It`s the economy stupid

The Malta Independent



This symbolises how the electorate tends to confirm or change government depending on how the economy is doing.

It proclaims that the feel-good factor generated by economic growth or the pessimism brought about by recession could be a deciding factor in electorate`s mind when making political choices.

It seems to work in Malta too. Take recent election results.` `In 1992 the Nationalist government got confirmed with a resoundingly increased majority.` Five years of deficit budgeting and liberalisation policies that could easily be absorbed by the cash rich debt free economy inherited from Labour in 1987, spread the feel good factor and translated itself in political approval. `Given that the situation has continued to deteriorate under the current administration and there is all round conviction that we have an economic mess of structural proportions, it is equally predictable that the `it`s the economy stupid!` syndrome will again prevail.`

By 1996 however the feel-good factor had evaporated. People started feeling the pinch of tax enforcement and the erosion of their living standards through inflation. Debt levels and public deficit had risen to an unsustainable levels, so much` that government could not continue to feed the good feel factor through excessive consumption. The electorate needed different solutions and elected Labour with a sound majority.

Two years later the electorate again had a change of heart.` Little did the electorate care that the economic squeeze on the feel-good factor had its origin in the lax spending policy of the previous PN governments.` Labour had to seek the electorate approval at a time when it had only the pain but little gain too show and the result was much too predictable.

Given that the situation has continued to deteriorate under the current administration and there is all round conviction that we have an economic mess of structural proportions, it is equally predictable that the `it`s the economy stupid!` syndrome will again prevail. Which is yet another reason why an election such precede the referendum as otherwise we could well vote no the EU membership for the wrong reasons.

The effectiveness of the `it`s the economy stupid` syndrome will soon be tested in the German general elections due next month.` Schrőder is a popular Chancellor and he has honoured Germany with his leadership over the last four years. But the economy is faltering again just as the election is approaching. It is really not Schrőder`s fault. The international economy has taken a sudden downturn in June and July ( lucky Chirac - he wrapped up his electoral contests before that) and the risk of a double dip recession is taking hold over the prospect of sustained recovery that everyone was expecting. `If the syndrome is still working Schrőder could be the first political victim of the monetary union he championed.`

With Germany no longer in control of its monetary policy which was ceded to the ECB, the political fortunes of Schrőder are hostage to Duisenberg`s clan.` Whilst the softness of the German economy merits an interest rate cut and a more liberal fiscal policy to cyclically pump-prime the downturn, monetary union rules dictate that such decisions are no longer Schrőder`s to make.

However even an electorate as sophisticated as the German one seem to offer no excuses for Schrőder`s impossibility to perform after having ceded important monetary tools to the wider interest of a common monetary policy. The German electorate`s mood seems to be swinging to political change, extending at this crucial final lap stage the gap cultivated by challenger Stoiber.

If the syndrome is still working Schrőder could be the first political victim of the monetary union he championed. A warning to Blair and Brown to reconsider the project for melting Sterling into the Euro if they mean to go for a third term.

Alfred Mifsud