Truth and Strong Dollar

The Malta Independent  

The Euro is flying on the foreign exchange markets and it has gone back and surpassed the highest level reached soon after its launch in January 1999. At launch it was around USD1.18 and went gradually to lose value reaching a bottom of 0.82 US cents late in October 2000. These days it has exceeded US1.19

It lost 30% against the USD in the space of 22 months and regained it all and more in the space of 30 months. These sort of wild gyrations cannot be driven by economic fundamentals. Fundamentals do not change so much and so quickly. It is almost entirely sentiment driven.

So the obvious question one should be asking is what drives market sentiment. That is indeed very hard to answer. It’s almost like asking what drives love – but not quite.

“I learnt that in politics it is dangerous to speak the truth.”

Sometimes sentiment responds in diametrically opposite ways to the same factors. In October 2000 when the dollar was touching its peak against the Euro the market was applauding the Federal Reserve for being more pro-active in cutting interest rates in order to stimulate economic growth which was evidently slowing down. The fact that the European Central Bank (ECB) seemed more obsessed with the risk of inflation and was prepared to sacrifice growth by keeping interest rates relatively high was given the thumbs down by the market so much so that the ECB had to intervene directly several times to support the Euro and avoid too drastic falls.

In contrast the market is currently pushing the Euro higher applauding ECB behaviour of keeping higher rates giving the Euro advantage of interest differential. The markets seem to have lost sight of the fact the economic growth in the Euro area is still very weak and that Germany is indeed risking falling into an outright deflation. Anyone who believes that a strong currency is the reflection of a strong economy is re-checking the text book

Obviously in the foreign exchange markets there are so many factors working on sentiment that it is unrealistic to take just one or two factors and marvel at different market reactions to the same set of circumstances. Other factors would be at work and in the current scenario one of the major factors influencing sentiment is the US government attitude for the USD.

Under the Clinton administration the US openly professed a strong dollar policy. Without doing much, the regular re-statement of this policy by Treasury Secretary Rubin was enough to keep the dollar strong on the foreign exchange market under-pinned by strong economic growth outperforming other regions.  

“ Whilst gaining popularity with the minority in the middle who want the truth and nothing but the truth, who are prepared to switch votes and probably determine the colour of the next government, there are just not enough of them around for the individual to achieve the success aspired for.”

The Bush administration continued to profess the same policy and with the Federal Reserve aggressively defending growth by regular interest rate cuts the market continued to give credibility to the strong dollar policy. Until gradually doubt started to enter firstly because the economic growth was not responding to interest rate cuts, secondly because the US Balance of Payments continued to build unsustainable deficit helped by the strong dollar policy, and thirdly because when tested the market found that the US administration was only prepared to give lip service to the strong dollar policy and would not intervene to support it when put to test.

What put paid to the strong dollar policy was Treasury Secretary Snow’s recent comment that the fall in the value of the dollar was quite modest. This is could be true considering that after all the dollar is back where it was in 1999 at the peak of Clinton’s growth cycle. But telling the truth is sometimes offensive to market sentiment that often prefers to continue living in a dream.

I learnt that in politics it is dangerous to speak the truth. Whilst gaining popularity with the minority in the middle who want the truth and nothing but the truth, who are prepared to switch votes and probably determine the colour of the next government, there are just not enough of them around for the individual to achieve the success aspired for. If Secretary Snow still believes in a strong dollar policy he should be more careful with the truth. If he no longer believes in a strong dollar policy he is doing just fine.

Vizjoni ghal Pajjizna

L-Orizzont 

  

Nhar is-sibt li ghadda fethet legislatura gdida, l-ghaxar wahda ta’ wara l-indipendenza. Minn dawn l-ghaxar legizlaturi il-Partit Laburista rebah erbgha u tilef sitta.

Zgur li kullhadd jaqbel li hemm bzonn qawwi li ghall-elezzjoni li tigi fi tmiem il-legizlatura li ghada kif bdiet, il-Partit Laburista irid jipprepara bil-kbir ghax jekk ma nirbhux l-elezzjoni li jmiss nhezzu l-istess ezistenza tal-Partit.

Forsi wiehed jithajjar jargumenta li ghadu kmieni wisq biex nahsbu ghall-elezzjoni li jmiss. Ma naqbilx. Qatt m’hu kmieni. Biex naslu fejn irridu naslu hemm hafna xoghol xi jsir li jrid jiehu z-zmien. Mohh il-poplu ma tibdlux mil-lum ghal ghada. Tibdlu bil-mod il-mod, bil-konvinzjoni, bil-perzwazjoni, bl-addattament ta’ policies cari, sensibbli u konsistenti.

