One of my first acts as an MEP in Brussels was to query why the European Commission had given us only until December 2010 to bring our budget deficit below the three per cent threshold.
My question should not be interpreted as a defence of the government. My sole interest is to save jobs and to create enough leeway for us to undertake whatever investment expenditure is required.
The Maltese economy is in serious trouble. The fall in exports and tourism is such that when employers give up hope of a quick turnaround they will let go and significant job losses are to be expected.
Admittedly, we are one of three economic laggards in the eurozone. We trimmed our public finances but did not manage to make them sustainable.
Moreover, the economic forecasts made by the Finance Ministry, the Central Bank, the EU and now the International Monetary Fund have been flying about in different directions and have left us all very confused.
Finance Minister Tonio Fenech had claimed, a few months ago, that we will achieve economic growth of 2.4 per cent and a 1.6 per cent deficit rate. Even then, serious observers could not take those figures seriously.
It is very strange that the EU seemed to take at face value government assurances in 2008 that our budget deficit, as estimated then at just over three per cent, was a one-off, on the basis of wildly unrealistic government revenue projections. I had shown all along since the last quarter of 2008 that the deficit was indeed exceeding the four per cent mark.
Nor should we rush to criticise the concept of the EU's Stability and Growth Pact (SGP). The SGP came into force as a result of the Maastricht Treaty, requiring member states to ensure that their budgetary deficits are kept below three per cent and that public debt is kept below 60 per cent.
It has proved a good method of keeping public finances under control and the penalties for breaching it are relatively mild.
Yet since 1993 when Maastricht was ratified, the European economy has, by and large, enjoyed a benign period of economic growth. Even with a lacklustre economic performance that Malta suffered between 2000 and 2005 it too managed to squeeze through the mid-2007 tests, riding on a three- to four-year spate of singeing tax increases and some voluntary price and wage freezes.
The former price restraints were offered by a group of eager locally-oriented private business concerns and public utilities managers (duly assisted by generous subsidies); the latter by a well-thought out public sector wage agreement which gave minimal increase before December 2007 with the balance delivered in 2008.
Now all European countries are struggling economically. The Commission's own economists have forecast a sharp contraction of four per cent across all EU states in 2009. In such circumstances, it is inevitable that a number of countries will, like Malta, breach the terms of the SGP.
Most European countries are not expected to emerge from the recession until 2010. When jobs lost will be regained is anybody's guess.
Meanwhile, the IMF has projected that Malta's deficit will not fall below three per cent until 2013. What it did not say but can be read between the lines is that it would be foolhardy to pretend we can do this earlier.
In the meantime, the Finance Minister's loud promises to save jobs are not followed by convincing actions or programmes on his part. Just consider his refusal to slash VAT rates on some selected local services, a move much-needed to make us more competitive.
We need to extend the timeframe to 2013. This would allow Malta to enact an effective stimulus packages that would deliver more investment and save jobs, and still allow it to comply with the SGP.
Malta needs to take measures to stimulate the economy and it is impossible to do that if the Commission is going to take an inflexible approach to its interpretation of the Stability and Growth Pact and straitjacket us into making massive spending cuts.
Malta is the only country to have been given a deadline of 2010. Even long-standing members of the EU like France and the UK that have been bound by the SGP since its inception have been given more leeway than Malta.
The Commission must exercise more flexibility. No country gets out of a recession by expenditure cuts. No country should be forced to consolidate its public finances in the middle of a recession.
Prof. Scicluna is a Labour MEP.
www.edwardscicluna.com