The European Commission will be asking the Government to lower its spending, particularly by introducing health and pension reforms to rein in its growing deficit.

Commission sources told Times of Malta that EU Commissioners are tomorrow expected to approve a decision to recommend the start of another Excessive Deficit Procedure (EDP) against Malta, a few months after the island was let off the hook over its government finances.

In 2009, after exceeding the three per cent deficit threshold allowed by EU rules, the Commission had started an EDP against Malta. This was closed last year after the Commission made sure the island had come into line.

Following the Commission’s recommendation, which will have to be backed by EU finance ministers later this year, Malta must present the EU with plans on how to bring down its deficit beneath three per cent of GDP (the country’s economic output).

EU Commissioners tomorrow expected to approve start of another Excessive Deficit Procedure against Malta

Tomorrow, the Commission is also expected to publish specific economic recommendations to be followed by Malta in the coming months.

The sources said the Maltese plan should include lower spending in certain areas and the Commission will have the right to instruct the Government to revise its plans if its projections are unconvincing.

“This EDP for Malta this time round will be different from the ones in the past as the EU has now introduced stricter surveillance measures, which can be accompanied by sanctions if a country ignores the Commission’s recommendations,” an EU official told Times of Malta.

Government officials and the Commission have been in technical negotiations in the past weeks as Malta lobbied to avoid intervention by Brussels.

However, as Malta exceeded the deficit threshold last year and according to EU projections will do the same this year, the source said the Commission will continue with its plan.

“Maltese officials argued that the Government will be able to lower its deficit this year.

“However, we prefer to see this happening first and that is why we decided to move on with our action,” the source said.

According to the Budget for 2012, Malta had projected it would reduce the deficit to 2.7 per cent of GDP.

However, following the change in government, the new Finance Minister Edward Scicluna announced he had to revise the budget for 2013 as Malta had effectively overshot its projections and ended the year with a deficit of 3.3 per cent.

Increased scrutiny by Brussels

As a consequence, Prof. Scicluna said the Government would not be able to lower the deficit to 1.7 per cent, as projected by the previous administration for 2013, but instead would increase the deficit to 2.7 per cent.

In its spring economic forecasts issued last month, the Commission said the Maltese deficit projections for this year were on the optimistic side and calculated a deficit of 3.7 per cent for 2013 – one per cent more than Malta’s revised figures.

During his Budget speech, Prof. Scicluna said he was confident the Commission could be convinced this was a small slip-up and that no EDP would be issued.

However, according to EU officials, Malta’s figures were not seen as convincing enough by Brussels.

Former finance minister Tonio Fenech had repeatedly warned the Government not to take the possibility of EDP lightly and argued it was still in time to avoid this if it presented a mini-budget and reviewed its spending.

According to rules coming into force this week, known as ‘Twin Pack’, the Commission will have increased powers to monitor the budgets of member states.

Countries facing EDPs must regularly provide further information to the Commission on the measures taken to correct their excessive deficit.

The Commission will now also have the power to conclude that a member state must take further measures to review their plans.

In cases where the Commission is not satisfied with the progress achieved, it has the right to recommend further corrective measures and put together a macro-economic adjustment programme.

Tomorrow, the Commission is also expected to publish specific economic recommendations that Malta must follow in the coming months.

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