Biex naslu sa hames snin ohra irridu nibdew mil-lum. U nibdew ma jfissirx li rridu nibdew nikkritikaw u nopponu lill-gvern. Dan naghmluh ukoll. Dan xoghlna. Izda xoghlna jmur hafna izjed lil hemm.

Ma rridux nxettlu l-fehma, li donna hija komuni, li kull ma rridu naghmlu huwa nhallu l-gvern jghaffeg u jhawwad u n-nies eventwalment tinduna xi zball ghamlu li skartaw lilna u b’hekk fl-elezzjoni li gejja wahedhom jegghu jghazlu lilna bla tahbit ta’ xejn. L-affarijiet ma jimxux hekk. Argumenti bhal dawn kont nismaghhom min hafna minn shabi fil-legizlatura ta’ bejn l-1987 u l-1992.

“jekk trid iggib il-magguranza tal-poplu wara l-vizjoni tieghek trid tahdem ghaliha ha tirbah l-imhuh, tixghel l-entuzjazmu u toffri ruhek bhala spirazzjoni ta’ soluzzjoni tal-problemi li jkunu qed ikiddu lill-poplu.”

Dak iz-zmien wara sittax il-sena fil-gvern hafna accettaw dik it-telfa bhala rutina demokratika li tghaddi malajr wahedha. Kienu jahsbu li l-post naturali taghna kien fil-gvern ghax il-magguranza kbira tal-Maltin huma haddiema u ghalhekk wara li ppruvaw lin-nazzjonalisti daqs li kieku kienu xi frotta pprojbita, malajr kien jiddispjacihom u jergghu ipoggu l-Partit fil-gvern. L-affarijiet ma grawx hekk u ma ghandniex nassumu li fil-futur l-affarijiet ser jahdmu kif nixtiequhom wahedhom.

Jekk tghallimt haga fil-poltika hija li l-poplu dejjem ghandu ragun. Li d-decizjoni tal-poplu trid tirrespettaha. Li jekk trid iggib il-magguranza tal-poplu wara l-vizjoni tieghek trid tahdem ghaliha ha tirbah l-imhuh, tixghel l-entuzjazmu u toffri ruhek bhala spirazzjoni ta’ soluzzjoni tal-problemi li jkunu qed ikiddu lill-poplu.

U hawn hafna problemi li qed ikidduh lil-poplu. Ara ma tahsbux li l-poplu iblah u jemmen li billi tella’ in-nazzjonalisti mill-gdid fil-gvern jew billi se nsiru membri ta’ l-UE b’daqshekk solvejna xi problemi milli ghandna.

L-esperjenza tieghi hija li hafna minn dawk li mhux tipikament nazzjonalisti din id-darba ivvutaw favur l-UE u favur in-nazzjonalisti mhux ghax jemmnu li nazzjonalisti kien jixirqilhom mill-gdid il-gvern, izda ghax jemmnu li minghajr id-dixxiplina esterna ta’ l-UE dan il-pajjiz ma kienx se jsib il-forza gewwiena biex jindirizza il-problemi li qed jifnuh u qed jippregudikaw il-kwalita’ tal-hajja ghal familja taghhom u ghal uliedhom.

Qed naraw b’ghajnejna kif il-problemi tal-finanzi tal-gvern qed jikkargaw u mhux jonqsu. Qed naraw li l-problemi ta’ l-ambjent, lil hinn mir-roundabouts, ghadhom hemm bil-kbir. It-tniggiz ta’ l-arja u l-bahar, l-immaniggar ta’ l-iskart, traffiku u toroq li jaqtghulek nifsek huma problemi kbar li ma solvejnihomx bid-decizjoni tat-12 t’ April.

It-telfien ta’ impjiegi, l-incertezza ta’ fabbriki li qdiemu, in-nuqqas ta’ investiment dirett minn barra, ic-cpar li jdawwar is-sostenn tas-servizzi socjali fil-pensjonijiet, fis-sahha u l-edukazzjoni ghadhom hemm, u kif.

“Il-vizjoni taghna ghandha tkun li dawn il-problemi mhux biss nispjegawhom izda nuru x’jistghu ikunu is-soluzzjonijiet ghalihom.”

Quddiem dan kollu il-Partit Laburista irid juri li ghandu vizjoni. Vizjoni mhux biss li nikkritikaw. Vizjoni li nkunu parti mis-soluzzjoni. Vizjoni ma nghatux lok il-gvern li jghid li ma sabx appogg minn ghandna biex problemi bhal dawn jigu indirizzati fuq bazi nazzjonali.

