Updated | Fenech denies Labour MEP's claims over Brussels' warning to cut spending

Updated at 7pm with finance minister's statement.

The EU's Economic Commissioner Olli Rehn has said that in November 2011 the European Commission had asked Finance Minister Tonio Fenech for additional measures that would ensure a timely and sustainable correction of the excessive deficit.

Rehn said this in reply to a number of questions tabled by Labour MEP Edward Scicluna on the €40 million in budgetary cuts announced by the government in January.

Scicluna has accused Tonio Fenech of "repeatedly failing to heed" the two explicit warnings prior to the publication of the 2012 Budget after the Commission confirmed that it had repeatedly warned the government that Malta's budget deficit would fall short of expectations. "After an implied third and final warning in the beginning of January during the bilateral talks held with the Commission the government announced spending cuts worth €40 million worth 0.6 per cent of GDP."

Scicluna asked Economic Commissioner Olli Rehn why had the 2012 Budget failed to convince the Commission that the targets set by the Maltese government could be attained.

He also asked whether the Commission communicated with the government regarding its evaluation and conclusion and whether the Commission suggested to the government that any cuts were needed.

In his reply Rehn said: "The Council recommended Malta to bring the general government deficit below 3% of GDP in a credible and sustainable manner by 2011. According to the Commission services' 2011 Autumn Forecast, the general government deficit was estimated at 3% of GDP in 2011 and projected to widen to 3.5% of GDP in 2012 and 3.6% of GDP in 2013."

Rehn added that the projected path of the general government budget deficit in the forecast "was not consistent" with a sustainable correction of the excessive deficit.

"Vice-President Rehn communicated this assessment to the Maltese finance minster in November 2011 and asked for additional measures that would ensure a timely and sustainable correction of the excessive deficit. The Maltese government presented its budget for 2012 in November 2011," Labour MEP Edward Scicluna said.

In January 2012, after prior bilateral consultations, the Commission published its assessment of the budgetary measures taken for 2012 and considered that the Maltese authorities have taken effective action towards a timely and sustainable correction of the excessive deficit, Rehn's reply added. This was a reference to the €40 million cuts that were announced by Prime Minister Lawrence Gonzi on 6 January, in tandem with a Cabinet reshuffle that was to destabilise his fragile one-seat majority with a rebellion by MP Franco Debono.

The budget cuts are equivalent to 0.59% of gross domestic product (GDP). Finance Minister Tonio Fenech had denied that these cuts were imnposed by the European Commission and said that it was government that came up with the cuts, which have touched upon salaries, overtime, operational and maintenance expenditure programmes and initiatives and government entities.

Scicluna said that the measures included hefty cuts "in contributions to government entities including Appogg, Sapport and Sedqa, which provide essential support services to the most vulnerable people in society."

Finance Minister Tonio Fenech strongly rebutted Scicluna's statement. "Scicluna's declaration betrays Labour's continuous efforts to paint a negative picture of Malta by spreading such spurious claims. The Opposition is ready to sacrifice the country's stability for political gain."

Fenech said it was untrue that the budget's partial revision took place after a warning from the Commission. "What the EC said was that it had assessed the country's finances in January and its conclusion was that the government had taken the right and timely measures against an excessive deficit," Fenech said.

The minister denied that the EC had warning the government on its finances, but that it had "expressed trust" in the government's budgetary measures.

"We already have seen the deficit go below the 3% of GDP, which is the threshold allowable under the Stability and Growth Pact - we are now at a deficit of 2.7%, and Malta is one of six eurozone countries to have achieved this," Fenech said.

"Additionally, the International Monetary Fund is predicting the third largest economic growth in the eurozone for 2012."