National debt could block Malta's Euro bid

Reporting on official EU budget forecasts published yesterday by the European Commission, BusinessWeek Online quotes AP business writer Aoife White who states that 'would-be Euro members Lithuania and Malta have to tackle high inflation and public debt before they can adopt the Euro'. The report suggests that the government's gross debt could yet block Malta 's bid to join the Euro:

Would-be euro members Lithuania and Malta will have to tackle high inflation and public debt before they can adopt the euro, according to EU budget forecasts published Wednesday that gave a more positive forecast for another euro candidate, Cyprus...Almunia said he would wait for a final yearly inflation figure for 2005 from the EU statistical agency Eurostat before making any decision on Lithuania's plans to join the euro..

High inflation poses a similar problem for the Mediterranean island of Malta although it does not plan to adopt the euro until 2008. By then, it expects to bring inflation down to 1.9 percent. It is forecast to rise to 3.1 percent this year. EU nations can only join the euro if their annual deficit is limited to 3 percent of their gross domestic product, their inflation does not exceed 2.4 percent and total public debt is not more than 60 percent of GDP.

Malta's government gross debt could yet block the country from joining the euro. Last year's debt to GDP ratio of 76.7 percent will fall by 2008 -- but at 67.3 percent that will not be enough to admit it into the euro club. The EU did praise Malta on its budget deficit, saying it seemed on track to cut its deficit to under 3 percent by 2006, provided it stuck closely to its budget and weathered "less positive" budget outcomes.

Cyprus received a more glowing report. The EU said Cyprus seemed to have brought its budget deficit under 3 percent and would have a good safety margin in place from 2008. Cyprus predicts it will get its government gross debt -- which hit 70.5 percent last year -- to 56.9 percent by 2008...

Correcting Malta's excessive deficit