Zgur li hawn min ma jaqbilx u jippreferi nhallu l-gvern igerfex wahdu u noqghodu gallerija narawh ikompli jhawwad. Anke jien gieli kelli din it-tentazzjoni. Izda dan mhux fl-interess tal-pajjiz u tal-haddiema li rridu niddefendu. Jekk naghmlu hekk dawn il-problemi jibqghu jingemghu taht it-tapit sa ma fl-ahhar jixpakkaw u jifqghu lil kulhadd l-aktar lil min huwa debboli.

Il-vizjoni taghna ghandha tkun li dawn il-problemi mhux biss nispjegawhom izda nuru x’jistghu ikunu is-soluzzjonijiet ghalihom. Fis-soluzzjonijiet taghna irridu nirrispettaw il-principji socjal demokratici li jispirawna u zgur ma nistghux inhallu il-forzi liberi tas-suq ikunu is-soluzzjoni ta’ kollox.

Irridu mmorru oltre. Irridu nuru li meta nkunu fil-gvern ghandna vizjoni biex inkomplu nizviluppaw is-servizzi socjali u l-kundizzjoniejiet tax-xoghol fl-ispirtu socjal demokratiku. Wasal iz-zmien li nergghu naghtu spinta qawwija ghax is-servozzi socjali f’pajjizna li ilhom ggamjati u l-gvern dejjem jorqom u jnaqqas fihom permezz ta’ means testing. Ejja nghidu li dan jista’ jkun bzonnjuz biex dawn jghinu lil min tassew ghandu bzonn izda mbaghad hemm inizijattivi godda li huma ferm mehtiega. Inizjattivi bhal introduzzjoni ta’ hinijiet flessibbli tax-xoghol. Servizzi ta’ child minding ha jghinu lin-nisa li jixtiequ jahdmu. Drittijiet ugwali ghal haddiema tal-privat u tal-gvern. Dritt tal-haddiema li jkunu jafu il-qaghda finanzjarja ta’ min ihaddimhom. Dritt tal-haddiema ghal tahrig anke waqt li jkunu jahdmu u bini ta’ fondi biex jipprovdu ghal kumpens xieraq f’kas ta’ redundancies.

Dawn huma l-affarijiet li ghandhom jispirawna biex il-maggoranza tal-haddiema Maltin jerghu jaraw fil-Partit Laburista ir-rifugju naturali taghhom. 

Personal - Politics and Economics

Maltastar 

I Declare

By participating in the contest for the post of Deputy Leader Part Affairs I made a declaration that I wanted to do all I could to get Labour back to the place it deserves to ensure that it can truly modernise the country while protecting the rights of the under-privileged and safeguarding our freedom.

That I was not chosen for the post was not for lack of trying on my part. The delegates were favoured with a wide and rich choice and many delegates confessed directly to me how hard it was for them to make the choice for both deputy posts.

Ultimately the choice made, whilst disappointing for the unsuccessful contestants, is our choice as well. It is certainly my choice as I fully respect the delegates’ decision. To Charles and Michael I have already expressed my personal congratulations and pledge of support. So I need not repeat it here.

What is worth repeating is that my intention to do my hardest to get Labour back to where it belongs is unwavering.

 

“The country still has strategic problems that can no longer be brushed aside awaiting Labour’s turn in government to get addressed.”

Sequencing

Sequencing of the action plan is as important as choosing the objective that the action plan is supposed to achieve.

Labour’s objective is clearly that of winning the next election. Getting there demands careful sequencing. Internal structures need to be strengthened, the role of each executive in the administration needs to be re-evaluated and each role has to be defined with clear parameters that interlock into each other to ensure that the party moves forward in a consistent march.

For this to be achieved sequencing has to be very carefully thought out and planned. Interim mile-posts need to be set to measure whether that sufficient progress is being made towards getting there on time.

The party needs to reach out to regain the middle stream. Defending the interest of the least favoured in society does not mean we have to abandon or lose space in the middle stream.

The country still has strategic problems that can no longer be brushed aside awaiting Labour’s turn in government to get addressed. From the opposition Labour must help the country not only to expose the problems and raise awareness of the consequences of their neglect, but must constructively help for the adoption of a national strategy to get this country moving again. It is better to get these problems addressed before we have to face them whilst in government.

After all it is only through efficient management that we can reach the objective of not only protecting social services but continue to extend them for the benefit of society at large, and the lower and middle class in particular. Following the surge given in the seventies, the development of social services and social rights has largely stagnated.

It is time to press for development on issues like workers rights to be informed of their employers’ financial situation, the creation of statutory redundancy funds, the enforcing of the concept of enhanced employability through training even during employment, re-balancing of rights of public and private sector employees, state funded child minding facilities permitting greater female participation in the labour market, flexible working hours, and so many other initiatives that have waited far too long.

