Speaking last month, after the publication of the Commission’s Spring Report on Malta (and all the other EU states), the Finance Ministry said: “The fact that the European Commission did not impose additional budget measures in the recommendation published on Wednesday, shows trust in Malta.”

“The European Commission’s decision to not impose specific additional measures shows that it recognises the new government’s resolve to returning the deficit to below 3% by the end of the year, and continue with its fiscal consolidation until necessary,” Finance Minister Edward Scicluna added.

The government’s argument in seeking to avoid the imposition of specific spending cuts was primarily to ensure that the growth momentum which the economy enjoys at present is not stalled by negative economic shocks or austerity programmes which some other EU member states had to endure.

Despite the fiscal situation which it has inherited, however, the government remains committed to closing 2013 with a deficit below the 3% threshold, and is confident that it can achieve this through several initiatives.

Then last week Prof. Scicluna, speaking at a joint press conference with the Governor of the Council of Europe Development Bank, stressed that European Commission could have identified a package of cuts which Malta would be asked to implement, and said that while the government was obviously not pleased that Malta was under the EDP, he was satisfied to note that the Commission did not order any specific cuts after the matter was discussed.

He said that he discussed the issue with Economic and Monetary Affairs Commissioner Olli Rehn on two occasions, once in a meeting in Brussels – in which Prime Minister Joseph Muscat also participated – and over a long telephone conversation.

Prof. Scicluna noted that Malta’s economy was currently performing well, with indications of increasing consumption spurring increased economic activity.

He noted that in the arguments presented to the Commission, the government noted that the economic momentum which had been built should be maintained, since economic growth would increase the government’s revenue. Any austerity measures resulting from spending cuts could then be detrimental, according to the government.

“Keep us moving and we will deliver,” he said.

The minister emphasised that while the Commission ordered no cuts, this did not mean that the government would engage in a “free-for-all.” He pointed out that the Finance Ministry is reviewing government expenditure month after month, ready to act if projections are missed.

Well, we beg to differ.

The Commission’s recommendations are, on the contrary, quite clear. They are:

1. Specify and implement the measures needed to achieve the annual structural  adjustment effort set out in the Council recommendations under the EDP in order to  correct the excessive deficit by 2014 in a sustainable and growth-friendly manner,  limiting recourse to one-off/temporary measures. After correcting the excessive  deficit, pursue the structural adjustment effort at an appropriate pace so as to reach  the MTO by 2017. Put in place a binding, rule-based multiannual fiscal framework in  2013. Ensure concrete delivery of measures taken to increase tax compliance and  fight tax evasion, and take action to reduce the debt bias in corporate taxation.

2. To ensure the long-term sustainability of public finances, reform the pension system  to curb the projected increase in expenditure, including by accelerating the increase  in the statutory retirement age, by introducing a link between the statutory retirement  age and life expectancy and by encouraging private pension savings. Take measures  to increase the employment rate of older workers by developing and implementing a  comprehensive active ageing strategy. Pursue health-care reforms to increase the  cost-effectiveness of the sector, in particular by strengthening public primary care provision. Improve the efficiency and reduce the length of public procurement  procedures.

3. Continue to pursue policy efforts to reduce early school leaving, notably by setting  up a comprehensive monitoring system, and increase the labour-market relevance of  education and training to address skills gaps, including through the announced  reform of the apprenticeship system. Continue supporting the improving labour market participation of women by promoting flexible working arrangements, in  particular by enhancing the provision and affordability of child-care and out-of school centres.

4. Continue efforts to diversify the energy mix and energy sources, in particular through  increasing the take up of renewable energy and the timely completion of the  electricity link with Sicily. Maintain efforts to promote energy efficiency and reduce  emissions from the transport sector.

5. Take measures to further strengthen the provisions for loan-impairment losses in the  banking sector to mitigate potential risks arising from exposure to the real estate  market. Maintain policy effort to ensure strict banking sector supervision, including  for the non-core domestic and internationally-oriented banks. Improve the overall  efficiency of the judicial system, for example by reducing the time needed to resolve  insolvency cases.

Moreover, the Commission’s Staff Working Document has now become public and it says, inter alia: “The EDP scenario implies the correction of the excessive deficit with respect to both the  deficit and debt criteria by 2014. For a debt-based-EDP, the recommendation should embed a  fiscal trajectory ensuring that, if followed, the debt complies with at least the forward looking  element of the debt benchmark at the end of the recommendation period (this is a necessary  condition for abrogation). This can only be achieved by calibrating the necessary structural effort, which – on the basis of the underlying macro scenario – would lead to certain levels of  nominal deficit ensuring a sufficiently diminishing debt-to-GDP ratio. Based on the baseline  scenario, compliance with the forward looking component of the debt benchmark in 2014  (hence looking at the debt-to-GDP ratio in 2016) implies a nominal deficit target of no more  than 2.7% of GDP in 2014. For 2013, the headline deficit target would be of 3.4% of GDP.

The primary balance would be at -0.2% of GDP in 2013 and at 0.5% of GDP in 2014. The  attainment of these targets is consistent with an improvement in the structural budget balance  of 0.7 pps. of GDP in both 2013 and 2014. From 72.1% of GDP in 2012, the debt-to-GDP  ratio would peak at 74% of GDP in 2014 before decreasing to 72.2% of GDP by 2016.

“Based on the Commission 2013 spring forecast, to reach the above mentioned structural  targets, the Maltese authorities would need to implement additional consolidation measures of  0.4% of GDP in 2013 and ¾% of GDP in 2014 on top of the measures already included in the  baseline scenario. These targets for the annual improvement in the structural budget balance  take into account the need to compensate for the negative second-round effects of fiscal  consolidation on the public finances, through its impact on GDP growth. They also assume  that a possible capital injection into Air Malta for 2015 would be fully compensated by  additional consolidation measures. The general government debt is projected to increase to  73.5% of GDP in 2013 and stabilize in 2014 as a consequence of the restored primary surplus.”

(One can find all relevant documents at http://ec.europa.eu/europe2020/making-it-happen/country-specific-recommendations/)

One would not want the government, just because it wanted to allay alarm, or because it misread the signs from Brussels, to come under a more vigorous onslaught in September when it is supposed to present a reviewed plan.