Subsidies: GDP - Malta and Slovakia with strongest cuts among EU 10

Malta and Slovakia experienced the strongest reductions in subsidies-to-GDP ratio out of the 10 new EU member states from 1995 to 2005, according to an International Monetary Fund working paper titled Reforming Government Subsidies In The New Member States Of The European Union.

Malta's size of subsidies as a percentage of GDP was reduced from 3.3 in 1995 to 2.1 in 2005, while that of Slovakia was reduced from 4.7 to 1.3. Over this period subsidies in the EU 10 went down from 2.1 per cent of GDP to 1.2 per cent.

Subsidy reform was a key component of the pre-accession reform agenda of the 10 new EU member states (EU-10) which joined the bloc in 2004. In the early 1990s subsidies were widespread in the EU 10 countries with explicit subsidies representing on average 3 per cent of GDP and implicit subsidies double this figure. As a result these countries had to modify, reduce drastically and in some cases eliminate subsidies during the pre-accession period (1995-2004). Accordingly they reduced spending on subsidies in their economic programmes by an average of 50 per cent.

During the pre-accession years, the key subsidy reforms took place in four areas: state aid to enterprises, as well as subsidies to agriculture, energy and transport.

The study points out that Malta and Cyprus were able to negotiate transitory arrangements in state aid reform because drastic state aid elimination in crucial economic sectors would have damaged their economies dramatically and "would have even made EU accession undesirable".

The IMF working paper also points out that Malta had the highest level of state aid during 2000-2002 of all the new EU member states - 3.9 per cent of GDP, followed by Cyprus (2.9 per cent) and the Czech Republic (2.8 per cent). Malta's level of state aid was more than seven times the level of the EU 15 and almost three times that of the EU 12.