Malta and another 24 EU member states will sign a new intergovernmental Treaty next March defining new rigid fiscal discipline rules aimed at strengthening their public finances.
Speaking at the end of an informal EU summit yesterday in Brussels, Prime Minister Lawrence Gonzi announced that Malta was satisfied with the final text of the new Treaty and had agreed to join the Fiscal Compact.
“During the past weeks we have cleared the final technical hurdles in the text of the new Treaty and we have agreed to join,” he told journalists last night.
The new Treaty is now expected to become official during another summit at the beginning of March and will than have to be ratified by its signatory countries. It will enter into force in 2013.
The Czech Republic, a non-eurozone member state, has decided to join the UK in staying outside the Treaty, citing constitutional difficulties.
The pact imposes a number of stringent obligations on its members, which include reducing the deficit and moving towards a balanced budget and then an eventual surplus in the national budgets. It also includes rules on reducing national debt and the introduction of automatic sanctions on those member states which do not stick to their commitments.
The new Treaty also obliges member states to enshrine the principle of moving towards a balanced budget into their constitutions or similar legislation.
EU leaders yesterday also agreed on the establishment of a new permanent eurozone rescue fund, to be known as the European Stability Mechanism (ESM). The €500 billion fund will enter into force next July, a year earlier than expected, and will take over the current temporary European Financial Stability Facility (EFSF) which has been used to bail out Ireland and Portugal.
Malta will have the lowest share of the fund, contributing some €58 million in five yearly tranches over a five-year period. At the other end of the scales, Germany will have to fork out capital of €190 billion.
The summit also discussed a plan to stimulate growth with a particular emphasis on incentives to boost the creation of jobs, particularly among youth. The EU is currently experiencing high unemployment with an average of 22.2 per cent jobless among the under 25-year-olds.
Member states agreed on a number of stimulus plans to be integrated on their national reform programmes to be approved by the European Commission by the middle of this year.
Earlier, Prime Minister Gonzi told the summit that the EU needed to move from austerity to growth.
Citing a range of economic successes registered by Malta in the past months despite the difficult international climate, his prescription to the other leaders was a balance between fiscal discipline and economic growth.
“The Maltese government believes that the EU must avoid getting trapped into a vicious circle of austerity, contracting economies, falling tax revenue, rising deficit and debt ratios and more austerity. The EU’s way forward should be built on a balance of general macro-economic stability, structural reforms in order to ensure sustainability, unburdening enterprise, the reward of work, free markets and to generally improve productivity and competitiveness levels.”
Dr Gonzi gave EU leaders an overview of Malta’s economic achievements in the past year, which included relatively low inflation, economic growth, low unemployment and a reduction of its deficit. He said the island had made a clear choice in favour of macro-economic stability. This gave positive results.