Labour must win the middle ground by proving that it can be a much better government. To do this it must reach out to those it has alienated and to those who whilst clearly not belonging in its camp can respect the democratic right for Labour to govern once it gets a majority mandate. Business organisations must not remain an extension of the PN and it is high time that Labour builds a strategy for strengthening its ties with them at all levels.

In the short stint I spent as vice-president of MHRA between 1995 -1996 I was twice invited for lunch with the PM once at the party HQ and once at Girgenti. I am not impressed by lunches but they do get personal relationships which serve when it matters.

“The Bush administration is more intent in getting itself re-elected than in getting the world economy going again.”

Dwindling Dollar

The Bush administration is more intent in getting itself re-elected than in getting the world economy going again. Having worked itself through the substantial budget surplus left behind by the Clinton administration through the robust economic growth of the late nineties, President Bush is building up budget deficits through tax cuts meant to revive the economy and through increased military spending in its bid to control international terror.

In the meantime the US balance of payment deficit has reached stellar proportions which inevitably brings into question, as it has done several times in its economic post war history, the sustainability of a strong dollar policy to preserve its lucrative international reserve currency status.

What is particular about this decline of the dollar’s international value is the speed with which it has fallen and the extreme degree of benign neglect of the US administration. Economic management has not only been down played in the importance of the White House hierarchy but the two Treasury Secretaries of the Bush administration, first O’Neill and now Snow, are totally unfit for the huge responsibility of someone directly in charge of the health of such a widely held reserve currency.

Snow’s comments last weekend that the steep fall in the value of the dollar was quite modest is irresponsibility in the first degree and exposes a clear willingness of the US administration to devalue the dollar and not simply to neglect it.

Sometimes I am forced to suspect that it is all political. Could this be a way to give the stick to Germany and France and repay them for not participating in the US policy vs. Baghdad? Could it be that they are now being punished by having to face a strong euro in the face of their stagnating economies risking deflation. This is a beggar thy neighbour policy of the first degree proving that US unilateralism has now been also transported to the economic field.

While this could have serious short term implication for the Euro area, in the longer term this is the best opportunity for the Euro to challenge the reserve currency status of the dollar. The long term benefit for Europe if the cards are played right should not be neglected.

Ringrazzjamenti u Awguri

Il-Kullhadd 

Matul dawn l-ahhar gimghat hdimt maghkom fil-kampanja ghan- nomina tieghi bhala Deputy Leader ghall-affairjiet tal-Partit.

Tajjeb nibda billi nirrangrazzja lil kullhadd dawk l’uhud li vvutawli kif ukoll dawk li ma vvutawlix. Kien hemm kuntest wiesgha fejn l-ghazla kienet tajba ghax konna hamsa li kollha fina hafna certu merti. Fil-fatt hafna nies stqarraw mieghu li kienu konfuzi sew biex jaghmlu l-ghazla ghax kif jghid l-ingliz ‘they were spoilt for choice’.

Issa l-ghazla saret. Sal – waqt li qed nikteb naf li se jsir kuntest bejn Michael u Varist ghal Deputy Leader tal-Partit filwaqt li Charles gie elett ma l-ewwel votazzjoni ghal Deputat Mexxej tal-Parlament.

“kinet esperjenza li ghallmitni hafna, smajt hafna, fhimt fejn hemm x’nirrangaw u kull fejn stajt urejt li l-Partit Laburista irid ihares il-boghod mil-problemi immedjati u jehtieg li nigu spriati minn objettivi godda li jilhqu l-ghanijiet taghkom.”

Ikun x’ikun ir-rizultat tal-kuntest bejn Michael u Varist, minkejja li jidher li Michael ghandu vantagg gmielu, il-Partit ser ikun servut sew b’zewgt ucuh godda u ferm kapaci fil-karigi ta’ Deputy Leaders.

Ghandhom hafna xoghol quddiemhom u dan irid jibda immedjatament biex naslu fejn ghandna naslu meta terga tissejjah elezzjoni. Perswaz li z-zewg mexxejja godda dan jafuh u lesti ghalih.

Irridu nifhmu li wahedhom dawn ma jistghu jaghmlu xejn. Iridu l-ghajnuna ta’ kull wiehed u wahda minna u nifhmu li l-problemi ma nsolvuhomx billi ngergru u nwahhlu f’dan u fl-iehor izda billi nahdmu, kemm individwalment kif ukoll kollettivamnet.

