Sunday, 29 April 2001

False Prophets False Analysis and Making Sense

The Sunday Times of Malta

The Editor

Dear Sir,

False prophets, false analysis and making sense

The European Movement`s contribution in OUR EUROPE (The Sunday Times 22nd April) makes yet another attempt to attack my credibility in order to control the damage to its cause from my exposing a rational thesis that Malta is likely to fall out of Objective 1 funding entitlement upon EU accession.

It states that my calculation of the GDP for Malta is based on a population of 353,796 while Eurostat worked with a population of 387,000. For end - 1999 figures Eurostat takes a population of 380,200 and this is the figure I used. Euro 3.4 billion of nominal GDP for 1999 spread over a population this size gives nominal GDP of Euro 8942 which is the figure I quoted.


Member current current Cost of Countries exch.rates PPP * living

Nom $ PPP $ Factor**

A B B/A Japan (1) 34,313 24,628 0.7177 Switzerland (1) 36,247 28,672 0.7910 Denmark 33,124 27,073 0.8173 Norway 34,277 28,133 0.8208 Sweden 27,256 23,017 0.8445 Iceland 31,139 26,338 0.8458 Finland 25,046 22,723 0.9073 Germany 25,729 23,819 0.9258

1st quartile excludes only Lux & US

France (2) 23,764 22,067 0.9286 Luxembourg 44,360 41,356 0.9323 United Kingdom 24,228 22,861 0.9436 Austria 25,948 24,646 0.9498 United States 33,836 33,836 1.0000 Ireland 24,943 25,404 1.0185 Belgium 24,347 ` `24,845 1.0205 Netherlands 24,906 25,923 1.0408

2nd quartile includes Lux & US from 1st quartile

Italy 20,479 ` `23,247 1.1352 Australia 21,432 25,590 1.1940 Spain 15,220 18,215 1.1968 Canada 20,822 26,424 1.2690 Greece ` `11,848 15,140 1.2779 New Zealand (1) 14,376 18,629 1.2958 Portugal 11,438 16,703 1.4603

3rd quartile no exceptions

Mexico 4,961 8,447 1.7027 Korea 8,685 16,059 1.8491 Poland 4,014 8,650 2.1550 Turkey (1) 2,807 6,335 2.2569 Hungary 4,790 11,275 2.3539 Czech Republic 5,156 13,342 2.5877 Slovac Republic 3,653 10,947 2.9967

4th quartile no exceptions

* PPP = Purchasing Power Parity

** Cost of living Factor = This factor measures the cost of living in the respective countries The lower the factor the higher the cost of living.

(1) Countires still using SNA 68

(2) Figures include Overseas Departments

Source National Accounts of OECD countires, Main Aggregates Vol 1 Mar 2001

Then it calls me a false prophet because a full two years ago I had expressed a view that Malta would have either to forego` its commissioner or take it in turns with other countries to nominate a commissioner on an alternate basis. So according to European Movement I am a false prophet because at Nice summit last December each candidate member was given the right to nominate a commissioner which would have to grow in size accordingly.

This is typical of how our EU enthusiasts insist on seeing the EU in two dimensional perspective without any depth. They seem to overlook that at Nice` it was also agreed that by 2010 when the commission size reaches 27, the number of commissioners will be set at a lower number with appointments made by rotation among member states. Not too bad a vision for a false prophet!

Regarding other opinions I expressed a full two years ago which were not borne out by the results of the Nice Treaty I suggest that European Movement should hold its breath.` Few people who matters consider Nice as the last word on institutional changes necessary to render enlargement workable. Clearly we have not seen the final act.

Regarding European Movement`s calculations that Malta would still be well below the 75% average EU GDP even within an enlarged EU` of 28 countries there is one simple fault in its` reasoning which is what sparked off my original contribution in the first place. I challenge the thesis that Cyprus GDP in PPP units is 82 % of EU 15 average whereas Malta`s is only 52%. Can anyone with hands on experience of both countries believe that Cyprus real standard of living is 58% better than ours` What a poor record this would be for our political mangers of the last 14 years who continue to expect our unfailing gratitude!

I don`t know what gave rise to this incredible result. What I know is that Eurostat warns specifically about Malta`s outdated statistics methodology and that it takes at least three consecutive annual statistics to feel re-assured about statistical integrity. Measurement of our statistics in PPP units is still in the initial stage.

But in the same issue Prof Josef Bonnici (Insight- Making sense) tried to make sense through false analysis. He challenges my thesis, subsequently supported by Mr. Joe Sammut, that the richer a country is the higher is the price level prevailing in the economy.` Now this is such a simple theory that even my 90 year old uncle who never attended primary school will have no problem in understanding that a shopping basket in Zurich will cost more than the same shopping basket in Zurrieq.

All this came about through` my challenging the integrity of Malta`s average GDP of EU 15 which is 58% lower than Cyprus caused by Cyprus reportedly having a higher GDP per capita but lower price levels.

Prof Bonnici suugested that I visit OECD web-site and down load a table which shows that whilst the US has a higher GDP per capita than most countries it has a lower price level.` So there it goes ` my Zurich dearer than Zurrieq theory fails Prof. Bonnici false analysis.

I reproduce the table down loaded from OECD as Prof Bonnici indicated. All I add to it is` the conversion factor which Prof. Bonnici has so much difficulty to comprehend.` A simple division of the PPP per capita GDP by the Nominal per capita GDP.` `The lower the` factor the higher the price level prevailing in the country. I than re-organised the country list starting from the highest price level to the lowest price level. No surprise whatsoever that Japan and Switzerland take the top and runner up spot as the most expensive countries whereas the two republics formerly composing Czechoslovakia take the honour of the least expensive countries.

I divided the list into four quartiles to prove the consistency of the data. It works perfectly with two exceptions. The USA and Luxembourg defy the logic by being extremely rich but having a lower price level than poorer countries. There are good reasons for this.` Luxembourg is a tiny state which employs many workers who commute daily from France Belgium and Germany.` So the GDP per capita is over-stated by the production of the non-residents. And what about the US How can the US exception be explained` But does one need to explain the US exception Is not the US an exception throughout` How many countries are in command of a reserve currency like the US$`

But for Prof Bonnici the US and Luxembourg are the rule and all the rest are the exception! I can`t think of a more classic example of warped analysis of simple economic statistics.` How can our economic guru make sense from false analysis`


Alfred Mifsud

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