Malta does not pose any serious macro-economic problems at this time, the European Commission said yesterday.
Unveiling the Commission’s first “Alert Mechanism Report”, a new tool to increase its surveillance of member states’ economic performance, Economic and Monetary Affairs Commissioner Olli Rehn placed Malta among a minority of 11 member states that have received this positive assessment.
On the other hand, the EU executive has decided to draw up further in-depth reports on the state of the economies of Belgium, Cyprus, Finland, France, Italy, Slovenia, Spain, Bulgaria, Denmark, Hungary, Sweden and the UK, citing “risky” imbalances which might be harmful.
Specific recommendations will then be issued to these member states and there might also be the need to open a Macroeconomic Imbalance Procedure (MIP). This is a new procedure intended to deepen the dialogue on economic policy between Brussels and the member states involved.
The Commission’s report painted a positive picture of the recent developments in Malta’s economy, pointing to its steady growth and reduction of its structural deficit and debt.
On the other hand, the report underlines some potential risks if left unaddressed, particularly the high current account balance and private sector debt.
“The Maltese economy experienced persistent current account deficits over the past decade but they have narrowed in recent years and Malta has a positive Net International Investment Position,” the report states.
“It remains to be seen whether the narrowing of the external deficit is of a structural nature or not. Past export market share losses reflect the decline in traditional manufacturing activities but are being reversed by the services sector. On the domestic side, house prices have risen significantly but now appear to be on a down-ward path.”
The Commission bases its new assessment on 10 macroeconomic indicators, such as competitiveness, level of indebtedness or the existence of asset price bubbles, which help it decide which member states need to be scrutinised further.
Yesterday’s report confirms Brussels’ positive view on Malta issued last month following corrective and preventive measures taken by the government in this year’s budget, in an attempt to lower deficit and debt levels according to the rules of the EU’s Stability and Growth Pact.
Later on this year, if the current economic indicators are confirmed, the Commission is expected to recommend the closure of the Excessive Deficit Procedure started against Malta in 2009.