Brussels is today expected to recommend that the EU drops disciplinary procedures against Malta for overstepping structural deficit rules last year. Malta ended 2008 with a deficit of 3.3 per cent of the gross domestic product when, according to EU rules, member states' annual structural budgetary deficit must not exceed three per cent of GDP.

A European Commission analysis indicates that this is only a "temporary"' situation and that Malta should this year be able to get back on track and stick to the rules.

"Our forecasts suggest the structural deficit problem in Malta in 2008 will not be repeated in 2009. Thus, the Commission won't be recommending starting corrective measures against Malta," an EU official said yesterday.

In its analysis on Malta's application of the Stability and Growth Pact rules, Brussels will today declare that the deficit outcome for 2008 was mainly caused by unforeseen circumstances. These included a one-off cost amounting to one per cent of GDP related to early retirement schemes offered to Malta Shipyards employees in preparation for the privatisation process.

According to the Commission, the decision to keep utility rates unchanged in the first half of last year also had a negative impact on Malta's finances. However, the Commission's report notes that this has now been reversed through the new tariffs structure.

According to the Commission services' estimates, Malta should this year return within normal deficit parameters with projections of 2.6 per cent of GDP.

In line with the strict financial rules, the EU would normally take corrective steps through a mechanism known as the Excessive Deficit Procedure if member states fail to keep within the three per cent benchmark. This mechanism sets strict timetables and new targets the member state has to observe in order to rein in its deficit to within the EU's threshold. The corrective measures, decided by EU Finance Ministers, are monitored on a monthly basis by the Commission.

If a member state does not follow the recommendations made, it risks being fined and losing some of its EU funding.

The EU had already imposed an Excessive Deficit Procedure against Malta in 2004 when its deficit upon accession stood at 10 per cent. However, following strict budgetary controls introduced by the government, the deficit was reduced to below the three per cent threshold in 2003, clearing the way for Malta's entry into the eurozone.