Euro rate to be set at Lm0.42930

EU finance ministers meeting in Brussels today are expected to give the final green light to Malta's euro entry.

They are also expected to approve the Commission's recommendation to set the permanent exchange rate of the Maltese lira at Lm0.42930 for €1.

The rate at which the Maltese lira will be "locked" is the same one set more than two years ago when Malta joined the EU exchange rate mechanism, known as ERM II, one of the criteria for new eurozone entrants, based on the concept of fixed currency exchange rate margins.

The rate of Lm0.42930 against €1 was proposed by the EU executive last month following a thorough study of how the Maltese economy has fared during its ERM II period.

Today's formal decision is to be taken by unanimity and will be the last bureaucratic step in the long process undertaken by Malta to join the eurozone as from next January.

Today's decision will, however, kick-start the last lap of the practical preparataions with the minting of the new Maltese coins at the Monnaie de Paris in Bordeaux, France in a few days time.

In a preparatory background note distributed yesterday in Brussels, the Council said that on June 5 it abrogated its 2004 decision on the existence of an excessive deficit in Malta.

"After peaking at around 10 per cent of gross domestic product (GDP) in 2003, the budget deficit decreased significantly under Malta's fiscal consolidation programme, reaching 2.6 per cent in 2006.

"The general government debt-to-GDP ratio is above the EU's 60 per cent reference value but has been on a declining path since 2005 and is expected to continue to decline further in 2007 to around 66 per cent of GDP," it said.

The Council noted that the average HICP (harmonised index of consumer prices) inflation rate in the year ending March 2007 stood at 2.2 per cent, which is below the reference value for the price stability criterion.

The 12-month average inflation rate has been at or below the reference value since July 2005, except for the period from May to October 2006.

According to the Council, Malta's price performance is assessed to be sustainable.

Malta has participated in ERM II since May 2005.

"In the two-year period ending on April 26, 2007, the Maltese lira has not been subject to severe tensions and, since it joined the ERM II, Malta has not devalued on its own initiative the Lm bilateral central rate against the euro."

Prime Minister Lawrence Gonzi is attending today's meeting of EU finance ministers.