Recommendation for a COUNCIL DECISION abrogating Decision 2009/587/EC on the existence of an excessive deficit in Malta
Date: 2012-11-14
Institutions: European Commission
Subjects: Malta, budget deficit, public debt, stability pact

EUROPEAN 
COMMISSION 

Brussels, 14.11.2012  
COM(2012) 676 final 

Recommendation for a 

COUNCIL DECISION 

abrogating Decision 2009/587/EC on the existence of an excessive deficit in Malta 

{SWD(2012) 384 final} 

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Recommendation for a 

COUNCIL DECISION 

abrogating Decision 2009/587/EC on the existence of an excessive deficit in Malta 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 126(12) thereof, 

Having regard to the recommendation from the Commission, 

Whereas:  

(1) 

(2) 

(3) 

By Council Decision 2009/587/EC of 7 July 20091, following a recommendation from 
the  Commission  in  accordance  with  Article 104(6)  of  the  Treaty  establishing  the 
European Community (TEC), it was decided that an excessive deficit existed in Malta. 
The Council noted that the general government deficit in Malta had reached 4.7% of 
GDP  in  2008,  thus  largely  exceeding  the  3%  of  GDP  reference  value,  while  general 
government  gross  debt  had  been  above  the  60%  of  GDP  reference  value  since  2003 
and stood at 64.1% of GDP in 20082. 

Also  on  7  July  2009,  on  the  basis  of  a  recommendation  by  the  Commission,  the 
Council addressed a recommendation to Malta in accordance with Article 104(7)TEC 
and  Article  3(4)  of  Regulation  (EC)  No  1467/97  on  speeding  up  and  clarifying  the 
implementation of the excessive deficit procedure3, with a view to bringing an end to 
this situation by 2010 at the latest. The recommendation was made public. 

On  16  February  2010,  on  the  basis  of  a  Commission  recommendation,  the  Council 
concluded that effective action had been taken in compliance with its recommendation 
under  Article  104(7)  TEC  but  that  unexpected  adverse  economic  events  with  major 
unfavourable  consequences  for  government  finances  had  occurred  in  Malta  after  the 
adoption  of 
therefore  adopted  a  revised 
recommendation in accordance with Article 126(7) of the Treaty on the Functioning of 
the European Union (TFEU) to Malta, extending the deadline for the correction of the 
excessive deficit by one year, i.e. to 2011. The recommendation was made public. 

its  recommendation.  The  Council 

1 
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3 

OJ L 202, 4.8.2009, p. 42. 
The general government deficit and debt for 2008 were subsequently revised to currently 4.6% of GDP 
and 62.0% of GDP respectively. 
OJ L 209, 2.8.1997, p. 6. 

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(4) 

(5) 

According  to  Article  126(12)  TFEU,  a  Council  Decision  on  the  existence  of  an 
excessive  deficit  is  to  be  abrogated  when  the  excessive  deficit  in  the  Member  State 
concerned has, in the view of the Council, been corrected. 

According to Article 4 of the Protocol on the excessive deficit procedure annexed to 
the TFEU, the Commission provides the data for the implementation of the procedure. 
As  part  of  the  application  of  this  Protocol,  Member  States  are  to  notify  data  on 
government  deficits  and  debt  and  other  associated  variables  twice  a  year,  namely 
before  1  April  and  before  1  October,  in  accordance  with  Article  3  of  Council 
Regulation (EC) No 479/2009 of 25 May 2009 on the application of the Protocol on 
the excessive deficit procedure annexed to the TFEU4.  

(6)  When  considering  whether  an  excessive  deficit  procedure  should  be  abrogated,  the 
Commission  and  the  Council  should  take  a  decision  on  the  basis  of  notified  data. 
Moreover, the excessive deficit procedure should be abrogated only if the Commission 
forecasts  indicate  that  the  deficit  will  not  exceed  the  3%  of  GDP  threshold  over  the 
forecast horizon. 

(7) 

Based on data provided by the Commission (Eurostat) in accordance with Article 14 
of  Regulation  (EC)  No  479/2009  following  the  notification  by  Malta  before  1 April 
2012  and  on  the  Commission  services’  2012  Autumn  Forecast,  the  following 
conclusions are warranted: 

– 

– 

After the peak in 2008, the general government deficit has narrowed gradually, 
reaching  2.7%  of  GDP  in  2011,  below  the  3%  of  GDP  reference  value.  The 
significant  improvement  compared  to  2010,  when  the  general  govermnment 
deficit was 3.6% of GDP, was mainly due to an increase in revenues by 0.7% 
of  GDP.  The  impact  of  net  deficit-reducing  one-off  measures  in  2011  is 
estimated in the Commission services’ 2012 Autumn Forecast at 0.7% of GDP. 
The  structural  balance,  i.e.  the  cyclically  adjusted  budgetary  balance  net  of 
one-off  and  temporary  measures,  is  estimated  to  have  improved  by  1  pp.  of 
GDP in 2011, above the requested effort of at least ¾% of GDP recommended 
by the Council. 

