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Matthew Vella
Malta’s spiralling budgetary deficit has incurred warnings from the European Union’s new economic affairs commissioner Joaquín Almunia, who is expected to issue disciplinary procedures next week on 12 May.
Along with five other new member states, Malta will be warned to limit its budget deficit to less than three per cent of GDP. Currently, Malta’s deficit has increased to Lm105.4 million, an increase of Lm17.8 million over 2002, forming 9.7 per cent of its gross domestic product.
Spanish financial daily Cinco Dias has reported that Malta is second in a list of high-deficit Member States from the ten new countries, with the Czech Republic at 12.9 per cent of its GDP, Cyprus (with a deficit of 6.3 per cent), Hungary (5.9 per cent), Poland (4.1 per cent), and Slovakia (3.6 per cent).
Figures issued through a new statistical approach – the European Commission’s Excessive Debt Procedure - released last month show that government deficit and debt both fall well short of the Maastricht criteria, which measures the sustainability of governments’ financial position.
Government’s gross consolidated debt to gross domestic product ratio, meanwhile, worsened considerably last year and rose from 61.7 per cent in 2002 to a whopping 72 per cent at the end of 2003. The Maastricht criteria’s cut off line for ‘excessive debt’ is the 60 per cent level.
All new Member States have agreed to joining the European Monetary Union in the course of their accession, where adherence to the Euro currency involves aligning with the strict parameters of the Stability and Growth Pact, which demands deficits to be lower than three per cent of the country’s GDP.
Under the procedure, Brussels first writes to a member state pointing out an apparent breach in applying EU law and asks for an explanation or rectification. If the answer is unsatisfactory, the EU executive sends the country a "reasoned opinion", which is a final legal warning before taking it to the European Court of Justice. The procedure can last years and is used frequently against existing members. Only a fraction of cases end up in court.
Repeated transgression from these rules could result in massive fines although press reports have indicated that new members will be given ample room to get their finances in order. On 15 May Malta and the nine other countries that joined the EU last Saturday are scheduled to give in their plans for converging with the euro rules.
Several new member states may not receive EU farm subsidies from day one because their agricultural payments agencies do not meet Brussels' tough requirements, according to an April statement by enlargement commissioner Gunther Verheugen.
Infringement procedures can target a multitude of regulation violations from illegal state aid to industry to failure to apply EU tax, open market, competition, environment, transport, agriculture and energy rules. Some early cases may concern state aid and competition issues involving privatised heavy industries.
Cyprus, Estonia, Lithuania and Slovenia have already indicated they could join the Exchange Rate Mechanism 2 - the waiting room for the single currency - later this year. That means they would have to fix their currency against the euro within a fluctuation band of 15 per cent, as part of their preparations for joining the euro as well as cutting national debt, controlling deficits and inflation and giving full independence to their national central banks. Poland, which had hoped to join in 2006, was dissuaded from attempting such a radical programme of fiscal and economic reforms, and is aiming to participate in 2009.
If all goes to plan, the eurozone would expand from 12 countries today to 22 by the end of the decade. The membership of Britain, Denmark and Sweden is still uncertain. Their decisions on whether to join the single currency are subject to national referendums.
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