Malta among biggest EU spenders to boost economy

Malta has been singled out by the European Commission as among the member states spending most money to stimulate the economy in the face of the global recession.

According to a Commission study released in Brussels yesterday, during this year and the next, Malta will be adopting fiscal stimulus measures amounting to 1.6 per cent of its GDP.

Brussels said such measures, consisting of a rise of 1.3 per cent of GDP on the expenditure side and a cut of 0.3 per cent of GDP in revenue, should be sufficient to kick-start the economy.

The bigger part of the expenditure boost, amounting to 1.3 per cent of GDP, is related to an increase in public investment, of which, 0.7 per cent will be going to public infrastructure projects, 0.1 into measures aimed at business and 0.3 per cent at measures aimed at households.

"Most of the measures are timely and targeted," the Commission said. "While the public investment measures are of a temporary nature, no concrete end-date is foreseen for the ad hoc support to companies and the remaining measures are of a permanent nature."

On the other hand, the Commission noted that while the measures would be more than financed by an increase in excise duty introduced in recent months on a number of products and a reduction in various subsidies, notably energy subsidies to households, "the fiscal stance can be characterised as restrictive in 2009".

The study shows that, apart from Malta, the biggest spenders in the EU to boost their economies are Spain (2.3 per cent of GDP), Austria (1.8 per cent) and Finland (1.7 per cent). On the other side of the scale, countries such as Bulgaria, Greece, Hungary, Latvia and Lithuania cannot afford such expenses, the Commission said.

On a general level, the study shows that EU countries have already spent about five per cent of combined GDP on stimulus measures for the real economy amounting to over €600 billion in real terms.

At the same time, budget deficits in 23 member states are predicted to exceed the three per cent of GDP limit set out under the Stability and Growth Pact in 2010, which is leading policy makers to plan spending cuts after the crisis.

"The effectiveness of the fiscal policy stimulus in the short run crucially depends on a credible commitment to withdraw the stimulus when the recovery is well established," EU Economic and Monetary Affairs Commissioner Joaquin Almunia said.