I suppose we should all be glad that our Minister of Finance has finally come to the conclusion that it is impossible for Malta to meet the 2010 deadline to correct its excessive deficit and to ask for the Commission to extend its deadline for Malta. It is, however, pertinent to ask why it has taken him so long to do just that.
Back in July, one of my first actions as a new MEP was to table a parliamentary question to the European Commission asking why Malta had only been given a year to cut its deficit from 4.5 per cent to three per cent while other countries had been given deadlines of 2013 or even longer.
Essentially, the Commission's reply ignored the recommendations made by the IMF proposing a 2013 deadline and added that "special circumstances" for Malta did not exist.
In my maiden speech to the Parliament in Strasbourg in September, in advance of the G20 summit in the United States the following week, I returned to the theme. The EU Commissioner for Economic and Monetary Affairs, Joaquin Almunia, told us twice (once in committee and then the following day in Parliament) that no EU country should stop economic stimulus packages until we can see a clear return to economic growth.
Indeed, there is general agreement on this across the EU and in the US. But how could Malta cut its deficit by over 1.5 per cent without damaging our long-term economic and employment prospects? It was a completely contradictory position, and I said so.
All along, the government and my two MEP colleagues from the EPP were giving the impression that the government intended to keep to its Excessive Deficit Procedure (EDF) deadline and my repeated imploring with EU officials was practically frowned upon.
The reasons for this are not hard to tell. This Nationalist government's behaviour follows a familiar template. One: when the economy is in trouble keep a stiff upper lip and deny any problems. Two: give optimistic budgetary forecasts so that negative outcomes could be portrayed as unexpected surprises rather than entirely predictable outcomes. This negotiating strategy was so well played that, initially, the EU Commission believed the ruse that our excessive deficit was transient and not significant. I did point out at the time that I could not believe the Commission could be so naïve. It was not. Just a few weeks later the Commission called the government's bluff, seemingly taking at face value the government's inaccurate and misleading assertion that Malta's excessive deficit was just a one-off slip and would be swiftly corrected. For this reason, while confirming that the deficit was structural and not transient, it duly slapped an EDP on Malta and gave us the shortest compliance deadline of any other EU member state in a similar predicament.
The government should never have allowed to paint itself into such a tight corner with so little room to manoeuvre. How else can one explain the 2010 Budget where the government not only shirked from taking bold economic measures, such as cutting VAT on tourism-related services, but instead is forced to introduce a spate of hidden taxes by reducing its budgetary allocations to rent seeking organisations and corporations that are now expected to collect their revenues from new tariffs and other charges. In short, the government is in a difficult economic position that has greatly reduced its capacity to introduce effectively vital economic stimulus measures.
This spring, the Commission, in responding to the Stability Programme for 2009 by the government, stated that "the risks of Malta delivering on any of its risks are high". They were being generous.
Thanks to a dose of cosmetic accounting and more one-off schemes, the government gives, as always, the impression that its deficit is under control. In reality it is very obvious that the government cannot deliver on its promises to reduce our national debt and budget deficit.
Minister Fenech tells us that a contraction in Malta's economy means that the circumstances have changed from when the EU made its decision in May about Malta's excessive deficit. The truth is that nothing has changed except his own perception of reality, which has been staring him in the face all along.
Prof. Scicluna is a Labour member of the European Parliament.