The  Commission  services'  2012  Autumn  Forecast  projects  the  deficit  to  fall 
further  to  2.6%  of  GDP  in  2012,  mainly  thanks  to  revenue-increasing 
measures,  most  of  which  are  considered  to  be  of  a  one-off  nature;  the  net 
deficit-reducing impact of one-offs is estimated at 1% of GDP. On a no-policy 
change  basis,  i.e.  without  incorporating  the  consolidation  measures  contained 
in the 2013 budget, which was adopted after the cut-off date of the forecast, the 
general  government  deficit  is  projected  to  widen  to  2.9%  of  GDP  in  2013, 
before  narrowing  again,  to  2.6%  of  GDP,  in  2014,  thus  remaining  below  the 
3% of GDP reference value over the forecast horizon. The April 2012 Stability 
Programme  targets  lower  deficits,  of  2.2%,  1.7%  and  1.1%  of  GDP  in  2012, 
2013 and 2014, respectively. The difference between the Commission services' 
2012  Autumn  Forecast  and  the  Stability  Programme  target  for  2012is  mainly 
explained by more dynamic revenue growth in the latter.  

4 

OJ L 145, 10.6.2009, p. 1. 

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– 

– 

In  the  years  after  the  2011  deadline  set  by  the  Council,  the  budgetary 
projections  of  the  Commission  services'  2012  Autumn  Forecast  point  to  no 
improvement  of  the  cyclically-adjusted  budget  balance,  net  of  one-off  and 
other temporary measures, in 2012 and to an improvement of ¼ pp. of GDP in 
2013.  This  is  below  the  0.5%  of  GDP  benchmark  for  the  adjustment  towards 
the  Medium  Term Budgetary Objective (MTO) required under the preventive 
arm  of  the  Stability  and  Growth  Pact,  notably  Regulation  (EC)  No  1466/975. 
This slow adjustment is projected against broadly balanced cyclical conditions; 
i.e.  the  output  gap  is  estimated  to  be  close  to  zero.  At  the  same  time,  the 
composition of growth is expected to be relatively tax-revenue-poor. Especially 
in 2012, economic growth is driven by net exports, while domestic demand is 
projected  to  be  rather  weak  compared  to  the  past  trends.  In  2014,  the 
improvement is projected to amount to of ½ pp. of GDP. Furthermore, in 2012, 
the  real  growth  rate  of  government  expenditure,  net  of  discretionary  revenue 
measures, is projected to be below the benchmark reference medium-term rate 
of  potential  GDP  growth,  as  defined  in  Article  5  of  Regulation  (EC)  No 
1466/97.  However,  on  a  no-policy-change  basis,  the  real  net  growth  in 
expenditure would significantly breach  this benchmark reference rate in 2013 
and 2014. 

General  government  gross  debt  as  a  share  of  GDP  has  been  on  an  increasing 
trend  since  2008  and  reached  70.9%  of  GDP  in  2011.  The  Commission 
services’ 2012 Autumn Forecast projects the debt ratio to continue increasing 
to reach 72.4% of GDP in 2012, 73.1% of GDP in 2013 and 72.8% of GDP in 
2014. By contrast, the 2012 Stability Programme projects the debt ratio to start 
decreasing after 2011, to 67.4% of GDP by 2014. The difference between the 
two  projections  is  due  to  a  lower  primary  surplus  and  higher  stock-flow 
adjustment in the Autumn Forecast.  

(8) 

The Council recalls that, starting in 2012, which is the year following the correction of 
the  excessive  deficit,  and  for  a  period  of  three  years,  Malta  should  make  sufficient 
progress  towards  compliance  with  the  requirement  under  the  debt  criterion,  in 
accordance with Article 2(1a) of Regulation (EC) No 1467/97.  

(9) 

In  the  view  of  the  Council,  the  excessive  deficit  in  Malta  has  been  corrected  by  the 
2011 deadline and Decision 2009/587/EC should therefore be abrogated, 

HAS ADOPTED THIS DECISION: 

From  an  overall  assessment  it  follows  that  the  excessive  deficit  situation  in  Malta  has  been 
corrected. 

Article 1 

Decision 2009/587/EC is hereby abrogated. 

Article 2 

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OJ L 209, 2.8.1997, p. 1. 

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Article 3 

This Decision is addressed to the Republic of Malta. 

Done at Brussels,  

For the Council 
The President 

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