An analysis of how Malta's fiscal consolidation strategy shifted from the national sphere to the supra-national level of the European Union

Abstract

This dissertation was carried out in a period when the whole Eurozone was facing one of the worst economic crises since the 1930s. Although the issue of national debt is usually ignored due to its technical nature, it affects all the people in all levels of society. Moreover, it affects the Maltese economy's potential and resilience in today's highly competitive and volatile market. The study starts by analyzing the development of the supra-national institution in question, the European Union. It compares theories and gives its users an insight on EU regulation with respect to fiscal consolidation. In the meantime, the study focuses on a detailed historical background of Malta's fiscal consolidation strategy, both before and after joining the Union. Only in such way can the users of the study understand the major changes which were brought about by Malta's policy-shift to the supra-national level. The main question tested in the research is: what were the main characteristics in Malta's fiscal policy that had to be changed due to EU influence? One must never forget that changes brought about by the EU started before 2004, when Malta needed to comply with EU legislation. In other cases, Malta needed to implement measures to reach timely objectives, such as membership in the Eurozone and the Excessive Deficit Procedures opened against Malta by the EU. Besides the interviews, the study involves a detailed analysis of the existent literature on fiscal consolidation, especially EU reports, opinions, communication and press releases. Such secondary data complement Malta's fiscal policy-making at EU level after 2004, complemented by local material such as publication by the Government, the social partners, the political parties and other institutions. The dissertation will provide ample examples to highlight the major forces which led to the shift, such as Malta's structural debt, the Euro and the sovereign-debt crisis. On the other hand it assesses the measures which characterized Malta's fiscal behaviour. The dissertation concludes with the reflection that although EU Accession has limited Malta's flexibility, fiscal discipline enforced through EU rules has helped Malta to start correcting its fiscal difficulties.