Finance Minister Tonio Fenech told Parliament on Wednesday that the EU Stability Treaty had already been agreed upon and they were not there to amend it but to discuss the obligations which emerged from it.

He was reacting to Labour MP Alfred Sant’s statement that it was important to verbalise what the treaty meant in case of future problems.

Labour MP Karmenu Vella said that although 25 countries signed the treaty, only 17 were eurozone members. This meant that all the 25 countries would be taking decisions that would impact only those members of the eurozone adhering to the treaty.

Mr Fenech said it was not unusual that an agreement did not include all member states, giving the adoption of the euro and the Schengen area as examples. He said the treaty was an enhanced mechanism to address the deficit and debt problems.

Dr Sant said he did not agree with these comparisons, as in these cases member states enjoyed the same benefits. Not so in the case of this treaty, he said, since eurozone members had a common currency and limited room to vary factors such as interest rates. There was no symmetry.

Stating that he had already admitted he would be reluctantly voting “yes”, Dr Sant said the treaty included strict clauses on public taxation.

Mr Fenech said that an element of economic convergence was necessary, as this was beneficial not only for eurozone members. The treaty focused on the financial aspect in the first part and on economic cooperation in the second. The need for increased cooperation had been felt to streng-then competitiveness.

He said that the concept of deficit budgeting during calm periods was one thing but there had to be a balance between deficit and surplus. The EU’s problem was that when there was economic growth, member states had continued to increase debt and deficits in pursuit of further growth. However, economic growth alone did not make for financial sustainability.

The European Union could not dictate what measures each state needed to adopt to strengthen its economic stability. Each was a sovereign state and it was up to the national Parliament to decide on the appropriate measures.

The EU could only order a state to increase its income but it could never order the state to impose more taxes. It was obvious, however, that consequences could follow a eurozone member when it did not do what was expected of it.

Dr Sant said the treaty was putting new obligations on eurozone members in order to serve as guidelines for their fiscal policies. The treaty did not deal with economic growth but mainly dealt with fiscal parameters. He asked what the logic of the treaty was, when it sought to impose so many restraints.

The minister said the Government did not want to include a provision on fiscal union because it was not comfortable with such a notion in a treaty. It was more beneficial for Malta to have generic clauses rather than overprescriptive clauses on the economy.

Dr Sant said the overall stance of the treaty was fiscal. European states were working within a terribly rigid economic system. If Malta had to vote in favour of this treaty, it would be voting for a “straightjacket”. The treaty was highly defective.

Mr Fenech said the stability and growth package was not going to change and it never featured in this treaty. This treaty aimed at stability which would in turn bring economic growth. There was never a sustainable growth without stability and that was why this treaty was so important for the eurozone, he said. The parameters of fiscal discipline were in fact more predominant than the sections on economic growth.

Mr Vella said the flexibility of the fiscal policies was defective. The fact that these had to be adopted at all times, whatever the fiscal cycle, was of concern. This meant using the same policies both when the fiscal cycle was shrinking and when it was growing. One should have first discussed other issues such as calculation of debt and national expenditure reporting.

Moving on to the second clause in the treaty, Dr Sant asked who would be in charge to claim that a state’s national deficit was excessive. He said such an issue should be regulated in accordance with the market. The rates were set at three per cent of GDP and this was not an up-to-date calculation.

The debate continues on Monday.