases reached 682 days at first instance and 1,426 days at second instance in 2024.
These delays carry a direct economic cost. When a commercial dispute remains unresolved for years, a business cannot know whether it will recover debts owed to it, prevail in a contractual dispute, or be able to make use of its assets. The result is higher financing costs, discouraged investment and reduced competitiveness.
The Commercial Court still isn't running
The European Commission gives particular attention to the delayed operation of the Commercial Court. Although the relevant legislation was passed back in 2022, significant stages of its implementation remain incomplete. The business community has voiced strong concern, since the new court was intended to provide faster, specialised resolution of commercial disputes.
The report notes that business representatives warn that delayed adjudication is "rendering claims moot," while also raising companies' operating costs and eroding overall confidence in the judicial system.
Trust in the courts
At the same time, the European Commission records low levels of confidence in judicial independence. Only 34% of businesses consider the level of independence of the courts to be "fairly or very good," a figure down on previous years. This picture affects the investment climate, since confidence in institutions is a key criterion for both domestic and foreign investors.
The importance of effective justice is also evident in one of the biggest structural problems facing the Cypriot economy, non-performing loans. Slow justice and difficulties in enforcing court decisions delay the resolution of cases, the recovery of assets and the restructuring of debt. The report stresses that legal and practical obstacles to the enforcement of court decisions persist, despite the relevant reforms having been under discussion for years.
The problem is not confined to the banks. It affects the entire economy. As long as procedures remain slow, capital stays tied up, businesses struggle to recover, and the circulation of money within the economy is constrained. Faster justice could contribute to more effective management of problem loans and to improved economic stability.
Corruption and competition
Equally important is the role of the rule of law in combating corruption. The Commission acknowledges progress in strengthening the independent Anti-Corruption Authority and in investigating high-level cases. Even so, the data shows that the perception of corruption remains particularly high. Ninety-eight percent of businesses consider corruption to be widespread, while almost half regard it as a problem for business activity. When business decisions are shaped by opaque practices rather than fair competition, the market functions less efficiently and productivity falls.
The report also points to the need to improve the quality of the legislative drafting process and to streamline legislation. Frequent changes to the rules create uncertainty for businesses, raise administrative costs and weaken investor confidence. A stable, predictable regulatory environment is a basic component of a modern economy.
The European Commission acknowledges that Cyprus has made significant reforms, but calls on the country to pick up the pace of change. Completing the reform of the Legal Service, establishing an independent Courts Service, and further strengthening anti-corruption mechanisms are identified as key priorities.
