ECB Chief warns Euro members to slash their budgets by 2011
Charlot Zahra
European Central Bank (ECB) President Jean-Claude Trichet has warned the 16 countries using the euro as their currency to slash their deficits “in 2011 at the latest,” in an interview published on Sunday in Germany.
The interview that appeared in the Bild Sunday edition came a- few days after the National Statistics Office (NSO), on Christmas Eve released its latest Budget deficit figures for November 2009.
The latest deficit figures for November this year showed a deficit of €410.5 million at the end of the month, an increase of €153.5 million when compared with the €257 million figure that Finance Minister Tonio Fenech projected in the 2010 Budget Speech last November.
“In the euro zone, budget deficits should be reduced in 2011 at the latest, in some countries already in 2010, to preserve faith in state finances,” the ECB chief warned.
“In Europe and around the world, there are lessons to be learned from the financial crisis to make the financial system more resilient,” Trichet told Bild am Sonntag.
He urged banks to help ease a credit crunch by making loans available.
“Banks must live up to their central role in providing credit to the economy,” Trichet said.
Unless there is a significant increase in revenue in December, which is unlikely given the recessionary moment and the hefty utility bills announced a couple of weeks ago, Malta looks set to register a whopping budget deficit close to the 4 per cent mark for the second year running.
The EU had already warned Malta to bring down its deficit in line with the EU’s Stability and Growth Pact guidelines of 3 per cent of GDP within a year and a half when confirming the Excessive Deficit Procedures (EDP) against Malta in July 2009.
The European Commission was still discussing Malta’s request for an extension to the EDP programme by one year till 2011, however the latest figures indicate that the EU was unlikely to grant this extension in view of the repeated lack of Budget deficit discipline by the Maltese Government.
In the 2010 Budget speech, the Maltese Government had abandoned its quest for a balanced budget by 2011, as pledged by Finance Minister Tonio Fenech during last year’s Budget speech.
Fenech was now projecting a budget deficit of 3.79 per cent for 2009 (€217 million), a slight increase` to 3.93 per cent of GDP for 2010 (€233 million), and down to 3.2 per cent in 2011 (€200 million).
Only in 2012 - with a projected deficit of 2.9 per cent (€190 million) – government deficit is forecasted to fall below the 3 per cent reference value as set out in the EU’s Stability and Growth Pact.
The Finance Minister had also revised Malta’s GDP-to-debt-ratio to 68.7 per cent in 2010, 68.2 per cent in 2011 and 67.2 per cent in 2012, always higher than the 60 per cent debt-to-GDP standard ratio set by the EU.
As to the GDP, the Finance Minister was now projecting a contraction of - 2 per cent for 2009, which was projected to change to a positive projection of + 1.0 per cent in 2010.
In the 2008 Budget Speech, Tonio Fenech had forecast that the Budget deficit for that year would have dropped by 2.0 per cent and to -1.2 per cent in 2009, and with a surplus of 0.2 per cent in 2010. In the 2008 Budget Speech, Tonio Fenech had forecast that the Budget deficit for that year would have dropped by 2.0 per cent and to -1.2 per cent in 2009, and with a surplus of 0.2 per cent in 2010.
A year later, in the 2009 Budget Speech, the Finance Minister had substantially revised its Budget deficit forecast, with 2008 reaching -3.49 per cent, and 2009 reaching 1.65 per cent. The following year, government was expecting a deficit reduction of -0.40 in 2010.
The Finance Minister had been projecting a surplus budget by 2011, but even those forecasts were too optimistic, as both the European Commission’s Spring Economic Forecasts in May and the IMF’s interim report in July had revealed.
In the Spring Economic Forecasts, Malta’s budget deficit was forecast at 3.6 per cent for year, falling to 3.2 per cent in 2010, just 0.2 per cent short of the threshold set by the EU.
As to the public debt figures, the EC had also forecast a growth beyond the 60 per cent limit set out by the Stability and Growth Pact, with 67.0 per cent for 2009 and 68.9 per cent for next year.
In its final report in September 2009, the International Monetary Fund (IMF) had warned that the fiscal deficit was expected to narrow marginally to 4.5 per cent of GDP in 2009.
However, excluding the substantial one-offs of 2009, the balance would deteriorate by over 0.5 percentage point of GDP, the IMF had insisted.
The IMF report had also a harsher forecast that Malta’s budget deficit would only fall below the 3 per cent threshold set out by the EU’s Stability and Growth Pact only in 2013, with public debt reaching 70 per cent of GDP.
