Eurozone Finance Ministers have agreed on a new set of rules which are geared towards discouraging fiscal laxity within the common currency nations, with those who violate benchmarks risking very hefty fines.

The measures agreed on are largely based on reinforcing the Maastricht Treaty criteria of 1995. Eurozone members are to have a deficit which is not higher than 3% of Gross Domestic Product. This was deemed as a healthy benchmark to promote sustainable growth.

In addition, member states are not to have a public debt which is higher than 60% of GDP. The new rules could see member states with high deficits shell out a fine equivalent of 0.2 of GDP. This could mean a fine of E10 million in Malta’s case… but it is not an automatic penalty, as some sections of the media are trying to portray it.

While there has been much tough talk on the issue of slashing deficits, one must first note that if a member state’s deficit is in decline (although over 3%), then procedures would be stayed. In addition, if a member state is in breach of the new regulations, they are given a six-month grace period in which to embrace austerity.

Furthermore, it will take a majority vote by EU member states to actually prove that a country is on the path to breaching deficit protocols, or has actually done so (thank you France, the usual conservative). Only then can the European Commission impose fines and/or sanctions. To have those sanctions withdrawn, another vote is needed. In extreme cases, the EU may deny funding to a member state. Moreover, the Commission has been given the power to monitor national spending to ensure that it is in line with EU goals.

Malta’s deficit is currently at 3.9% and Budget 2011 is aimed at slashing it by one percentage point to 2.8%. Malta has already been slapped with an excessive deficit procedure and worked its way out of it by establishing a downward trend. Public debt, however, remains on the high side at 70% of GDP.

What one must bear in mind is that a three-per-cent deficit – though healthy – still pushes up public debt year after year. This is something which Malta needs to address. But recent headlines in the media stating that Malta may be fined E10m are way off the mark. TMID published a story more than two weeks ago when the first draft of the new rules appeared. We were pointed and clear – Malta may face a E10 million fine, but only if it reverses tack and the deficit starts to rise. One must also point out that 3.9% is not at all high. One can be assured that the European Commission’s priorities are going to be the spiralling deficits of Spain, Portugal, Ireland and Greece, all of which are into double figures. On matters of debt, Greece (130%), Italy (118%), Belgium (100%) and France (84%), are likely to be the first to be tackled.

This draft agreement will now be put to European leaders at the upcoming summit next week. In the meantime, Budget 2011 will be announced, but Malta is not facing a E10 million fine or the threat of it in the immediate future. One wonders where such ‘information’ came from.

What is certain is that we have ECB President Jean Claude Trichet to thank for arresting our own economic self-destruction. His clear, cutting and concise assessment of the situation when Greece almost folded made Sarkozy go white with shock and roar across the table to other PMs: “Stop hesitating damnit, we must act!” It is imperative to keep the stringency. Far too many countries flouted Maastricht and no action was taken – this is precisely why we are in the situation we see today.