Euro-Stupidities

The Malta Independent 

  

EU Commission president Romano Prodi has described the Stability and Growth Pact (SGP) underpinning the monetary union as stupid. While his Commissioner for Monetary Affairs, Pedro Solbes, keeps preaching that the pact is and will continue to be the bedrock of the euro, his president denigrates it as stupid.

 

The SGP was devised by central bankers as a means of keeping governments’ fiscal policy attuned to the monetary policy, which remains the sole prerogative of the European Central Bank (ECB). Failure to do so will force the ECB to jack up interest rates at a time when the state of the economy of the euro-zone would in fact demand lower interest rates. But the priority of the ECB is control of inflation and they fear the risk of structural fiscal deficit as one of the surest sources of future inflation.

“To gain domestic electoral support France and Italy made promises of tax cuts to pump prime their economies, promises which could only be honoured by breaching the euro-zone’s SGP”

 The SGP aims for neutral budgetary position in the longer term and tolerates temporary deficit provided it is kept with three per cent of the GDP, failing which a process leading to fines and other tough measures could be set in motion.

Many euro-zone countries made substantial sacrifices to come in line with the pact. Mr Solbes recently threw the book at Portugal for breaching the pact and the new Portuguese government is taking hard budgetary measures to ensure compliance.

But the big countries seem to have the strength to dictate terms. To gain domestic electoral support France and Italy made promises of tax cuts to pump prime their economies, promises which could only be honoured by breaching the euro-zone’s SGP.

Rather than having the book thrown at them, out comes the EU commission president, with one eye on seeking to strengthen the role of the commission and the other eye on a future role in Italian domestic politics after his stint in Brussels, calling the SGP rules stupid and suggesting flexible interpretation of the rules to accommodate the big economies. The concept of different rules for the big countries and small countries is too obvious to go unnoticed.

The ECB must dislike being placed in a position of having to tighten monetary policy purely because political convenience suggests fiscal policy needs to be more “flexible” than is permitted by the euro bedrock pact.

But last week was a week of euro-stupidities, it seems. Even Enlargement Commissioner Gunter Verheugen could not miss the opportunity to tell us a few. Most noticeable of which was the statement that out of membership Malta will have less influence, less money, less jobs and less democracy.

“Jobs depend much more on our ability to attract investment, which goes after competitive and efficient locations rather than club membership badges.”

 Malta’s influence, which today keeps 12 fully fledged embassies working on this minuscule island state, will diminish if through membership we lose autonomy to follow our own foreign and security policy.

The EU’s money has become a joke but at least outside membership we would save the hugely expensive compliance costs. Jobs depend much more on our ability to attract investment, which goes after competitive and efficient locations rather than club membership badges.

As regards democracy one wonders what democracy it is which allows referendum re-runs with the side in the EU’s bad books being starved of funds that are lavishly accessed by the pro-EU faction. Are the europhiles entitled to more democracy than the euro-sceptics or are Norway, Iceland and Switzerland missing out on democracy?

It is time to give the Maltese electorate a real choice and not the stupid door-to-door sales talk.