The European Union is in the course of negotiations to agree its long-term budget for the years 2021 to 2027 – in euro-jargon the so-called ‘Multi-Annual Financial Framework’. This sets the limit for spending within the EU as a whole and for different areas of activity. Its overriding purpose is to align spending with the Union’s political priorities.
Given the damage the coronavirus shutdown is already inflicting on the economy, the outcome of the discussions of Budget 2021/27 are of vital importance to Malta. Prime Minister Robert Abela is already on record as vowing to fight for Malta’s slice of the budget, noting that the country’s strong economy pre-COVID had worked against it during recent negotiations.
Even before the pandemic rocked the world’s economies, EU leaders had been deadlocked over Budget 2021/27, the rift between countries impeded by the gap in EU funding of about €60 billion to €75 billion caused by Britain’s impending departure.
But it was also fuelled by a rebellion between Germany and a ‘frugal four’ group of smaller, rich member states (the Netherlands, Austria, Denmark and Sweden) – which objected to plans to slash rebates they receive on their budgetary contributions – and the rest.
Faced by the twin spectres of an inability to agree a new budget and the battle to support the most badly affected European countries against the ruinous economic consequences of COVID-19, the EU did what it does best in a crisis. It sought an imaginative compromise.
To avoid the prolongation of damaging divisions, it tasked the Commission to create a ‘recovery fund’ alongside the next seven-year budget to pay for vital economic recuperation from the coronavirus emergency. This is a shrewd way of allowing the richer member states to stand by the poorer ones “in the spirit of solidarity”.
Commission President Ursula von der Leyen, who has been given the task of devising the recovery fund, has hinted of what may lie ahead. The Commission envisages it as a way of boosting the latitude in Budget 2021/27 to allow it to borrow more to fund an investment splurge starting in 2021. This would enable today’s EU ceiling of 1.2 per cent of gross national income (GNI) to be raised to as much as two per cent for a short period, thus permitting extra funding by the EU.
It would be the centrepiece of a bid by the Commission for a radical new design of the currently stalled Budget 2021/27 discussions, enabling key spending programmes to be redirected to mitigate the damage caused by COVID-19 and using it to turbo-charge a post-corona recovery.
In the last seven years, Malta’s economy has been one of the most resilient in Europe- Martin Scicluna
Since Malta’s accession to the EU 16 years ago and its adoption of the euro four years later, the economy has benefited hugely from its access to a market of half a billion consumers. A healthy and unprecedented net inflow of billions in European funds for a whole range of environmental, agricultural and infrastructure projects and significant inflows of foreign direct investment have transformed the Maltese economy.
In the last seven years, Malta’s economy has been one of the most resilient in Europe. Among member states with a Mediterranean coastline (France, Italy, Spain, Greece, Cyprus, Croatia and Slovenia) Malta has experienced the greatest growth in GDP, the lowest unemployment rate, including among youths, the smallest budget deficit and the most favourable debt-to-equity ratio.
But the potentially catastrophic impact of the pandemic on Malta’s small, open economy – largely dependent on tourism, financial and other services – has set alarm bells ringing. It is already clear that economic dislocation to Malta caused by the coronavirus crisis will be deep, much deeper than was estimated only a few weeks ago by the International Monetary Fund and the European Commission’s own spring forecasts.
Given the prevalent global uncertainties, there is a realistic possibility that Malta’s economy will contract by up to six per cent, unemployment will rise to six per cent or more (despite the government’s generous financial aid to employers), and the national debt will increase from 43 per cent to about 51 per cent.
The EU Commission’s recovery fund and the far-reaching revision of Budget 2021/27 – a concept that centres around a re-engineered multi-annual financial framework – offer the prospect of “trillions of euros” in investment to fund the post-pandemic recovery. The power of the budget will be used to leverage money for a huge investment initiative aimed at restarting European economies after the depredations of COVID-19.
The case for Malta’s access to the EU recovery fund to support economic revival from the effects of the pandemic is powerful. Its argument for just and equitable treatment under the re-engineered Budget 2021/27 is also strong, closely in line with a number of declared key priorities for the Commission.
Malta is one of the EU countries most vulnerable to the impact of climate change. Tangible measures for mitigation and adaptation in the face of the climate emergency will be vital. Linked to this, Malta’s need for continued support in the agricultural field and in safeguarding its water table remain crucial.
Moreover, its frontline role in the EU’s efforts to deal with the security and social implications of irregular mass migration from Africa must be recognised. The requirement for continued cohesion funding investment in the infrastructure of Malta to ensure the advances made over the last few years don’t stall (a mass transport system, clean energy and vital development of the digital economy) should also be recognised.
Malta’s case is based on genuine need in line with EU priorities. Its impressive financial stewardship of recent years should bring its own reward, not be held against it.