The European Commission is yet to be convinced that the cuts Malta has made to its deficit are sustainable over time.
To recommend closing measures against Malta, the Commission has to conclude that the correction has taken place and that it is sustainable
The island last year managed to slash its structural deficit to under three per cent of GDP, as required by the EU.
However, Brussels is still contemplating whether to recommend closing the so-called Excessive Deficit Procedure it initiated against the island after its deficit hit 4.8 per cent of GDP in 2008.
A Commission spokesman yesterday told The Times it was drawing up an assessment report and a decision was expected by the end of this month.
The spokesman underlined that, to recommend the closure, the Commission had to conclude that “the correction has taken place and, equally important, that it is a sustainable one in time”.
He said the EU’s stability and growth pact, which underpins the rules of the eurozone, “focuses on the structural adjustment in the medium term”.
Malta had until the end of 2011 to bring its deficit in line with EU rules. Following cuts in expenditure and increased revenue on the back of an improving economy, the island managed to meet the deadline and posted a deficit of 2.7 per cent of GDP.
In its spring economic forecasts published last Friday, the Commission acknowledged that Malta had managed to stick to its obligations, posting a deficit that was even better than the Commission’s own projections.
Last November the Commission, which always bases projections on conservative assumptions, forecast a deficit of three per cent of GDP for 2011, 0.3 per cent higher the actual result.
However, according to Commission sources, an automatic closure of the deficit procedure is not guaranteed.
While expecting Malta’s deficit to register “a slight improvement” to 2.6 per cent in 2012, Brussels is also forecasting another rise to 2.9 per cent next year.
This is a stark deviation from the government’s projection of ending 2013 with a deficit of just 1.7 per cent of GDP.
Asked to explain this divergence, the Commission spokesman said: “This is because our forecast is based on the usual no-policy-change assumption, in conjunction with a weaker macroeconomic scenario.”
Most of the EU’s 27 member states are under an Excessive Deficit Procedure. At 2.7 per cent of GDP by the end of 2011, Malta’s structural deficit was one of the lowest in the eurozone.