Eurozone drops 2010 deadline to balance budgets
Government in a better position
Eurozone ministers agreed on Monday to drop the 2010 deadline for balancing their budgets shortly before the Maltese government presented the budget for 2009, delaying the target by a year.
The decision is the latest measure aimed at mitigating the shocks expected from the global financial crisis. The euro area member states were bound to balance their books by the end of 2010 and the government had tied its financial strategy to this target. However, as the European Commission economic forecasts for 2009 predict a bad year for the economy, with an expected contraction of GDP growth, the eurogroup president and Luxembourg's Prime Minister Jean Claude Juncker said ministers have agreed to waive the deadline.
"The ministers decided that their previous medium-term objective of zero deficits by the end of this decade, agreed in April 2007, should be revised.
"Instead, the goal will be replaced by individual plans for member states on a case-by-case basis and dates will be pushed back," Mr Juncker said.
On Monday, Finance Minister Tonio Fenech announced that the government had revised its plan for a balanced budget with 2011 being the new target date. According to forecasts issued by the European Commission on Monday, Malta will still be facing a deficit to GDP ratio of 2.5 per cent in two years' time.
The government had projected a deficit of 1.2 per cent of GDP for this year but will now miss that ratio by over two percentage points, to reach 3.5 per cent.
Mr Fenech blamed the unforeseen extraordinary expenditure on fuel costs and the Malta Shipyard's early retirement schemes. The Commission's projection for this year is a little higher, at 3.8 per cent.
Economist Edward Scicluna warned on Monday that the shortfall on a rolling year basis now stands at 4.3 per cent of GDP, a figure that will likely be corrected with new utility rates that came into effect on October 1.
Economists are now warning that the government has very little leeway to cushion the shocks resulting from the global financial crisis. However, the decision taken by eurozone ministers, along with a more flexible attitude by Brussels towards growing deficits in light of the looming crisis, puts the government in a better position.
During the meeting, where Malta's Permanent Representative in Brussels, Richard Cachia Caruana represented Malta in Finance Minister Tonio Fenech's stead, the eurozone ministers agreed that the Stability and Growth Pact rules - underpinning the area's fiscal policy - should remain unchanged due to the economic downturn.
Insisting the EU will pile pressure on its members to keep within the rules, Mr Juncker said the pact, as revised a few years ago, already allowed enough flexibility and room for manoeuvre for countries to deal with a possible economic slowdown.