News : EU Affairs

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Positive reports for Malta's euro changeover By MaltaMedia News May 16, 2007 - 7:02:29 PM

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Malta has fulfilled the necessary criteria to join the euro currency on the 1st January 2008, according to positive convergence reports by the European Commission and the European Central Bank (ECB). European Commissioner for Economic and Monetary Affairs Joaquín Almunia on Wednesday afternoon.

He said the European Commission’s proposal for Malta to adopt the currency, after the island submitted its formal application last February, will be discussed in the Economic and Financial Affairs Council (ECOFIN) in the first week of June. The proposal will subsequently be scrutinized in the European Council on the 21st and 22nd June, where the political agreement for the enlargement of the euro area is to be adopted. If the decisions of European Council are positive, proposals for the irrevocable parity of the exchange rate will be presented and adopted in the following ECOFIN in July.

Commissioner Joaquín Almunia  said that he expected the decision of the European Council to be “positive”, in the light of Malta’s fulfilment of the criteria.  

The Commissioner explained that according to the report Malta’s inflation, at 1.8% in April based on a 12-month average was well below the reference value required to changeover to the euro, namely 3%. The report showed that inflation is likely to continue below the reference value in the coming months, while noting that moderate core inflation indicates that underlying inflationary pressures have remained limited.

Nevertheless, Malta was advised to stay vigilant and stem inflationary risks as cyclical conditions improve. A prudent fiscal stance aimed at avoiding the build-up of excessive demand pressures and wage developments in line with productivity gains was advised.

Commenting on Malta’s fulfilment of budgetary criterion and debt-to-Gross Domestic Product (GDP) ratio, Commissioner Joaquín Almunia  noted that the report found that the rate is still above the 60% reference value but on a “declining path”.

According to the report the deficit-to-GDP ratio decreased from 10% in 2003 to 2.6% in 2006 and was forecasted to amount to 2.1% in 2007. The report said that government debt increased significantly in the first half of the decade, but has fallen since 2004 to reach 66.5% of GDP in 2006.

Malta also fulfilled its exchange rate criterion, with the rate remaining stable with the exception of one day in 2005. This is in line with the central parity Malta agreed to when it joined the ERMII in 2005.  

The interest rate criterion was also fulfilled. The report pointed out that the average long-term interest rate in Malta in the year to March 2007 was 4.3%, below the reference value of 6.4%. Average long-term interest rates have been below the reference value since EU accession.

Towards the end of the presentation Commissioner Joaquín Almunia augured Malta a successful changeover and praised preparations underway for Malta to adopt the new currency.

Before he presented the report, Mr Almunia also said that the Commission decided to recommend that the Council abrogates the excessive deficit procedure (EDP) for Malta. The decision came after Malta's 2006 budgetary deficit fell below the 3% of GDP ceiling on the back of a significantly improved structural budget balance reflecting permanent measures, which is projected to decrease further in 2007 and 2008. The decision was also taken after favourable developments in the public debt ratio in 2006 and the projection of a decreasing trend in 2007 and 2008.

Commissioner Almunia explained that although the reduction of deficit below the 3% of GDP Treaty reference value was achieved partly thanks to substantial one-off operations, the Commission services’ spring 2007 forecast expects the deficit to fall further – to 2.1% of GDP in 2007 and to 1.6% of GDP by 2008. Recourse to one-offs in 2007 is anticipated to remain practically unchanged (0.6% of GDP) from the previous year but to fade away in 2008.

The procedure was initiated in May 2004 on the basis of a deficit of 9.7% of GDP and a debt of 72% of GDP in 2003.

Commenting on the reports in a press conference later during the afternoon, Prime Minister Dr Lawrence Gonzi said that Malta “passed a difficult examination” initiated three years ago with a plan which sough fiscal consolidation.

While explaining the process which led to Malta achieving positive reports, Dr Gonzi said that the plan launched three years ago was “ambitious” and “difficult”, especially where the reduction of deficit was concerned.

“The decisions the government made required sacrifice from Maltese citizens, however we were optimistic and sure that the country would go through today’s exercise and reap the benefits and results of undertaken measures,” added Dr Gonzi.

“ Malta joining the eurozone and making the euro Malta’s currency mean that more job opportunities will be created and more foreign investment will be attracted to our shores,” concluded the Prime Minister.

The press conference was also addressed by Parliamentary Secretary in the Ministry of Finance Tonio Fenech who expressed welcomed the European Commission’s report and gave a run down of its main points.

During the press conference Governor of the Central Bank of Malta Michael C. Bonello talked the ECB report. The report was approved by the bank’s general council on Monday and its mandate is to verify whether the country requesting to join the eurozone has made the necessary progress. The Governor explained that besides analyzing Malta’s economic achievements in a balanced way during the past years, the report also indicates what must be done in the upcoming months so that the economy can be further strengthened.

The ECB report comes to the same conclusions as that of the European Commission.

The Opposition also spoke of Malta’s positive reports. In a statement on Wednesday evening, Dr Charles Mangion, Main Speaker for Parliamentary, Financial and Economic Affairs said that the Malta Labour Party (MLP) will follow the recommendations of the European Commission report should it be elected to government before the 1st January 2008.

However, quoting national statistics that asserted that 15% or 60,000 Maltese citizens are living below the poverty line,  Dr Mangion said that the MLP feels that Malta’s economic progress needs to be scrutinized while the declaration that Malta’s economy is growing required further evaluation. 

The MLP speaker also referred to to the GDP-per-head in Malta, saying that in five years, compared to the EU average, this declined from 78% to 71%.

The need for sustainability of public finances was also reiterated by Dr Mangion, who added that Malta’s efforts must focus on making the government’s revenue depend on economic growth rather than ‘one-offs’ or increases in taxes.

“We also believe that the favourable recommendations set forward by the European Commission and the ECB are to direct our attention to the real situation and tackle how a large number of Maltese families are really feeling,” concluded Dr Mangion.

The euro area initially included Belgium, Germany, Ireland, Spain, France, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland. Greece was included from the 1st January 2001, and Slovenia from 1st January 2007. With Malta and Cyprus joining the eurozone the total number of EU states using a single currency will total to 15.

Cyprus, which submitted its application to join the eurozone along with Malta also fulfilled all criteria.

With Malta and Cyprus joining the eurozone the total number of EU states using a single currency will total to 15.

Last year, Lithuania's euro bid was rejected after it failed to meet the inflation stability criterion.