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News | Wednesday, 29 April 2009

EC to decide on Malta’s Excessive Deficit Procedure

Charlot Zahra

The European Commission (EC) has hinted that it will be re-opening the Excessive Deficit Procedure (EDP) against Malta in view of the increase in Malta’s budget deficit from by 1.1 per cent when compared to the EC’s assessment of the EDP on 18 February 2009.
Asked whether the European Commission was going to revise the initial assessment made in the EDP that Malta’s deficit was “close to the Treaty reference value” of 3 pet cent of GDP in view of the latest statistics from the National Statistics Office (NSO), a spokesperson for the European Commission told Business Today yesterday that the Commission was going to publish “new economic forecasts (the spring forecasts) on Monday. This will include forecasts on public finances for 2009-2010,” she added.
When faced with media reports in Malta and abroad that European Commissioner for Economic and Monetary Policy Joaquim Almunia had said last Friday that “the new EU deficit figures published on Wednesday suggest the Commission will have to open excessive deficit procedures for Malta, Poland, Romania and Lithuania”, the spokesperson gave a more tellingly answer.
“What I can do is state the rules, which foresee that if a country has a deficit in excess of 3 per cent and that excess is not temporary, the Commission makes a recommendation for its correction,” she told Business Today.
“For instance, on 24 March 2009, the Commission took steps under the Excessive Deficit Procedure (EDP) for France, Greece, Ireland, Spain and the United Kingdom in view of their high budget deficit,” the spokesperson told Business Today.
Of the five countries against which the EC issued an EDP, only two countries, Ireland and the UK, had a budget deficit – 6.3 per cent in the case of Ireland and 8.8 per cent in the case of the UK – which was higher than Malta in 2008.
In the case of France, budget deficit for 3.4 per cent of GDP in 2008 - 1.3 per cent less than that of Malta, in the case of Greece, the budget deficit for 2008 was 3.7 per cent in 2008 - 1 per cent less than that of Malta, while in the case of Spain, the budget deficit for 2008 was 3.4 per cent – 1.3 per cent less than that of Malta,
“Those recommendations were endorsed by EU finance ministers informally in Prague beginning of April and formally, in a Council decision on Monday,” the EC added.
The latest statistics published by the NSO last Wednesday showed that in 2008, Malta suffered a budget deficit of €266 million, equivalent to 4.7 per of the GDP – well above the Commission’s forecast of 3.5 per cent in the Commission’s initial assessment of Malta’s EDP in February.
Under the provisions of the Stability and Growth Pact, Member States have to respect two criteria: a deficit-to-GDP ratio of 3 per cent and a debt-to-GDP ratio of 60 per cent.
In 2008, according to the European Commission’s interim forecasts, Malta’s deficit-to-GDP rate shot to 3.6 per cent, well above the 3 per cent limit set out in the Euro zone convergence criteria.
At the same time, Malta’s debt-to-GDP ratio for 2008 was revised upwards from 60.0 per cent to 62.9 per cent, exceeding the threshold set out by the Stability and Growth Pact.
For 2009, Malta’s debt-to-GDP ratio was also being revised upwards, from 57.2 per cent to 61.9 per cent, also in excess of the 60 per cent threshold.
If a Member State exceeded the deficit ceiling, the Excessive Deficit Procedure (EDP) was triggered at EU level. This entailed several steps – including the possibility of sanctions – to encourage the Member State concerned to take measures to rectify the situation.
The EDP is established in the Treaty and specified in the Stability and Growth Pact legislation.
The EDP legislation sets out criteria, schedules and deadlines for the Council to reach a decision on the existence of an excessive deficit.
However, no EDP procedure will be launched if the excess of the government deficit over the 3 per cent of GDP threshold is considered “temporary and exceptional” and the deficit remains close to the threshold.
Speaking at the presentation of the Stability and Growth pacts for 21 EU Member States including Malta on 18 February, Almunia had confirmed that the EC had adopted a EDP report on Malta, but had let the country off the hook for now.
“Because of the analysis of the closeness, temporariness and the other relevant factors we considered that Malta had a deficit above 3 per cent last year, but will not be followed by an excessive deficit procedure for the reasons we have analysed in the report,” Almunia had told journalists in Brussels.

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29 April 2009
ISSUE NO. 580

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