Malta agrees to new EU rules on national budgets

Malta agreed with the other eurozone member states on Tuesday to start sending Brussels its broad annual budget guidelines so that the EU and the other member states can review whether the country is complying with general EU economic and financial policies.

According to the agreement, also endorsed by the 27 EU finance ministers at their monthly meeting, all EU member states will have to start giving each other a preview of their budgets every spring. Following a peer review, member states acting against the spirit of the EU's general policies will have to make the necessary changes.

The aim of this agreement is to enhance the economic governance of the EU in view of the recent Greek crisis which Brussels doesn't want to be repeated.

Malta supported the creation of this new mechanism. Finance Minister Tonio Fenech said that this process might contribute to improvements in the quality and effectiveness of national economic and fiscal policy-making.

The President of the European Council, Herman Van Rompuy, who steered through the agreement, said a government presenting a budgetary plan with a high deficit would have to justify itself in front of its peers and finance ministers. He made clear that draft budgets would not be scrutinised line by line and only their revenue, expenditure and balance would be examined. He also said, however, that the process would take into account specificities of various countries, mainly the UK, which has openly spoken against giving Brussels a say in the way it shapes its budget before the British Parliament can do so.

The ministers also agreed to penalise more quickly countries that break EU budget rules. Currently, fines are likely to come only when a country is already so deep in trouble that such penalties would make things worse.

"We will create more sanctions earlier on," Mr Van Rompuy said.

"To use the traffic light image, you only got fined when you drove through the red light of three per cent of GDP. From now on you could be in trouble for driving through orange," he said.

The ministers agreed they would start disciplinary steps against a country not only when its budget deficit exceeded the three per cent ceiling, but also if its debt was above 60 per cent of GDP and not declining fast enough.

"So far the focus has been almost exclusively on the maximum annual deficit. One idea would be to launch the excessive deficit procedure for countries where debt is not reduced quickly enough," Mr Van Rompuy said.

He said the ministers were focusing on possible rule changes that could be achieved without amending EU treaties, which precluded non-financial penalties such as suspending voting rights. However, he did not exclude the possibility of amending the treaties.

This agreement will now be presented to EU leaders meeting in Brussels later this month for their final endorsement.

EU member states already submit multi-annual budgetary plans to the EU, known as the Stability and Convergence and National Reform programmes, which detail the budgetary intentions of every member state for the following two years. These programmes, updated each year, are subject to reviews by both the European Commission and the other member states. Every year the Commission also issues recommendations on which areas member states should focus on.

In the case of Malta, the Commission has repeatedly called for more details to the submitted plans as it viewed certain aspects of Malta's budgetary projections to be vague, over-estimated and not accompanied by detailed plans.