Malta is guaranteeing €350 million for three years as part of its commitment to a €750 billion stabilisation fund agreed by eurozone countries, but this is not expected to cost taxpayers anything.
An unprecedented deal was struck by 17 eurozone countries in the early hours of yesterday to create a stabilisation fund. It had the desired effect as global financial markets rebounded strongly on the news.
The deal is intended to stop speculation on the markets and avoid contagion after the EU last week intervened to bail out debt-ridden Greece to the tune of €110 billion.
"This deal is intended to end speculation once and for all. It's like pouring a bucket of water on a small fire to stop it completely," Finance Minister Tonio Fenech told The Times after the meeting.
He said Malta's commitment did not mean the country would be forking out €350 million but it would just issue a guarantee to that amount, similar to guarantees the government issues domestically on loans taken out by public companies.
"This deal should not have an effect on Malta's finances," Mr Fenech said, insisting that in a worst case scenario, where loans would be needed to help bail out a member state, the eurozone governments would have to issue guarantees for loans up to €440 billion. "In the coming days we will be studying the legal implications of this deal as it probably means Parliament will have to give its go-ahead," he said.
Asked whether there would be any exposure to risk in the eventuality that a government guarantee was sought, Mr Fenech said the risk would only be there if the country triggering the fund eventually defaulted on its payments.
"We are not really looking at this scenario. It's very far-fetched and we only want to stabilise the markets by giving a sure sign. From the way the markets are reacting it seems we are reaching our goal," he said.
The deal is separate from the Greek bailout agreed last week, which will see Malta lending Greece €74 million over the next five years.
The first instalment of the loan, €27 million, has to be delivered by May 19 and has to be approved by Parliament. Mr Fenech said the opposition was kept informed of developments and the indication was they would support the Bill to make the loan to the Greek government.
The eurozone plan is a three-pronged drive to allay investor fears that sent global markets into a frenzy and saw the euro crash. It includes the creation of a facility of up to €60 billion that can be made available through the European Commission's existing budget in a matter of days. The International Monetary Fund will complement the €60 billion with up to €30 billion.
The eurozone countries also agreed they would provide a further €440 billion to member states in difficulty on an intergovernmental basis. Again, the IMF will provide "at least half as much".
The European Central Bank will buy government bonds from investors.
Speaking in Brussels following the agreement, the Commission President José Manuel Barroso, said the stability package was unprecedented in its scale.
"This agreement will ensure any attempt to weaken the stability of the euro will fail," Mr Barroso said.
"The lesson from this crisis is clear. We need a stronger union in economic policy, a stronger compliance by member states with policies and rules agreed at Union level."
Apart from this deal, the Commission is tomorrow expected to present proposals for enhanced economic governance in the EU.
Its proposals include sanctions for member states that break the EU's stability and growth pact, requiring governments to keep deficits within three per cent of GDP, and obligations on member states to submit draft budgets for evaluation by the Commission and finance ministers before they are sent to national parliaments.
Many member states are ex-pected to resist these proposals.