Jien ma jiddispjacini xejn li hrigt ghall-ellezzjoni ta Deputy Leader u ma tlajtx. Xorta kinet esperjenza li ghallmitni hafna, smajt hafna, fhimt fejn hemm x’nirrangaw u kull fejn stajt urejt li l-Partit Laburista irid ihares il-boghod mil-problemi immedjati u jehtieg li nigu spriati minn objettivi godda li jilhqu l-ghanijiet taghkom.

Li niltaqa’ mad-delegati daqstant mil-vicin kienet esperjenza sabiha li ghenetni u ghallmitni hafna. Nirringrazzjakom u nawgura il-leadership gdid taghna hafna hidma u xoghol siwi biex il-Partit Laburista jerga lura ghal glorja li tixraq lilu u lill-haddiema Maltin.

On Giscard`s Mind

The Malta Independent 

“Asked whether only the existing fifteen members of the EU would be allowed to have the final say on the treaty or whether the accession countries would be able to vote, the PMOS (Prime Minister Official Spokesman) said that only the fifteen existing members would be allowed to have their say.”

This quote I picked from the UK government web-site reporting a press briefing given by PMOS in answer to whether the ICG (Inter Governmental Conference) set to discuss and approve the EU Constitution to be proposed by the Convention in June, will give a vote to candidate countries. The ICG is set to start after Latvia approves the last candidate country referendum on 20^th September 2003.

This brings to the surface a question I often wondered about before but which is now set to assume increased importance. Where exactly do we stand regarding the EU project if we have signed a Treaty the basis which is set to be changed by adoption of a new Constitution which we will not be asked to vote upon as it will be decided by unanimity of the existing 15 member states.

“It would be wrong for candidate countries, Malta especially given that it is bound by the neutrality provisions in its constitution, to take a passive role about the ICG negotiations.”

It is pre-mature to judge whether the Constitution in its final format would present a significant departure from the Treaty. However, it is only fair to assume that this will be so as otherwise the huge effort needed to put the Convention together and then to call an ICG would not be justified if all that will change is procedural streamlining rather than substance possibly leading to shaping up of a semi-federal model.

What I do not quite follow is why candidate countries are not being invited to have their say in the negotiation of the final Constitution which is expected to bind them upon accession. The fact that the ICG has been scheduled to start after the accession referenda calendar is fully exhausted, is further indication of the wish to get the candidates’ ayes out of the way before the real hard-nosed negotiations on the EU new constitution actually start.

And here the stage is well set for a clash of nerves between those who want the EU to adopt a semi-federalist model with enhanced co-operation provisions for one-third of the members to be permitted to venture further up-field into areas which do not reach the level of voting necessary for adoption of an across – EU policy, and those who want the individual countries to keep autonomy on crucial issues such as taxation, social chapter and common security and defence policy.

“Giscard had also speculated that out of the 25 EU members and candidates it is quite possible that at least 2 will choose this route”

It would be wrong for candidate countries, Malta especially given that it is bound by the neutrality provisions in its constitution, to take a passive role about the ICG negotiations. They should lobby to be fully involved in the negotiations and to be permitted to vote on the Constitution if they are expected to be bound by it.

Not long ago Giscard d’Estaing expressed the view that when the final shape of the Constitution will be decided upon, it will explicitly revoke all previous treaties so that those countries that do not endorse the new constitution will not be able to cling to the old treaties. They will have to be squeezed out of EU membership and invited to continue economic co-operation up the single-market level through the EEA or some other privileged partner status but will not be allowed to remain an EU member outside the new Constitution.

Giscard had also speculated that out of the 25 EU members and candidates it is quite possible that at least 2 will choose this route.

Few doubted that he had the UK in mind when he expressed these views. Who else could have been on Giscard’s mind?  

Fighting Deflation

Maltastar 

The Japanese economy has been locked in a deflation of falling prices for nearly three years now. Germany’s economy has also run out of growth and seems set to go into negative mode. The US economy has slowed down considerably and although the Federal Reserve Bank has adopted a strongly accommodating monetary policy, aggressively reducing interest rates to record lows for more than 40 years, there emerge no clear signs of revival and the Fed is said to be considering driving interest rates to new post-war lows.

The Stock Markets of the world are showing their concern about the prospect of deflation by moving in and out of bear market rallies with almost annoying regularity. Any economic indicator which points to a revival in confidence and consumption demand, is soon followed by others showing the exact opposite.

What is being done to avoid the prospect of deflation? But to start with is deflation bad and should economic managers try to avoid it?

“There are two types of deflation. One is benign, one oppressive.”

There are two types of deflation. One is benign, one oppressive.

Benign deflation is not at all wrong. It happens when prices fall because there is a surge in productivity due to some technological innovation and in spite of healthy growth in consumer demand the supply side efficiencies outstrip the demand and push prices down.

