Brussels sets 2010 deadline

Malta has until the end of next year to correct its deficit, according to recommendations the European Commission will be making today.

The Commission is recommending that Malta comes in line with its financial and economic rules laying down that the member states' structural deficit should not be higher than three per cent of GDP.

At the end of last year, Malta's deficit stood at 4.7 per cent of GDP, meaning it will have to be trimmed by at least 1.7 per cent by December 2010. In addition, the slight surge in government debt observed since 2008 will have to be reversed.

Commission sources said the recommendation, part of the excessive deficit procedure (EDP) started two months ago, will be made by the EU Economic and Monetary Affairs Commissioner, Joaquin Almunia during a meeting of the College of EU Commissioners in Brussels.

If approved, as expected, the recommendation will be passed on to EU finance ministers for a final decision next month.

EU sources said that since Malta's deficit was considered to be on the low side and "no special circumstances" existed, the Commission decided to give the minimum period set under its rules for the island to get back in line within a year.

Other countries, such as Poland, are expected to be given more time to correct their deficit "as their financial situation is much worse than Malta's".

"We believe Malta's deficit problem is a minor one and the result of some one-time expenditure overruns made during 2008, particularly the liquidation process of Malta Shipyards and the early retirement schemes associated with the process, coupled with the added subsidies on water and electricity costs," a senior EU official said.

"As these items will not feature in this year's budget, we expect Malta to get its deficit in order rapidly," he added.

In today's recommendation, the Commission will also be setting January 7 as the deadline for the Maltese authorities to inform Brussels on the measures they were taking to come in line with its recommendations.

"This means that if the deficit is not brought under control by the end of this year it will definitely have to be addressed in the budget for 2010," the EU sources said.

Last May, the EU decided to initiate an EDP against Malta as revised accounts for 2008 showed the island ended the year with a deficit of 4.7 per cent instead of the projected 3.2 per cent.

According to the Commission's forecasts, the deficit was expected to fall to 3.6 per cent this year, still above the three-per cent benchmark.

The government remains optimistic and believes it can manage to come in line by the end of this year, something the Commission doubts.

Today, the Commission will also be recommending corrective deadlines to Lithuania, Latvia and Romania. Hungary, France, Ireland, Spain, the UK and Greece are already facing an EDP procedure.

The EDP mechanism sets strict timetables and targets to be observed by the member state in question in order to rein in its deficit. The corrective measures, decided upon by EU finance ministers, are monitored on a monthly basis by the Commission. If a member state does not follow the recommendations, 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 deficit. In 2004, on Malta's accession, the island's structural deficit was at its highest peak, or a full 10 per cent of GDP. Due to the high deficit at the time, Malta was given three years to come in line.