Brussels to trigger action against Malta over deficit

The European Commission is today expected to recommend action against Malta over the high government deficit registered in 2008.

The decision will be made during a meeting of the college of EU Commissioners in Brussels on a proposal submitted by the EU's Economic and Monetary Affairs Commissioner Joaquin Almunia.

"We can confirm that Malta is on the agenda of the Commission's meeting for the start of an EDP," a Commission spokesman told The Times yesterday.

"Malta registered a deficit of more than three per cent of GDP last year and is also expected to remain above this threshold this year. As our rules stipulate, this is in breach of the Stability and Growth Pact and thus we will be issuing a recommendation so that Malta takes action to come back into line."

Although today's decision against Malta is technically a recommendation, Finance Ministers, who have the final say, normally rubber stamp such decisions.

Apart from Malta, Brussels is today expected to issue similar recommendations on Poland, Romania and Lithuania.

According to last week's economic forecasts issued by the Commission, last year Malta registered a deficit of 4.7 per cent. This year the figure is forecast to fall to 3.6 per cent, though still above the three per cent limit set by the EU. The government is contesting the EU's assessment, particularly the 2009 projections.

While admitting that the current global recession is leaving its mark on the performance of Malta's economy, Finance Minister Tonio Fenech last week told The Times the government is still confident it will manage to lower the deficit to below three per cent this year.

According to EU's Stability and Growth Pact, member states have to strictly restrict their annual structural budgetary deficits to below three per cent of GDP on an annual basis.

When they fail, the EU starts corrective measures against the member state concerned. The mechanism sets strict timetables and new targets to be observed by the concerned member state in order to reign in its deficit.

The corrective measures, decided by EU Finance Ministers, are then monitored on a monthly basis by the Commission. If a member state does not follow the recommendations made, it risks being fined or losing some of its EU funding.

This is the second time the EU is taking measures against Malta over its high deficit. In 2004, on Malta's accession, the island was faced with an excessive deficit procedure as its structural deficit was at a peak of 10 per cent of GDP. The government had managed to come in line by 2007, in time to meet the criteria for the adoption of the euro, but lost the ground gained in the space of eight months.