The European Commission does not intend recommending any changes to the deadline given to Malta to correct its structural budget deficit by the end of next year.
Economic and Monetary Affairs Commissioner Joaquin Almunia made the statement in reply to a question by Labour MEP Edward Scicluna at the European Parliament. Prof. Scicluna asked for reasons why Malta was not given more time to get in line.
In plain terms, Mr Almunia said that rules were rules and that Malta's high deficit in 2008 was not a result of the economic downturn. "The breach of the deficit reference value in 2008 (by Malta) was partly due to specific developments on the expenditure side rather than to the impact of the economic downturn," the commissioner said.
"Real GDP growth in 2008 remained positive, at 2.5 per cent. In the light of the strong economic growth in the years up to 2008, the deterioration of the macro-economic environment expected in the Commission services' spring 2009 forecast for 2009 and 2010 cannot be considered to constitute special circumstances," he said.
An excessive deficit procedure (EDP) against Malta was approved by the EU last July following a reccomendation by the European Commission. According to this procedure, by December 2010 Malta must cut its deficit to under three per cent of GDP from the 4.7 per cent registered at the end of 2008.
Malta now has until the end of this year to spell out what actions will be taken to reduce the deficit, which will then be assesed by the Commission in January. In view if this, the government is likely to make the necessary adjustments in the coming budget.
EU rules stipulate that if a member state surpasses the three per cent deficit threshold, the EU Council must establish a deadline for the correction of the excessive deficit, which "should be completed in the year following its identification unless there are special circumstances".
Mr Almunia said that, according to the Commission's assessment, "no special circumstances" were found in Malta's case in 2008 to justify a longer corrective period.
"In the case of the Council recommendation for Malta, the relevant factors as examined in the Commission's report present a mixed picture and do not suggest the existence of special circumstances warranting a departure from the standard deadline for correcting the deficit," he said.
At the same time, the commissioner did not completely rule out some minor changes in the future and said that when an assessment on Malta's actions to rein in its deficit is carried out at the beginning of next year "developments compared to forecasts underlying the recommendation" would be taken into account.
Last May, when the Commission had come out with its EDP recommendation against Malta, the commissioner had said that Malta's deficit was considered to be on the low side and, thus, had decided to give Malta the minimum period set under its rules to get back into the black.
Other countries, such as Poland, which are also facing an EDP, were given more time to correct their deficits as their financial situation is in a much worse shape than Malta's.
The Commission had said that it believed that Malta's deficit problem was only a minor one and was due to some one-time expenditure overruns made during 2008, particularly due to the liquidation process of Malta Shipyards and the early retirement schemes associated with the process and the added subsidies of water and electricity.
However, since last May, Malta's economy took a dip as the real effects of the global recession started biting. According to the latest GDP figures, Malta's economy is contracting.