22nd Oct 2018

Malta's euro bid may test EU public debt criteria

Malta on Monday (26 February) followed Cyprus in officially announcing its bid to join the euro next year with the country's Prime Minister Lawrence Gonzi set to submit the application at the meeting of EU finance ministers on Tuesday in Brussels.

Mr Gonzi said Malta "has been progressively achieving the targets that we set," as its public deficit is predicted to be 2.4 percent of GDP in 2007 (below the EU's 3 percent target), and inflation at 1.6 percent for the same year (below the EU's threshold forecast of 2.6 percent.)

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  • The Mediterranean island aims to join the current 13-strong eurozone area (Photo: European Commission)

Inflation figures previously sparked concerns on the Mediterranean island, with some worried that its euro bid could see a similar fate to that of Lithuania's application last year with Vilnius missing the inflation target by 0.1 percentage point.

Lithuania's request to adopt the euro in 2007 was rejected.

The Maltese government's efforts to cut its public deficit - to meet the key eurozone rule of 3 percent or less - has also come at the expense of public debt which ran at almost 70 percent of GDP late last year, above the EU's threshold of 60 percent.

The figure is unusual in comparison to other EU newcomers with only Hungary recording similar debt levels while other countries from central and eastern Europe average at around 25 percent.

But according to analysts, the public debt rule has not been previously strictly applied in the cases of Italy, Belgium and Greece which could be used as an argument by Maltese officials.

"It all depends on the interpretation" of the figures by EU and European Central Bank (ECB) authorities, the Maltese Central Bank's spokesman Clive Barcolo told Down Jones news agency.

EU leaders will make the final formal decision over both Cyprus and Malta at their June summit, with the European Commission and the ECB expected to make their recommendations first.

If approved, the group of eurozone newcomers could amount to three member states from the ten that joined the EU in 2004 plus Bulgaria and Romania following this year. All of them are obliged to eventually adopt the euro.

The next to follow could be Slovakia plus possibly any of the three Baltic countries in 2009, while the Czech Republic announced recently that it could aim at joining in 2012 after having missed the economic targets for the original planned date of 2010.

Hungary may also join in 2012 depending on its economic performance while Poland has still not announced its official target date.

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