Proposal for a COUNCIL DECISION on the existence of an excessive deficit in Malta
Date: 2013-05-29
Institutions: European Commission
Subjects: Malta, budget deficit, budgetary equilibrium, gross domestic product, stability pact

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
COM(2013) 390 final 

2013/0179 (NLE) 

Proposal for a 

COUNCIL DECISION 

on the existence of an excessive deficit in Malta 

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2013/0179 (NLE) 

Proposal for a 

COUNCIL DECISION 

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(6) thereof, 

Having regard to the proposal from the Commission, 

Having regard to the observations made by Malta, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

According  to  Article  126  of  the  Treaty  on  the  Functioning  of  the  European  Union 
(TFEU) Member States shall avoid excessive government deficits. 

The Stability and Growth Pact is based on the objective of sound government finances 
as a means of strengthening the conditions for price stability and for strong sustainable 
growth conducive to employment creation. 

The  excessive  deficit  procedure  (EDP)  under  Article  126  TFEU,  as  clarified  by 
Council  Regulation  (EC)  No  1467/97  on  speeding  up  and  clarifying 
the 
implementation of the excessive deficit procedure1 (which is part of the Stability and 
Growth  Pact),  provides  for  a  decision  on  the  existence  of  an  excessive  deficit.  The 
Protocol  on  the  excessive  deficit  procedure  annexed  to  the  Treaty  sets  out  further 
provisions  relating  to  the  implementation  of  the  EDP.  Council  Regulation  (EC)  No 
479/20092 lays down detailed rules and definitions for the application of the provisions 
of the said Protocol. 

According  to  Article  126(5)  TFEU,  if  the  Commission  considers  that  an  excessive 
deficit  in  a  Member  State  exists  or  may  occur,  it  shall  address  an  opinion  to  the 
Member State  concerned and the Council accordingly. Having  taken into  account its 
report in accordance with Article 126(3) TFEU and having regard to the opinion of the 
Economic  and  Financial  Committee  in  accordance  with  Article  126(4)  TFEU,  the 
Commission  concluded  that  an  excessive  deficit  exists  in  Malta.  The  Commission 
therefore  addressed  such  an  opinion  to  Malta  and  informed  the  Council  on  29  May 
20133. 

1 
2 
3 

OJ L 209, 2.8.1997, p. 6. 
OJ L 145, 10.6.2009, p. 1-9. 
All EDP-related documents for Malta can be found on the following website: 
http://ec.europa.eu/economy_finance/sgp/deficit/countries/malta_en.htm. 

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(5) 

(6) 

(7) 

(8) 

Article 126(6) TFEU states that the Council should consider any observations which 
the  Member  State  concerned  may  wish  to  make  before  deciding,  after  an  overall 
assessment,  whether  an  excessive  deficit  exists.  In  the  case  of  Malta,  this  overall 
assessment leads to the following conclusions. 

According  to  data  notified  by  the  Maltese  authorities  in  April  2013,  the  general 
government deficit in Malta reached 3.3% of GDP in 2012, thus exceeding the 3%-of-
GDP  reference  value.  The  Commission  report  under  Article  126(3)  TFEU  considers 
that the deficit was close to the 3%-of-GDP reference value,  but  the  excess over the 
reference value could not be qualified as exceptional within the meaning of the Treaty 
and  the  Stability  and  Growth  Pact.  In  particular,  it  does  not  result  from  a  severe 
economic  downturn  in  the  sense  of  the  Treaty  and  the  Stability  and  Growth  Pact.  In 
2010  and  2011,  real  GDP  growth  was,  on  average,  above  2%  annually,  higher  than 
potential growth. Preliminary GDP data published by the national statistics office on 
11  March  2013  show  that  economic  growth  slowed  down  in  2012,  but  remained 
positive at 0.8%. The positive output gap in 2011 is estimated to have turned slightly 
negative  in  2012.  The  planned  excess  over  the reference  value  cannot  be  considered 
temporary.  According  to  the  Commission  2013  spring  forecast,  the  deficit  would 
increase to 3.7% of GDP in 2013 and reach 3.6% of GDP in 2014. The deficit criterion 
in the Treaty is not fulfilled. 

Notified data also show that the general government gross debt stood at 72.1% of GDP 
in  2012,  above  the  60%-of-GDP  reference  value.  The  Commission  2013  spring 
forecast  projects  the  debt  ratio  to  increase  to  74.9%  of  GDP  in  2014.  Following  the 
abrogation  of  the  EDP  in  December  2012,  Malta  benefitted  from  a  three-year 
transition  period  to  comply  with  the  debt  reduction  benchmark,  starting  in  2012.  In 
2012,  Malta  did  not  make  sufficient  progress  towards  compliance  with  the  debt 
reduction  benchmark,  as  its  structural  deficit  worsened  whereas  it  was  required  to 
improve  it.  It  can  therefore  be  concluded  that  the  debt  criterion  of  the  Treaty  is  not 
fulfilled. 

(8) 
In line with the provisions in the Treaty and the Stability and Growth Pact, the 
Commission also analysed in its report “relevant factors”. As specified in the Stability 
and Growth Pact, for countries with a debt ratio above 60% of GDP (like Malta), these 
factors  can  only  be  taken  into  account  in  the  steps  leading  to  the  decision  on  the 
existence of an excessive deficit, when assessing compliance on the basis of the deficit 
criterion, if the general government deficit remains close to the reference value and its 
excess over the reference value is temporary, which is not the case for Malta4. At the 
same time, such factors have been taken into account when assessing the breach of the 
debt  criterion,  but  they  do  not  seem  to  question  the  decision  on  the  existence  of  an 
excessive  deficit  either.  In  particular,  progress  towards  compliance  with  the  debt 
reduction  benchmark  has  been  assessed  in  light  of  the  debt-  and  deficit-increasing 
impact of financial assistance to Euro Area Member States. For Malta, the cumulative 
impact of Greek loan facility, EFSF disbursements, capital contributions to the ESM, 
and operations under Greek programme over the period 2011-2014 would be 3.9% of 
GDP  on  debt,  and  0.1%  of  GDP  on  deficit.  When  taking  into  account  the  impact  of 
these operations, the structural effort for 2012 required for Malta to comply with the 
debt criterion would have been lower, but still well above the structural effort actually 
implemented by Malta in 2012.  

4 

Article 2.4 of Council Regulation (EC) No 1467/97. 

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HAS ADOPTED THIS DECISION: 

From an overall assessment it follows that an excessive deficit exists in Malta. 

Article 1 

This Decision is addressed to the Republic of Malta. 

Done at Brussels,  

Article 2 

For the Council 
The President 

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