Malta yesterday welcomed the final economic governance package hammered out in Poland during a two-day informal meeting of the European Union’s finance ministers, who sought to allay fears of a spiralling sovereign debt crisis and a looming credit crunch.
Speaking yesterday from Wroclaw, Poland in the wake of yesterday’s meeting, Finance Minister Tonio Fenech was, however, more sceptical over proposals for an EU-wide financial transactions tax and the Franco-German proposal for a so-called ‘golden rule’ to write public fiscal discipline into all individual members states’ constitutions.
Hailing the closing off of the “long discussion” on the EU’s new economic governance package, Mr Fenech described the development as “a very important weapon in the EU’s war chest” in the battle EU governments are waging against the sovereign debt crisis – which has already forced Greece, Portugal and Ireland into multibillion euro bailouts - and increasingly jittery international financial markets.
And although Malta has been subject to the infamous excessive deficit procedure, Mr Fenech said the government was “fully on board” with the new package, which gives the European Commission more teeth – more powers to take punitive and precautionary measures against when a member state risks breaking the bloc’s limits on debts and deficits.
On the highly controversial financial transactions tax, which could raise money for the EU and make banks share bailout burdens with taxpayers - Mr Fenech said the subject had come up, with some member states proposing further exploring the avenue.
But, he said, “As a government we are sceptical. Any such tax should be levied on a global level, otherwise it could serve to shift investments away from the EU.”
He did point out that the UK and some countries have already implemented such a tax but on a small scale, and that studies have shown that the tax has not had an adverse effect.
He said yesterday, “We need to study the impact and see how it could work. As such, we will wait for the Commission’s proposals along these lines.”
The United States is unwilling to implement such a tax, a prospect that makes it exceedingly difficult for Europe to go it alone for fear that it could push more trading to the US, while Germany has said it may pursue a tax solely in the eurozone if countries like Britain refuse to support it.
On the Franco-German golden rule proposal - that balanced budget proposals be written into individual EU member nations’ constitutions – Mr Fenech said that “one must look at this with caution”, adding that “it could serve to create a lack of fiscal manoeuvrability at times when governments require a certain amount of fiscal flexibility.
The final draft of the so-called six-pack regulations ironed out comprises five regulations and one directive are part of a strategy to boost economic competitiveness and encourage fiscal discipline across the 27 member European Union.
EU finance ministers also agreed yesterday that European banks must be strengthened in the follow-up to July stress tests, just as a report said a “systemic” crisis in sovereign debt now threatened a new credit crunch.
However, the agreement does not mean European banks are likely to get large, additional capital injections from public coffers - it is more an acknowledgement of the results of the European bank stress tests in July.
The tests showed a financing gap for banks of only €6 billion euros - a sum many investors believe could be much higher if the debt crisis worsens.
European banks are therefore struggling to borrow amid growing alarm among US money market funds, and other traditional dollar lenders, about the effect of a feared Greek debt default on European banks’ books.