Deficit procedure against Malta
I hope we are wrong - EU Commissioner
The European Commission has not taken the government's word for it that it will be sticking to its financial targets this year and yesterday started infringement proceedings over Malta's failure to keep its finances in check.
"I hope that the information I have is wrong and that (Finance) Minister (Tonio) Fenech is right," European Commissioner for Economic and Monetary Affairs Joaquin Almunia told The Times when asked to react to the government's statement that it expects to bring down its deficit to under three per cent of GDP this year.
"Last year's deficit clearly breached the rules of the Stability and Growth Pact (SGP) and we don't think it's only a one-year issue, bearing in mind the current economic scenario... At the same time, I am conscious that Malta is stating that it will be coming in line this year and I really hope that this will be the case. If this results to be correct I will be very happy," he said.
His words come as the Commission launched an Excessive Deficit Procedure (EDP) against Malta.
According to the Commission's forecasts the government will remain deeply in the red this year and the next after registering a deficit of 4.7 per cent of GDP last year. The government is insisting it will manage to lower its deficit to about 2.6 per cent this year - under the EU's threshold - as 2008 was only a one-off.
In July EU Finance Ministers will be asked to endorse the Commission's recommendations. At that point, Malta will be given a deadline by which it will have to get its financial house in order.
According to Commission sources, the deadline is not expected to be very far away, probably just 12 months, as the deficit is not "so large" and also because of the government's own favourable projections. The Commission will then re-assess the situation in January 2010.
Commissioner Almunia said that Malta's slippage last year was mainly due to unforeseen circumstances, particularly the Malta Shipyards privatisation process which caused the country's deficit to soar by almost two per cent of GDP and the decision to continue subsidising water and electricity rates during the first half of 2008, despite the high cost of oil on the international markets.
"This procedure is not aimed at sanctioning Malta but is only a warning. We want to help Malta to have sustainable finances as this is in the interest of its own economy. Currently it is normal for countries to have higher deficits due to the economic situation around the world. However we still cannot turn a blind eye and we want to follow rules vigorously as this is, at the end of the day, in Malta's interest."