Malta will have to adopt stricter financial discipline if it wants to avoid the suspension or cancellation of millions of euro in EU funds under new proposals unveiled yesterday.
According to the "economic governance" proposals, published by the European Commission, Brussels will be tightening its grip on member states' public finances to prevent another economic and financial meltdown similar to the one facing Greece.
In a first blueprint of the Commission's proposals, Brussels is recommending the introduction of sanctions, or Excessive Deficit Procedures (EDP), against those countries that repeatedly go beyond a debt equivalent to 60 per cent of their GDP - Malta currently stands at 70 per cent.
If member states, particularly those in the euro area like Malta, do not apply the recommendations, the Commission would start procedures for the suspension of EU aid and possible cancellation of funds.
During the last EU summit in Brussels earlier on this month, Malta had indicated it would go along with such proposals though some member states like the UK are still skeptical.
However, Malta, like other European countries, is not in the best of shapes financially; the Commission had already started procedures against it to reduce its deficit to under three per cent of GDP.
But the biggest problem lies with the soaring debt. Just this week, the Labour party pointed out that although the government's target was to end the year with a debt increase of €241 million, during the first five months it had already increased by €290 million, according to official statistics released last week.
Under the new agreement, member states would have to rein in these excesses or face the music. Eurozone members especially would have to pay interest-bearing deposits into an EU fund if they ignore warnings to keep their public finances in order.
Until now, such internal sanctions have only been used to correct structural deficits and the EU generally turned a blind eye to growing public debts.
However, according to Economic and Monetary Affairs Commissioner Olli Rehn, this has to change as high debts in member states are putting the eurozone at risk.
Under the current rules, member states could already theoretically be fined for not sticking to the EU's financial rules but this sanction has never been imposed.
"We need more EU coordination but also a more rigorous implementation of the rules we have adopted, with dissuasive sanctions to prevent slippage and regain confidence," Mr Rehn told a press conference in Brussels yesterday.
According to the proposals, stricter surveillance of national budgets will also be introduced with member states having to report their projections on an annual basis and update Brussels on their strategies.
The Commission would then review the plans and issue recommendations to be included in the country's national budgets.
Among other proposals are "scorecards" to monitor macro-economic imbalances such as rising unit labour costs, housing market price bubbles and differences in real effective exchange rates inside the eurozone.