Malta is by no means suffering alone in terms of its pubic deficit, with the European Commission this week having placed a further nine member states under its Excessive Deficit Procedure.

That brings the grand total of countries falling foul of the EC’s deficit rules, which places the allowable deficit threshold at three per cent of a nation’s gross domestic product, to 20 out of the bloc’s 27 member states.

Malta was placed under the EDP back in July, after EU finance ministers confirmed an EC recommendation to place Malta under the Procedure. They also set a 7 January 2010 deadline for the government “to take effective action to rigorously implement the budgetary measures planned for 2009 and to specify the measures that will be necessary to progress toward the correction of the excessive deficit”.

This week, the Commission blamed the overall slide in EU public finances on falling tax revenues coupled with exceptional state spending to help the unemployed, prop up ailing banks and stimulate an economic recovery.

“Although the deficit levels are exceptional in nature, resulting primarily from a severe economic downturn or recession of an unforeseeable scale, they are neither close to the reference value [three per cent of GDP] nor temporary,” it said in a statement on Wednesday.

In addition to Germany and Italy, the commission warned Austria, Belgium, the Czech Republic, the Netherlands, Portugal, Slovakia and Slovenia about their budget deficits.

Nine other countries, including Malta, were warned earlier this year. Last autumn, before the economic crisis deepened, only the UK and Hungary had been singled out for their excessive budget deficits.

Speaking on Wednesday, Economic and Monetary Affairs Commissioner Joaquín Almunia observed: “A large majority of EU member states are set to have budget deficits above three per cent of GDP in 2009 as a result of the economic crisis. We need to continue supporting the economy until the recovery takes hold, in line with the European Economic Recovery Plan.

“But now is also the moment to design coordinated exit strategies so that, when the moment is right, we can begin to roll back the soaring debt levels. The Stability and Growth Pact is sufficiently flexible to combine the fiscal stimulus in the short term with consolidation of the public finances in the medium term and sustainability in the long term, bearing in mind the costs of ageing. But it is essential to keep applying it rigorously in order to anchor expectations that the excessive deficits will be corrected in an orderly way.”

The economic crisis, the Commission added in its statement, is taking a heavy toll on public finances in the EU and elsewhere due to falling revenues and rising social expenditure on the one hand, and the discretionary measures that member states have taken under the European Economic Recovery Plan devised by the Commission on the other.

A European Commission report this week had, in fact, applauded Malta for its fiscal stimulus package, which a report found to be one of the largest in the euro area. The report found the largest package had been put together by Spain (2.3 per cent of GDP), Austria (1.8 per cent), Finland (1.7 per cent) and Malta (1.6 per cent).

There is a general consensus among policy-makers, the Commission added, that the budgetary stimulus was necessary to avoid a long and deep recession and that it must be maintained until a durable recovery has been secured.

It did, however, point out that governments have also agreed, at the highest level, that the extraordinary support needs to be withdrawn in a coordinated manner when the time is right and that, at EU level, heads of government have also regularly affirmed that the Stability and Growth Pact remains the cornerstone for ensuring the sustainability of public finances and for anchoring ‘exit strategies’.

In its findings back in July, which launched Malta into the EDP, the ECOFIN council said: “In the case of Malta, it considers no departure from the standard deadline for correcting the deficit to be warranted”, and called on Malta to “ensure that budgetary measures planned for 2009 are rigorously implemented, whilst avoiding any further deterioration in public finances, and to spell out new consolidation measures in order to bring the deficit back below three per cent of GDP in 2010”.

In a statement issued at the time, the Finance Ministry noted: “The international adverse conditions are also affecting the Maltese economy. Therefore, while Malta is committing itself to address the excessive deficit, we need to be extremely careful not to take measures that could make a potentially bad economic situation even worse. The priority of the government remains that of supporting jobs in these difficult times.”

It added: “We need to recognise that Malta’s open economy exists within the context of the global economic downturn and so it cannot be totally insulated from the uncertainty and the risks that are still inherent in the international economy.”