Updated: Agreement to draft constitutional amendments for fiscal discipline

The government and the opposition have agreed to draft constitutional amendments to ensure fiscal discipline.

Both sides also agreed on flexibility in the national interest and that the common consolidated tax base (CCTB) was unacceptable for Malta and that the financial services transaction tax would be agreed to only if it was introduced globally.

Both sides also welcomed the new role to be played by the European Central Bank.

Both Prime Minister Lawrence Gonzi and Leader of the Opposition Joseph Muscat made declarations in this sense in Parliament this morning.

Dr Gonzi this morning gave the House an overview of what went on in the European debt summit and expressed satisfaction that the Opposition was supporting the government in its stand.

He said he considered the summit as one of the most crucial in the EU developments. The financial and economic turmoil the union and the west were going through were the biggest in recent history.

In this context, he said, the summit was a major success because it agreed on the measures expected by the financial markets to safeguard themselves and create jobs.

Economic activity was not an abstract exercise but work and commitment for the creation of jobs providing workers and their families with a better life.

Financial markets wanted stability and certainty from European governments. The council, following a long and hard debate, found the formula of how to provide these two elements which would help the markets contribute to economic activity.

Dr Gonzi thanked Malta's permanent representation in the EU and the Finance Ministry for their work. He said that throughout the process, there were elements and proposals of concern but the arguments and points raised by Malta were considered and the final result addressed these concerns.

The basic tool agreed upon in the council was to have balanced national budgets.

This, the Prime Minister said, was also the government's programme and it was already moving in this direction.

Had there not been the recession in 2009 and exceptional measures had to be taken to safeguard jobs, it would have already got there.

However, the country was still on the right track and it would be closing the year as one of the few with a deficit of less than three per cent of its Gross Domestic Product. It would also be out of the Excessive Debt Procedure.

So it was not worried that countries which did not observe this element of the stability and expansion pact would be fined and automatic corrective measures would be taken.

It also did not have a problem that the rule of a balanced national budget would be part of the Constitution.

He invited the Opposition to unite with the government to take this step to safeguard jobs. He understood that the opposition agreed with the line taken by the government.

This step, known as a fiscal compact, would be implemented through an intergovernmental treaty of the 17 euro zone members.

Another nine countries - the rest of the EU states except for the UK, expressed an interest of joining the process. The government still wished that the process would have all 27 EU member states.

It was also agreed that work on the European Stability Mechanism and the European Facility of Financial Stability would be hastened with the former being ratified by mid next year. It was estimated that these two mechanisms would between them provide €500 billion.

The council also agreed that the EU would increase the resources of the international monetary fund by €200 billion. This meant that Malta's Central Bank would lend the fund €150 million.

In the context of stability and certainty, countries agreed that the Private Sector Involvement operated in the Greek programme was a unique and exceptional measure.

It signed Croatia's accession treaty, a significant step for Croatia, the Balkan region and the rest of the EU.

Of particular interest to Malta was the debate on energy and the agreement on the urgent need of progress in a number of sectors including the declaration that no EU member state should remain isolated from European gas and electrical energy networks or have its energy supply threatened because of a lack of suitable connection.

Dr Gonzi said that on behalf of the Maltese government he also insisted on the need that the frozen Libyan assets be returned to the Libyan government to be used in the rebuilding of the country. The council agreed with this.

Dr Muscat said that the Labour party was clear on fiscal discipline and the government had to be consistent in favour of a balanced budget and reducing the national debt. He agreed to constitutional changes as long as there remained room for flexibility that certain measures could be taken if the national interest so required. He said one had to wait for the conclusion of the Intergovernmental conference (IGF) before making these amendments.

Dr Muscat complained that France and Germany had not adopted the communitarian method on the euro issue in the EU summit. He was not as enthusiastic as the Prime Minister on the calming of the financial markets.

He noted that fiscal harmonization was not a solution for the euro crisis and was not suitable for Malta because it undermined competitiveness.  The Opposition would withdraw its support to the government if it agreed to the CCTB. He also opposed the financial services transaction tax if not introduced globally because conceptually this could create market distortion.

Dr Muscat hoped that the qualified majority of 85 per cent as agreed in the EU summit would only be used in cases of emergency.

He concluded that the root of the problem was debts incurred by governments and criticized the administration for setting up a special vehicle programme to cover the €80 million expenditure onn the City Gate project hiding it from government accounts.