More EU countries join Malta in the red

Twenty of the 27 EU member states, including 13 in the eurozone, are now operating above the three per cent eurozone deficit threshold set by the Stability and Growth Pact.

The European Commission yesterday warned that following the start of its excessive deficit procedures against six EU member states last May, including Malta, it will now move on to issue recommendations so that nine other EU member states will implement measures to reign in their deficits in the shortest possible time.

According to the Stability and Growth pact rules, last July EU finance ministers decided that Malta should bring down its current excessive deficit from the 4.8 per cent of GDP registered at the end of 2008 to under three per cent by the end of next year.

Other countries such as Hungary and Poland have been given longer periods to get their house in order due to larger deficits and deeper structural problems than Malta's.

Europe's largest economies including Germany, France, the UK and Spain are currently running high deficits and are already facing deficits procedures.

Others will follow suit in the coming months, including the Baltic states, Greece and Italy.

The pact, conceived under the 1992 Maastricht Treaty, allows the Commission and the Council to monitor the fiscal health of member states that have adopted the euro.

Speaking to the media yesterday, Economic and Monetary Affairs Commissioner Joaquin Almunia insisted the pact was very much intact and its credibility will only be in danger if it is not implemented.

At the same time he said that the pact has to be applied flexibly, stressing that in times of sluggish growth one can be less stringent in complying with budgetary terms of the Growth and Stability Pact.

Under the pact's terms, 11 excessive deficit procedures are currently running against member states and yesterday Mr Almunia confirmed that the Commission would discuss reports regarding nine more countries that are in breach of the pact's deficit ceiling.

The global recession and the rush by member states to pump fresh money into their economies following the financial crises are the main reasons behind the current high deficits run by many of the EU member states.

Last week, EU finance ministers discussed an exit strategy from the extraordinary stimulus packages they are currently adopting to support their economies.

No dates have been set so far for the implementation of exit strategies as it is thought to be too early in the day.

The European Commission is seeking to set a date for exit strategies by 2011, provided its latest economic forecast shows a return to positive growth. However, many member states are still not convinced that the time for setting dates for a coordinated exit strategy has arrived and would prefer to await more positive indicators of economic recovery.