Such benign deflation is very rare and often it happens only in particular segments of the economy affected by the technological innovation and not across the whole price spectrum. Often as prices fall in a particular economic segment due to such innovation, e.g. mobile telephony prices., two particular phenomena start working to ensure that the price falls do not get transported to the economy as a whole.

Firstly it brings into the market new participants whose income can access the lower prices levels of the innovation sector. Producers are therefore not squeezed by the falling margins as they can make up by volume what they lose through margin drops. Furthermore as consumers benefit from additional purchasing power due to price falls in the particular sector, they increase their spending on other sectors of the economy, e.g. leisure and sports, pushing up prices in that sector thus leaving the overall price levels of the economy generally unchanged.

“Oppressive deflation occurs when there is a fall in demand creating supply overcapacity that drives prices down”

 

Oppressive deflation is a much more serious and painful matter altogether. Oppressive deflation occurs when there is a fall in demand creating supply overcapacity that drives prices down. If the phenomenon persists it would build its own momentum as consumers defer consumption waiting for prices to fall, causing more overcapacity leading to employment layoffs and further reduction in demand starting another round in the spiral of falling prices.

It is for this reason that Central Banks throughout the world have responded by lowering interest rate to record lows. Falling prices, soft demand and production over-capacity put the minds of monetary authorities at rest that inflation is no longer an issue. The issue is now averting deflation.

Reduction in interest rate levels over the last two and a half years seems to have been pretty ineffective in stimulating demand. It brings to mind Lord Keynes theory that trying to created demand through lax monetary policy is like pushing on a string.

“The US seems to have adopted a unilateral and deliberate policy of stimulating internal demand by lowering the value of the USD on the exchange market”

Generally it is more aggressive fiscal policy that can be trusted to work better for the purpose of stimulating demand. Tax cuts or additional government spending can be much more effective in putting money in people’s pocket tempting them to increase consumption to stimulate economic demand.

In America this has been possible given that the economic growth of the late nineties had produced big budget surpluses giving ample room for manoeuvring fiscal policy to create demand. It has not proven effective so far as the consumer has been shocked by the threat of terrorist attacks and the prospects of America being engaged in active warfare throughout the world and this has not yet persuaded the consumer to start spending his increased riches whilst feeling insecure about the future. There is also a lot of criticism that the fiscal stimulus adopted in the US, i.e. removal of tax at source on corporate dividends, is putting purchasing power in the hands of those whose normal demands are already well met and are therefore unlikely to spend the additional purchasing power they are being favoured with.

In Europe the situation is more complicated. Germany is already grappling with significant budget deficit deviations from the Euro Growth and Stability Pact and has very limited room for manoeuvring fiscal policy to stimulate demand. To make it worse the ECB, having responsibility for the whole Euro area (12 countries) and not just Germany has not been aggressive enough for Germany’s tastes in reducing interest rates which low as they nominally are, in the context of very low inflation, are still high in real terms.

And complications know no end for Germany. The US seems to have adopted a unilateral and deliberate policy of stimulating internal demand by lowering the value of the USD on the exchange market. A drop of 22% in the space of two months was described by the Treasury Secretary as ‘quite modest’ putting pressure on Euro exporters to the US markets to remain competitive or risk losing orders compounding the internal problems.
Japan seems to have lost all tools to fight deflation with interest rates at zero and fiscal deficit too high to permit any significant stimulus Japan has been studying the unthinkable.

Knowing from classic economic books that the easiest way to create inflation is by printing new money, voices in Japan are being listened to more attentively, also because of the absence of other alternatives, that the way to break the chronic deflations is for the Central Bank to start printing money and giving them to the population to whet the appetite for increased consumption. Seems logical. But can difficult problems be addressed by such simple solutions?

Soul Searching

The Malta Independent on Sunday

When objectives get missed with nauseating repetition soul searching is obligatory. Labour has failed to get a majority of voters endorsing its policies 5 times from the last 6 elections.

Labour’s soul searching must be deep and thorough.

And it is vital to start from the very beginning by asking what reasons does the MLP exist for. What are its principles? What is its raison d’etre? Are these principles still relevant to the majority of the electorate or have they become irrelevant thus explaining why majority support has become so elusive?

Labour’s principles are those of social justice within a social democratic framework of a market economy and the goal of peace in our region to which we can best contribute by a policy of active neutrality.

“The social justice principle remains relevant for whatever level of economic development the country manages to achieve.”

Are these principles still relevant?

