‘We joined euro at right time’
It was not a mistake that Malta became a member of the eurozone in 2008, Finance Minister Tonio Fenech said yesterday.
He was winding up the debate on the resolution to enact a European Union fiscal discipline treaty obliging governments to balance their budgets or face sanctions.
The minister said he did not agree with Labour MP Alfred Sant on this issue but, on the contrary, he maintained that it had been thanks to the euro that the country had reached a certain level of stability and economic growth. The crisis was not due to the currency but the prevailing financial circumstances of the member states involved.
The euro, the dream of many a politician in the years following World War II, was established in Maastricht by the European Union in 1992. To join the currency, member states had to qualify by meeting the terms of the treaty in terms of budget deficits, inflation, interest rates and other monetary requirements. Of the EU members at the time, the UK, Sweden and Denmark declined to join the currency.
Mr Fenech said the end game of the European Stability Mechanism would be discussed in depth during the summit to be held later on this month.
The treaty was not restrictive and offered escape clauses in special circumstances.
The intergovernmental treaty was signed last March by all EU member states bar the United Kingdom and the Czech Republic. It will enter into force for all those who ratify it on the first day of the month following ratification by the 12th eurozone member. Deputy Prime Minister Tonio Borg said on Tuesday that he expected Malta to be the 10th member to ratify the treaty. Once in force, the Fiscal Compact would require member states to enact laws requiring national budgets to be in balance or in surplus within the treaty’s definition. These laws must provide for a self-correcting mechanism to prevent their breach.
The treaty defines a balanced budget as having a general budget deficit of less than three per cent of GDP and a structural deficit of less than either 0.5 per cent or one per cent, depending on a country’s debt-to-GDP ratio. If the structural deficit for the annual account or budget is found to exceed those limits, the country will have to correct the issue within the timeline, nature and targeted size deemed necessary by the European Commission.
The treaty also places compliance with its budgetary and other requirements under the jurisdiction of the European Court of Justice. This contrasts with the EU treaties which specifically exclude this jurisdiction. Once ratified, any ratifying state may bring enforcement proceedings against any other ratifying state before the Court of Justice, if they fail to fulfil their obligations under the Fiscal Compact. A state found in breach of its obligations can ultimately be fined up to 0.1 per cent of its GDP.
During the debate, Opposition foreign affairs spokesman George Vella had said it was not good that the government was postponing the financial balance targets to 2015. Mr Fenech argued yesterday that 2009 and 2010 had been exceptional years and the government had had to sustain the economy and employment.
Answering Opposition finance spokesman Karmenu Vella, the minister said the Government had resorted to debt in order to invest in the country, including an annual €950 million on the social sector and €400 million on education.
Mr Fenech agreed with the Speaker’s suggestion of creating an ad hoc parliamentary committee in charge of financial and economical matters. The committee could also discuss what was happening in the ESM fund.
It was important to make a distinction between the structures of the federal states of America and the European Union, he said. The former did not recognise the concept of bailing out other states or banks. On the other hand, the EU had economical structures such as the ESM and the resolution fund to make such bailouts. Furthermore, the EU did not have fiscal power to impose taxes to back its currency but depended on the coordination and cooperation of member states.
The eurozone structure had been built on good principles but had lacked surveillance structures. This had become evident during the crisis.
The House then started discussing the treaty clause by clause, as suggested by Labour MP Alfred Sant at the start of the debate last week. Both sides agreed that the Speaker be a participating chairman.