Malta's direct state aid in the economy increased substantially last year particularly due to the money spent on closing Malta Shipyards, according to the latest state aid scoreboard for 2008 published in Brussels this week.

According to the European Commission's analysis, last year Malta spent two per cent of its GDP on state aid, reversing the downward trend started with accession into the EU in 2004.

Until 2007, the government had managed to cut its yearly state aid to just 0.6 per cent of GDP. However, in 2008 this favourable development went haywire.

The Commission said that when excluding the special state aid granted by member states last year, due to the economic and financial crisis, in 2008, Malta registered the second highest amount of state aid in the EU 27 as a percentage of GDP. Only Hungary managed to make a heavier intervention in the "normal" economy, granting 2.4 per cent of GDP in state aid.

However, according to a Commission official, "this sudden increase" in Malta's state aid in 2008 "was mainly due to a one-off intervention related to the closing of the debt-ridden Malta Shipyards and the island should be in a better shape in the 2009 state aid scoreboard".

Although not specifically quantified in the Commission's analysis, Malta granted 61.6 per cent of its €100 million state aid in 2008 to the manufacturing industry, under which Malta Shipyards is usually classified. This injection of money also resulted in last year's surge in the deficit. The rest of Malta's state aid, 36.2 per cent, was classified as given to "other services".

The average state aid in the EU 27 last year, excluding measures connected with the financial crises, stood at just 0.54 per cent of GDP. However, with the measures introduced to save banks and financial institutions from collapsing, the average increased to 2.2 per cent of GDP.

According to EU rules, state aid is to be limited as much as possible as this is considered to stifle competition. However, the EU encourages aid where it comes to horizontal objectives such as research and development and environmental aid.

According to the 2008 state aid scoreboard, the highest levels of state aid last year were granted in Hungary (2.4 per cent of GDP), Malta (two per cent), Bulgaria (1.3 per cent) and Finland and Ireland (1.1 per cent) each.