Malta yesterday expressed caution on further changes to the EU Treaty aimed at consolidating economic governance and fiscal discipline among the 27 member states, particularly among the eurozone club.
In a first of a series of decisions expected to be taken by Wednesday on a “comprehensive package” to halt the euro crisis, EU leaders yesterday agreed that they would be “exploring the possibility of limited treaty changes” to further strengthen economic convergence within the euro area, improving fiscal discipline and deepen economic union.
Although any decision on further treaty changes have to be decided by the 27 in December, Prime Minister Lawrence Gonzi yesterday played down the need for any changes and said that this should only happen “if absolutely necessary”.
“We are in favour of more economic and fiscal discipline among member states because this will consolidate the area and avoid the return to similar situations,” he said.
Asked whether Malta was open to consider “limited treaty changes”, as suggested by European Council President Herman Van Rompuy, Dr Gonzi was cautious and said that there was still a long discussion to take place on this issue. Malta would only agree if this was absolutely necessary, almost a last resort.
Brussels has been calling for more integration in the euro area for a long time pointing towards the creation of a “fiscal union”.
However, many member states have second thoughts on the idea, citing sovereignty issues and wanting to keep national control over their public finances.
Following yesterday’s summits, first involving all EU member states and then those of the euro area, Dr Gonzi also confirmed that in the talks on the “comprehensive package” for the euro area – still to be concluded – “it does not appear that Maltese banks will need any injection of fresh capital”.
“Our banking system is considered to be very robust and we are not expecting out banks to need any recapitalisation because they have very strong balance sheets. They have passed with full marks recent stress tests by the EU,” he said.
Maltese banks are not exposed to large amounts of Greek debt, with only Bank of Valletta having an exposure of about €9 million. However, the bank, which a few months ago was found to have among the soundest capital ratios of risky assets by the European banking authorities, is considered to be well covered to sustain any write-offs of Greek debt.
The situation of other large banks in Europe is not as rosy because many, particularly in Germany and France, are heavily exposed and need to be recapitalised to counter a write-off of about 60 per cent of the estimated €350 billion existent Greek debt.
Sources close to the talks said that France appeared to be the most exposed and that was why the French and German governments were still at loggerheads on how to solve the crisis.
While Germany is insisting that banks should be recapitalised through private and national state funds, France wants to also involve the European Central Bank to avoid a possible downgrading in its triple-A rating of its sovereign debt.
Despite marathon talks yesterday and meetings of EU finance ministers over the weekend, it was impossible for a deal to be ironed out and EU leaders are now expected to return to Brussels on Wednesday, a self-imposed cut-off date for a final deal. If this is not achieved, the euro crisis will deteriorate further.
Apart from the recapitalisation of Europe’s banking system, EU leaders still have to agree on other crucial elements of the “comprehensive package” including the boosting of the €440 million bailout fund, known as the European Financial Stability Facility, by leveraging it to be able to sustain further possible bailouts of risky economies, such as Italy and Spain. EU leaders must also agree on a second bailout of the Greek economy, the amount of write-offs of what is considered a “managed Greek default” and further changes to the management of the euro area.
Sources said that Malta had already made it clear that it is not in a position to make any further financial contributions, which so far amount to an exposure of over €700 million, mostly in guarantees.