EU finance ministers have cleared the way to close procedures against Malta over its excessive deficit after it was established the government was on track to reach its financial targets by the end of the year.
The decision was taken after the European Commission made a thorough analysis of the measures Malta took over the past two years to cut the structural deficit to below the EU’s three per cent threshold by the end of this year from 4.8 per cent at the end of 2008.
Speaking at the end of the Ecofin Council, Finance Minister Tonio Fenech, looking visibly satisfied, said the decision showed that despite difficult international circumstances Malta was managing to achieve bold results.
“This is a clean bill certifying the health of the Maltese economy and we are very confident Malta is on the way towards full deficit recovery by the end of this year,” he said.
“Our data shows Malta managed to bring its 2010 deficit down to 3.8 per cent of GDP and our aim is to reach the 2.8 per cent target at the end of this year. We are very confident we will manage,” he said.
At the same time, Mr Fenech sounded cautious but optimistic when asked whether the Air Malta rescue process, still being negotiated, might derail Malta’s deficit plans.
“We have until mid-May to reach a deal with the Commission on the type of help we need to give Air Malta for its restructuring. Although we cannot speculate, because the workings are being finalised and we still need to negotiate with Brussels, we don’t think the help we plan to give Air Malta will derail our deficit targets.”
A couple of months ago, in its autumn economic forecasts, the Commission had said Malta might reverse the progress achieved in cutting its deficit over the past two years due to the €52 million loan it had to fork out for Air Malta to keep flying until May.
According to EU rules, the national carrier will have to repay the loan when the restructuring plan kicks in. Sources close to the government said the loan could eventually be converted into equity, reducing the impact on the island’s deficit.
In their decision yesterday, EU finance ministers declared that, on the basis of information in hand, “the Maltese government has taken action representing adequate progress towards correcting the deficit within the time limits set by the Council and that no further steps under the EU’s excessive deficit procedure are required at present”.
Malta had been subject to an excessive deficit procedure since July 2009, when the Council issued a recommendation on corrective action to be taken and called for the deficit to be cut below three per cent of GDP in 2010.
However, in a revised recommendation last February, the Council extended the deadline by one year in the light of a sharper than expected deterioration in Malta’s economy. This caused an upward shift in its projected deficit, which reached 3.8 per cent of GDP in 2009.
In its February recommendation, the Council set 2011 as the target year for reducing the deficit below three per cent of GDP, calling on Malta to achieve a 3.9 per cent deficit target set in its 2010 Budget.
Malta has to ensure it cuts this year’s deficit further by at least another 0.75 per cent.
Apart from Malta, there are 23 other member states under the excessive deficit procedures. Many of them have higher deficits than Malta and the EU is expecting them to introduce austerity measures to reach the deficit reduction target dates set by finance ministers.
The only EU member states not facing deficit procedures are Estonia, which has just adopted the euro, Luxembourg and Sweden.