The social justice principle remains relevant for whatever level of economic development the country manages to achieve. The risk is that the more open and market based the economy becomes, the harder it would get for the lowest segment of society to maintain a decent standard. As purchasing power increases generally through economic development and progress, prices are pushed up in a way which suppresses further the protection of those who are unable to participate in the economic benefits of the development through the market mechanism.

A Social Democratic party like Labour must make it its primary mission to continue defending the interest of the unprivileged in society ensuring that economic benefits are routed through taxation and social services to provide them with a minimum level of protection. In doing so it must ensure that social service are not too generous as to create a disincentive for those who can earn their way by participating in the market economy, nor too low to deny access to a decent standard of living to those who genuinely cannot help themselves through the market economy.

Certainly the principle of social justice is still relevant and I do not think that it has been a show stopper that can explain Labour’s loss. Nobody likes to pay taxes even if these go to help fellow citizens who cannot earn their way through market economy activities. But each and everyone of us has a relative that is on state pension, an acquaintance that is genuinely out of job through sickness or skill obsolescence, and we ourselves would not sleep too well if we perceive disintegration of the social net that should give us protection in our old age or in case of earlier mishap.

As for regional peace within the context of active neutrality I dare say that these concepts are fading from focus of the population. They are taken for granted many not understanding what all the fuss is about. The last international incident which was too close for comfort was the US attack on Libya in 1986 and since then we have thankfully been allowed to focus on internal administration of the country without the risk of external threat or of collateral damage from regional turbulence.

“What should be a matter of principle for Labour is that even from the Opposition it should ensure that government delivers on its promise to work within the framework of EU membership to enhance our statehood, our sovereignty and our Constitution.”

So it might be difficult to raise political awareness about the value of neutrality among those who have no idea of what it is like living on an island military base or with threat of war or instability destroying the tranquillity necessary for sustainable economic development and the attraction of investment.

Yet peace is an objective which remains close to the heart of the majority of electorate that have a family to raise. Although it might get harder to explain why neutrality and regional peace are dependant on each other it is not something that can be a source of party division given that the Constitution obliges government to maintain and promote neutrality as a tool for achieving regional and international peace.

Where Labour needs to pay more attention to is in areas which are more tactical rather than strategic and which Labour erroneously raised to strategic level. Labour have elevated issues to the level of principles which indeed are no principles at all and have consequently been dismissed by an electorate that could not perceive common thinking with Labour notwithstanding commonality on the other principles of social justice and regional peace in the context of active neutrality.

Here I should make particular reference to two issues, namely VAT and the EU membership. Both were wrongly elevated by Labour to the status of sacred socialist principles whereas in fact they belonged clearly to the field of tactical operations. There is nothing unsocial about VAT if it is simply used to replace a similar system of indirect taxation. If anything VAT is more social as it brings into the taxation net services used by the more well off in society which were previously tax free thereby permitting lower indirect tax rate on essential products used by the lower strata of society e.g. appliances, clothes etc.

Even Labour’s EU positioning had no credentials for elevation to the status of principle when EU members countries generally operate a social democratic market economic model and government gave repeated assurances that neutrality provisions in the constitution will be fully protected through EU membership.

What should be a matter of principle for Labour is that even from the Opposition it should ensure that government delivers on its promise to work within the framework of EU membership to enhance our statehood, our sovereignty and our Constitution.

Opportunita

Il-Kullhadd 

Hekk kif jintemm l-ezercizzju dwar l-ghazla tal-leadership jehtieg li l-Partit Laburista jibda jhares ‘l quddiem.

Ghandna opportunitajiet kbar jistennewna li jekk nahdmu tajjeb ghalihom, bi pjan car, b’ghaqda shiha, u b’determinazzjoni qawwija nifthu kapitlu gdid u isbah.

Kull kontestazzjoni iggib xi ftit ta’ firda. L-ewwel irridu nahdmu biex din inhalluha warajna, nahilfu lejalta’ assoluta lejn il-mexxejja li gew maghzula demokratikament mil-konferenza generali, u nimxi ‘l quddiem flimkien. Fejn huwa possibbli naghmlu sforz biex jissewwew ukoll feriti antiki.

“Kull kontestazzjoni iggib xi ftit ta’ firda. L-ewwel irridu nahdmu biex din inhalluha warajna, nahilfu lejalta’ assoluta lejn il-mexxejja li gew maghzula demokratikament mil-konferenza generali, u nimxi ‘l quddiem flimkien.”

Irridu nkunu team li nghattu u mhux nikxfu d-difetti ta’ xulxin. Kullhadd ghandu d-difetti tieghu. Ghalhekk jehtieg ko-operazzjoni shiha f’teamwork biex flimkien inqawwu t-tajjeb ta’ xulxin u ntaffu d-difetti.

