The European Commission’s final verdict on whether it considers Malta’s economy fit enough to join the eurozone at the beginning of 2008, as intended, will be given on 16 May.
But although the Commission’s nod of approval is strongly anticipated, Malta’s prospective adoption of the euro, on 1 January 2008, will not be etched in stone until it receives final approval from the EU’s finance ministers in July.
After its announcement, the EC will forward its opinion on Malta’s euro adoption bid to the European Council. The approval would then accordingly go before the Council for discussion in June, which will be followed by a formal approval by EU finance ministers in July.
On 27 February, Malta requested the Commission to produce a Convergence Report assessing the country’s readiness to adopt Europe’s single currency as planned, while fellow new member state and island Cyprus requested the same of the Commission on 13 February.
The Commission will produce its reports on both Malta and Cyprus in tandem on 16 May, while the European Central Bank (ECB) will also produce its own report on the countries’ euro bid on the same day.
The reports will assess whether Malta and Cyprus, individually, have achieved a “high degree of sustainable convergence” as per the Maastricht criteria, which gauge price stability, public finances, exchange rate stability and long-term interest rates. National legislation, meanwhile, must also be in line with Economic and Monetary Union rules, and the statutes of the European System of Central Banks and the ECB.
Malta is widely anticipated to have fulfilled all the criteria, although the issue of inflation had been something of a stumbling block due to the increased price of energy and water. The problem of inflation, however, has recently been seen to have been brought down to within the criteria’s reference value.
In January this year Slovenia became the first of the new member states to adopt the euro, while Slovakia plans to adopt the
currency in 2009.
Assessing Malta’s Convergence Programme, on 7 February the European Commission had deemed Malta’s post-2007 economic projections to be “optimistic” and called on Malta to “spell out its budgetary expenditure control strategy and progress further on the road of healthcare reform”.
The EC also placed Malta at medium risk in terms of the long-term sustainability of public finances and worse-than-targeted budgetary outcomes after 2007 due to the markedly favourable macroeconomic scenario underlying the government’s projections.
Malta’s euro convergence plan was submitted in December and the government had projected a correction of the deficit to well below the three per cent of gross domestic product (GDP) threshold provided by the Maastricht criteria, in 2006, as well as a reduction of
public debt to below 60 per cent of GDP by 2009.
Replying to the positive projections the EC found that: “The budgetary outcomes after 2007 depend, however, on growth expectations that are on the optimistic side” and it invited Malta to supply further information on its strategy to reign in budgetary expenditure and its healthcare reform plans.
The Commission also noted: “There are, however, risks of worse-than-targeted budgetary outcomes after 2007 due to the markedly favourable macroeconomic scenario underlying the update’s projections. Malta appears to be at medium risk as regards the long-term sustainability of public finances.”
The Commission “invited” Malta to pursue adequate progress towards its medium term objectives (MTO) and ensure that the debt-to-GDP ratio is reduced accordingly, while also spelling out the budgetary strategy, especially on the expenditure side, with a longer time perspective.
It additionally requested Malta, in view of the level of debt and the projected increase in age-related expenditure, to improve the long-term sustainability of public finances by achieving the MTO and making further progress in the design and implementation of healthcare reform.