The European Commission has given its blessings to the government’s action to rein in the deficit and absolved it of the need to face legal procedures.
One public servant for every two who retire
“Malta took the right corrective measures to make sure to keep to its commitments. We are very confident that the island is on the path to keep its public finances under the three per cent level of GDP in both 2012 and 2013,” Economic and Monetary Affairs Commissioner Olli Rehn told a press conference yesterday.
He praised Malta’s efforts and commended the steps it took in the last budget.
In its 2012 budget estimates, the government announced a number of measures to tweak its recurrent costs this year and further adjustments were taken last week to reduce its expenditure by a further 0.5 per cent of GDP.
Commission sources yesterday told The Times that the EU executive had originally been projecting that Malta’s deficit would soar to 3.5 per cent in 2012 and 3.9 per cent in 2013.
However, the revisions put in place recently have prompted the Commission to revise those projections downwards to 2.6 per cent in 2012 and 2.9 per cent in 2013.
In 2009, Brussels had started what is known as an Excessive Deficit Procedure against the government over concerns that it was not sticking to its commitment to keep the deficit down to within the established limit. That was when the island hit a deficit of 4.8 per cent of GDP as a result of the global recession and a multi-million restructuring programme to close the Shipyards.
In November Brussels issued a warning over the situation but in its official assessment of Malta’s public finances issued yesterday, the Commission declared the island had managed to take “effective measures” and that “no further actionis needed to be taken” by the Commission.
Finance Minister Tonio Fenech welcomed this preliminary decision, describing it as the best “certificate” that Malta’s finances were now in a sustainable position.
The Commission will now start the formal procedure to reverse its EDP against the island and the final decision will be taken by the Council of EU Finance Ministers (Ecofin) in the coming weeks. The spending cuts are restricted to administrative areas so as not to make the austerity programme too harsh.
In public service recruitment, for example, the government is implementing a policy of employing only one public servant for every two who retire.
The government is projecting better results for 2012 than the Commission, saying it will reduce the deficit to 2.3 per cent of GDP. Brussels’ forecasts are normally always on the conservative side and it takes into consideration a worst case scenario.
The Commission is currently projecting a bad year for the European economy with all indicators pointing towards a slowdown and some members of the euro area possibly entering a recession.
A Commission official told The Times that although Malta was not expected to enter a recession, its main economic sectors – particularly tourism and exports – would probably be directly hit by lower demand and this might dampen the prospects of economic growth.
Malta is hardly alone in facing an EDP. Twenty-two out of the 27 EU member states are in the same boat and so far only Estonia, Finland, Luxemburg and Sweden have avoided legal action against a bulging deficit.
Malta and Estonia are the only two EU member states that have managed to lower their deficit in 2010. The data of 2011 is still to be finalised and published by the Commission.