Yet, in another twist, economic affairs commissioner Joaquin Almunia said that the commission had been “too stringent” when he announced a review of the Stability and Growth Pact.
The Commission yesterday called on Cyprus, the Czech Republic, Hungary, Malta, Poland and Slovakia to get their public deficits in line with EU rules by 2008.
All 10 new member states are obliged at some point to join the eurozone, whose members must keep their deficits under three per cent of the gross domestic product.
In his presentation, Mr Almunia said the Commission is planning to alter the rules which govern budget deficits in its member states because they were “too stringent”.
The Stability and Growth Pact is meant to keep the deficits of eurozone states below three per cent of GDP but many, most notably France and Germany, have breached it.
Mr Almunia added that it is “probably necessary” to clarify the definitions of the pact’s rulebook. “The experience of the last five years has shown that in certain cases at least, the rules have perhaps been too stringent and have reduced our room for manoeuvre.”
The European Commission yesterday adopted a recommendation for a Council opinion on the first convergence programme of Malta, which was submitted on 21 May, and covers the period 2004-2007.
Based on a plausible macro-economic scenario, the programme envisages the deficit to narrow from 9.7 per cent of GDP in 2003 to below three per cent in 2006 and fall further thereafter.
The Commission yesterday also recommended to the Council that this medium-term adjustment path should form the basis for the correction of the excessive deficit which, the Commission said, exists in Malta.
On the basis of the commission’s recommendations, the ECOFIN Council on 5 July is expected to adopt an opinion on the convergence programme, a decision on the existence of an excessive deficit and recommendations to Malta on how to bring this situation to an end.
The Commissions main’ conclusions on the convergence of Malta are as follows. The macro-economic scenario underlying the programme foresees growth to accelerate from about 1.1 per cent in 2004-2005 to 2.1 per cent in 2006-2007.
The growth forecast for 2004-2005 is lower than projected in the Commission spring forecast. The budgetary strategy presented in the programme aims at bringing down the general government deficit from 5.2 per cent of GDP in 2004 to 1.4 per cent in 2007, well below the three per cent reference value but still inconsistent with a close-to-budget budgetary position.
This strategy is based on spending control and rationalisation, complemented on the revenue side by improving tax administration in order to avoid tax evasion. If fully applied, the budgetary strategy outlined in the programme should therefore be enough to bring the deficit to below three per cent of GDP in 2006.
Debt ratio is projected to slightly increase in 2004 and 2005 to gradually decline from 72.4 per cent of GDP in 2005 to 70.4 per cent of GDP in 2007, but still well above the 60 per cent reference value.
Malta faces a risk of budgetary imbalances in meeting the budgetary cost of ageing populations, the Commission said.
The Commission initiated the excessive deficit procedure for Malta on 12 May. Yesterday, it adopted an opinion on the existence of an excessive deficit and made recommendations to the Council to decide accordingly and to make recommendations to Malta on how to bring this situation to an end by 2006.