Malta under pressure from EU excessive deficit procedure

Malta is one of five countries that is under pressure from the European Union to ensure they cut the 2012 budget deficit to less than the 3% of GDP limit set by eurozone criteria.

MaltaToday is informed that the European Commission is seeking an evaluation of whether its calculations of the budgetary targets in the last Budget, are tallying with tis own. "We want to have some clarification to make sure they will meet this target and that it will not have to trigger another step in the excessive deficit procedure," a spokesperson for the EU was quoted by Bloomberg News as saying.

The Guardian reported a Commission spokesperon saying the EC had yet to reach a decision on what steps to take against Belgium, Cyprus, Hungary, Malta and Poland, which are all expected to have deficits in excess of EU limits this year. "But we will do it very soon".

Opposition leader Joseph Muscat today hinted that the EC would be reviewing Malta's budgetary figures, when he pointed out that the Prime Minister had not mentioned that the government had failed its debt-reduction target for 2012.

Lawrence Gonzi today also announced a partial review of budgetary allocations, opting for a 0.59% of GDP cut across several departments and reversing a 2008 decision to pay ministers a €26,000 honorarium.

But he only announced for the first time that the EC had been in contact with the government over cutting its deficit on PBS's Xarabank, at 9pm. "The EC has been in touch with us since Budget 2012 and I took the decision to cut spending across various ministerial departments."

The government may have recieved a letter from Economic and Monetary Affairs Commissioner Olli Rehn on Thursday, 5 January warning it that it was in danger of missing its 2012 deficit targets and that it could face sanctions for overstepping the EU's limit.

If a Member State exceeds the deficit ceiling, the excessive deficit procedure (EDP) is triggered at EU level. This entails several steps – including the possibility of sanctions – to encourage the Member State concerned to take measures to rectify the situation.

The last excessive deficit procedure for Malta was concluded in 2010, after Malta was told in 2004 to reduce its public deficit to 3% of GDP, the limit set by the Maastricht Treaty.

In Rehn's letter to another member state, Belgium, the EC projects its deficit to be about 3.25% of GDP this year, and not 2.8% as Belgium projects. Rehn advised the Belgian government to hold back some its expenditure, setting a 9 January deadline for the country to respond.

The finance ministry today announced a partial review of budgetary allocations, on the same day that Labour leader Joseph Muscat hinted at a pending European Commission evaluation of government's budgetary projections. No mention was made in its official statement of any possible threat of an excessive deficit procedure.

Citing "continuing economic and financial troubles" in major world economies that were fuelling instability, the finance minister said the review was intended to safeguard investment and job creation.

The review will involve all ministries, departments as well as government entities, and targets reductions in the approved 2012 recurrent budgetary allocations which shall, on aggregate, amount to a total 0.59% of the GDP.

The expected outcome is to result through savings emanating from restraints in recruitment (0.1% of GDP), overtime (0.04% of GDP), operational and maintenance expenditure (0.07% of GDP), programmes and initiatives (0.21% of GDP) and government entities (0.17% of GDP).

Prime Minister Lawrence Gonzi today announced ministers will lead by example and take a major cut in their salary by giving up the €26,000 parliamentary honoraria in 2012 and 2013.

All approved capital budgetary allocations shall remain unchanged.

"Unfortunately, despite efforts being taken at European level and by individual European Member States, this turbulence is showing no signs of subsiding," finance minister Tonio Fenech said.

"As announced by the Prime Minister in his statement today, in order to be better placed to counteract any impact which may arise as a result of increasing risks in the international economic situation as well as developments within the public finance sector, it has become necessary to undertake a partial review of the 2012 public sector budgetary allocations approved in the recent 2012 budget."