Fenech warns of Malta’s high risk of falling back into excessive deficit procedure

According to Finance Minister Edward Scicluna, the European Commission has lost its trust in Malta after the PN administration failed to follow the Commission's orders in January 2012 to cut the budget by €40 million.

With a deficit surpassing the 3% threshold, Malta risks falling under the Excessive Deficit Procedure. The government is currently in talks with the Commission in a bid to convince it that Malta will succeed in reducing its deficit under the 3%.

According to Tonio Fenech, the highest probability is that the European Commission will place Malta under EDP; according to Edward Scicluna, the government was doing all it could to avoid it.

"The European Commission is not believing us when we say that we are going to consolidate our fiscal slippage. Last year, the government had given its word it would cut €40 million from its budget. But it didn't keep its word. And now, we are in a weak situation with the European Commission. Whatever we're promising is not being believed," Scicluna told the parliamentary committee for economic and financial affairs.

But Fenech rubbished this statement, insisting that the Commission based its decisions on statistics not "friendships". He also asked whether the Commission had asked the government to review its €600 million debt projected for next year.

Scicluna also revealed that during phone calls held with Commissioner Olli Rehn, it transpired that the Budget 2013 as put forward by the PN administration "was never agreed to" by the Commission.

"We had been assured by the government of the day that the EC had accepted the budget as was. But yesterday Olli Rehn said this was not exactly the case. This budget targeted a 1.7% deficit but it was approved under different circumstance - three months late and after a general election," Scicluna said.

Fenech defended the Rehn accusation, insisting that the Commission doesn't rubberstamp the whole budget document but would approve the framework or government's plans. He added that the issue at stake now was the Commission's forecast of 3.7% deficit this year and a 3.6% deficit in 2014, "under no policy change scenario".

"In other words, deficit will not be decreased if the government doesn't change its policies," he warned.

Scicluna also argued that the fiscal slippage suffered in the first months of 2013 had been due to the election period, where consumers took a step back from making purchases of a certain value - for example cars and property - as they waited for a new government to approve the budget.

"While we know that this is a temporary issue - we are already noted increase in consumption during March and April - for the EC it makes no difference whether we were in election mode or not. While we argue that it is a temporary deficit, the Commission does not see it in the same way and we are trying to convince it otherwise," he said.

The parliamentary committee, chaired by Labour MP Silvio Schembri, was also addressed to by the Central Bank Governor Josef Bonnici who urged the government to diversify the country's economy to make it more resilient.

Referring to the concluding statements of a report of the International Monetary Fund which described Malta as "showing remarkable resilience" in the face of the economic crisis which hit Europe, Bonnici said Malta had a sound financial sector.

He also said that the full IMF report has not yet been published.