Updated 8pm, adds details from Robert Abela's press conference

Malta is to be allocated €2.25 billion in funds by the European Union over the next seven years, Prime Minister Robert Abela announced on Tuesday.

The €2.25 billion combines €1.92 billion allocated to Malta from the EU's core budget allocation and €327 million in grants from a newly-created instrument set up following the coronavirus-caused economic slowdown. 

Abela hailed the result as a great success, saying this was double the funds allocated for Malta in the last EU budget and would translate into further investment in the economy. In the budget period 2014 - 2020, Malta was allocated more than €1.1bn in funds. 

The announcement came hours after EU leaders approved a landmark stimulus package to fight the withering economic aftershocks of COVID-19 as well as the EU budget for the 2021-2027 period. 

"Deal!" tweeted EU Council Chief Charles Michel, whose job was to guide the tortuous talks over more than 90 hours.

The package was made possible by the crucial backing of Germany and France and includes the biggest ever joint borrowing by the 27 members of the bloc, something that had been resisted by Berlin for generations.

'Biggest ever' allocation of EU funds for Malta

In May, when the economic package was being drafted, the European Commission offered Malta a package of loans and grants of almost €1 billion. The one-off proposal was for a €992 million cash injection consisting of €350m in grants and €642m in loans, payable by 2058.

The package unveiled on Tuesday morning does not include a further €92 million in cohesion funds allocated to Malta as part of the EU's coronavirus recovery stimulus. 

Last Sunday, Abela said Malta was objecting to the way the EU was proposing to allocate funds for the stimulus package, arguing that it penalised countries which had got their economies in order. 

Malta's GDP per capita has shot up over the past decade, reaching 96 per cent of the EU average in 2019. That strong economic showing, together with a €75 billion budget hole caused by the UK's decision to exit the EU, were expected to complicate negotiations for Malta.

When talks concerning the next EU budget first began in 2018, initial projections were that Malta would end up missing out on hundreds of millions in EU funding.

Malta's contribution to the EU's budget, which is automatically calculated and based on economic growth, will rise substantially over the 2021-2027 period when compared to the previous seven years. 

But despite Malta being set to contribute roughly €1.2 billion to the EU's coffers, the country will remain a net beneficiary of EU funding, with a net balance of just over €1 billion in the black. 

Financial tax warning

The negotiated result elicited a sceptical reply from Peter Agius, a former PN candidate for the European parliament elections and now a Brussels staffer. In a Facebook post, Agius asked whether Abela had agreed to introduce a tax on financial services - a key pillar in Malta's economy - as part of the deal.

A new financial transaction tax may be included.A new financial transaction tax may be included.

According to the full document, released on Tuesday, the EU will, in the course of this funding period, work towards the introduction of other revenue streams,
which "may include a Financial Transaction Tax".  

Earlier this month, Times of Malta reported how a €100 million EU budget top-up could be a “pill sweetener” for the introduction of a Europe-wide financial transaction tax.

Developers welcome budget

The Malta Developers Association, on the other hand, was pleased with the outcome. 

"This budget allocation is an important milestone for the country as it can support the continued growth of the country’s economy.  It came at a crucial time to continue ensuring the country’s growth," the MDA said. 

It however warned that implemeting the budget would require "able, determined and competent executives, something which the country currently yearns for."

Tense negotiations

The package agreed on Tuesday will send tens of billions of euros to countries hardest hit by the virus, most notably heavily indebted Spain and Italy that had lobbied hard for a major gesture from their EU partners.

Their call for solidarity was met with the fierce opposition of the "Frugals", a group of small, northern nations led by Netherlands, who believed strongly that the stimulus package was unnecessary.

The frugals were also deeply apprehensive of sending money to southern countries that they see as too lax with public spending.

To meet their concerns, payouts from the package will come with important strings attached -- a hard pill to swallow for Rome and Madrid who deeply resisted anything resembling the harsh bailouts imposed on Greece, Portugal or Ireland during the debt crisis.

The frugals were also enticed with heavy rebates on their EU contributions, furthering a practice first offered to Britain decades ago, when it was still a member.

Controlled spending 

The recovery package will complement the unprecedented monetary stimulus at the European Central Bank, that has largely succeeded in reassuring the financial markets despite a catastrophic recession in Europe.

Overall, the deal will dole out €390 billion in the form of grants to pandemic-hit countries.

That was lower than an original €500 billion proposal made by France and Germany. Another €360 billion was to be disbursed in loans, repayable by the member state.

The stimulus payments will not be blank cheques to member states. 

Spending will be closely controlled and must be devoted to policies seen as compatible with European priorities, including politically difficult economic reforms as well as the environment.

The European Commission, the EU's executive arm, will be in charge of distributing the funds, with the 27 member states able to turn down a spending plan if a weighted majority of them decide to intervene.

The rescue package was agreed along with the EU's long-term budget, bringing the agreed spending to €1.8 trillion through 2027.

The plan was nearly upended by Hungary and Poland due to a demand that EU payouts be tied to the "Rule of Law", Brussels jargon for upholding laws on freedom of speech and an independent judiciary.

Budapest and Warsaw are under fire for offending EU norms, but a proposal to tie the EU budget to those concerns was watered down to the satisfaction of Hungarian Prime Minister Viktor Orban and his Polish counterpart.

The package now requires more technical negotiations among member states as well as ratification by the European Parliament that could happen as soon as Thursday.  

'The biggest ever' package - Abela

In a press conference later on Tuesday, Abela again described the financial package as “the biggest ever”, saying Malta engaged in the discussions by making “strong and valid arguments”.

“The amount is double what we had between been given for the period between 2014 and 2020. We managed to get over a billion euros more,” he said. 

The prime minister explained how this “success” was a result of Malta making “strong and valid arguments” during the talks while also making it clear the island would not be giving up “what it deserved”. 

On the cohesion funds for Malta, Abela said this is even more relevant in light of Brexit since the UK’s contribution was no longer in the picture. 

“Our country made great advancements in its GDP and had growth rates that were among the highest. These are successes that made it possible for us to argue in our favour. We made it clear from the start that we would not let our successes get in the way of the funds we are entitled to,” Abela said. 

Rule of law

On the rule of law, Abela said the government’s efforts to work harder on this were recognised. Issues with the member states’ rule of law were crucial during the talks, he said and Malta even pushed for this to be a main criteria for the allocation of funds. 

“I knew we would be debating the rule of law and that this would be brought up so I went there prepared to show that we are working on tackling this,” Abela said.
  
On his part, Glenn Micallef from the EU affairs ministry, said a country’s contribution depends on the member states’ economic growth. 

Malta’s contribution was not something that was negotiated during the five-day meeting but part of a mechanism that comes into force automatically. 

  

Attached files

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