activity was in turn reflected in labour market trends. the unemployment rate rose moderately in the first half of the year from 6 % at the end of 2008 and has stabilized at around 7 % since then. on the inflation front, consumer price trends in 2009 again did not fully mirror those in the euro area, converging only during the second half of the year when energy and food prices, which had risen sharply in the early part of the year, decelerated substantially. as a result, inflation in malta was lower than in the euro area for most of the last six months, partly compensating for the higher rates registered previously. in the context of an economic recession, malta ’ s public finances performed relatively well in 2009, although the country is still subject to an excessive deficit procedure. the deficit - togdp ratio declined from 4. 5 % to 3. 8 % in spite of an outlay of some 0. 7 % of gdp by way of targeted assistance to manufacturing firms and other stimulus measures. 1 to a large extent, however, the fall in the deficit ratio is explained by the presence of one - off expenditure items in 2008. 2 the general government debt ratio rose by around five percentage points to end the year at 69. 1 % of gdp, still below the estimated 78. 7 % euro area average. these developments helped to underpin confidence in maltese government bonds, which are primarily held by domestic residents. in fact, all the government and corporate bond issues launched in 2009 were oversubscribed, in spite of the fact that the issuance volume doubled compared with 2008. credit rating agencies have confirmed malta ’ s sovereign credit standing, with moody ’ s giving an a1 rating with a stable outlook. spreads over the german benchmark ten - year bond yield have remained stable over the past year at around 123 basis points. sources of economic resilience the relative resilience of the maltese economy is mainly attributable to four factors. the first is the adoption of the euro. the single currency has provided a valuable anchor during the intensification of the financial turmoil as malta did not have to carry the risks inherent in a small and vulnerable national currency. the threat posed by the financial crisis was further mitigated by the strength and stability of malta ’ s banking system. our banks benefited from an approach based on traditional intermediation between retail depositors and borrowers. their funding model, in fact, eschews reliance on wholesale markets.

tends to be forgotten : like individuals, countries cannot afford to live beyond their means indefinitely. sooner or later, the excesses of the past have to be paid for, often at a high economic and social cost. the recent proposals by the ec to strengthen economic policy coordination and fiscal discipline are grounded in precisely such thinking. 8 they call for improvements in both the preventive and corrective arms of the stability and growth pact, more emphasis on debt european commission european economic forecast, spring 2010. european commission european economic forecast, spring 2010, page 118. ec document com ( 2101 ) 250, entitled reinforcing economic policy coordination published on 12 may 2010. sustainability and the extension of peer surveillance beyond the budgetary dimension to other macroeconomic imbalances, such as losses in competitiveness, asset price booms fuelled by excessive credit growth and rigidities in product and labour markets. while malta ’ s situation is clearly less worrisome than that of some of the peripheral euro area countries, these proposals would benefit our economy as well. the persistence of current account deficits, for example, suggests an erosion of competitiveness and, therefore, the need for higher productivity, the removal of remaining constraints on market efficiency and increased investment in high value added, export - oriented activities. indeed, the economy ’ s strong performance up to 2006 owed more to domestic consumption than to exports. export growth, upon which the sustainability of a small, open economy depends to a large extent, has been insufficient over the past decade, and the consequent loss of market share partly explains why malta ’ s income gap with the euro area has not narrowed in recent years. with regard to the internal imbalance, the events of the last two years have brought to a halt the substantial fiscal consolidation that was achieved in the run - up to euro adoption. while the deficit had been reduced from almost 10 % of gdp in 2003 to 2. 2 % in 2007, it widened in the following two years and the latest projections, those of the ec, suggest that the shortfall will increase further to 4. 3 % this year, before declining to 3. 6 % in 2011. 9 these projections imply that the debt - to - gdp ratio in 2011 will stand at roughly the same level as in 2004, around 72 %. these ratios are higher than those contained in the government ’ s stability programme since the ec follows the “ no policy change ” rule and also because of differing macroeconomic assumptions. a credible fiscal consolidation