Filwaqt li ngharfu u nirrikonoxxu l-izbalji tal-passat dan irridu naghmluh biex nitghallmu u biex ghal quddiem inkunu aktar attenti mhux biex noqghodu nsawtu lilna nfusna u ncajpru l-vizjoni ta’ quddiemna.

 Fuq kollox irridu nizguraw li kull pass li naghmlu, kull decizjoni li niehdu tkun immiratha biss lejn haga wahda. Tkun mizura li biha ser tqarribna lejn il-poplu biex meta tigi elezzjoni ohra nigbdu warajna il-maggoranza li issa ilha wisq tahirbilna.

 In-nazzjonalisti kull ma jmur dejjem ser jesponu l-ghejja u l-kuntradizzjoni li dahlu fiha. Ser isibu ruhhom fi krizi biex wara li jkunu gabu is-shubija fl-UE li ilha tispirahom ghal dawn l-ahhar kwart ta’ seklu, ser ikollhom diffikulta’ biex issa jsibu sors iehor ta’ koncentrazzjoni li jispirahom ghal futur.

Din sitwazzjoni tixbah dak gara lilna wara l-1979. Galadarba dak li hdimna tant ghalih ksibnih, kellna problema biex insibu motivazzjoni gdida li zzommna iffukati fuq obejittivi ghal futur.

“il-mudell socjal demokratiku tal-Partit Laburista irid jigi mpoggi bhala focus gdid, objettiv modern ghal poplu kollu.”

Irridu nkunu pronti biex inkunu ahna li naghtu objettiv gdid u attrajenti lil pajjiz halli nigbdu il-maggoranza warajna. U ma ghadniex bzonn infittxu wisq biex inkunu nafu x’ghandu jkun dan l-objettiv.

Pajjizna jrid jimxi ‘l quddiem. Irid isir pajjiz modern b’ekonomija b’sahhitha u b’ekonomija tas-suq li toffri efficjenza u li thares mil- hela ta’ rizorsi. Ir-ristrutturar li ilu jistenna irid isir u jridu jaghmluh in-nazzjonalisti fil-gvern. Nghinuhom biex jaghmluh halli jispicca din li dejjem ipengu is-sabih lill-poplu u jahbu il-problemi taht it-tapit li jsibhom ma wiccu gvern laburista tal-futur. Dak li weghdu li jridu jaghmlu iridu jaghmluh issa halli tohrog il-verita’ u ma nibqghux nghixu f’dinja tal-holm.

U waqt li jsir dan ir-ristruttur il-Partit Laburista irid juri li fadallu ruh socjalista billi jizgura li l-mekkanizmi tas-suq ma jghaffgux lil min ma jistax jippartecipa fis-suq ghax ma jistax, ghax penjsonat, ghax marid jew ghax fil-hajja sabx l-opportunitajiet biex jimxi. Aktar ma nhallu s-suq imexxi l-ekonomija taghna aktar irridu nqawwu l-ispirtu socjalista biex ma nhallux lil-faxx t’isfel tas-socjeta jitghaffeg u jintrema. M’hu fl-interess ta’ hadd li jsir dan. Lanqas huwa fl-interess ta’ min kapaci jgawdi mis-suq. Certament li fuq din il-blata ckejna ma rridux li jkollna jhokku dar ma dar nies sinjuruni u ohrajn li ma ma ghandhomx x’jieklu.

U ghalhekk il-mudell socjal demokratiku tal-Partit Laburista irid jigi mpoggi bhala focus gdid, objettiv modern ghal poplu kollu. Jekk ngharfu nahdmu sewwa il-Partit Laburista jerga lura ghal glorja li tixraqlu.

What Rate for the Lira

The Malta Independent 

 
The question I am being asked with increased intensity is how much likely it is for the Maltese Lira to eventually join the Euro at current exchange rates. Any reply would be a matter of opinion as such decisions will be taken by the monetary authorities and the government in the negotiations with the ECB (European Central Bank) leading to Malta`s commitment to join EMU (European Monetary Union).

Given that Malta would have to stay at least two after membership in the waiting room proving the stability of its financial system and exchange rate policy before it is admitted to the EMU, it means that such a decision would not necessarily need to be taken before late in the year 2006.

So the question is often whether one should worry about the issue now or whether it is something that can wait until we approach the fateful fusion date when we can have a bit more clarity on the final conversion rate than we can have at this distant stage.

`One of the most reliable measures of the appropriateness of the level of the rate exchange is the REER (Real Effective Exchange Rate) index.` Yet things don`t just happen on a particular date but have to be prepared for well in advance.` And therefore one should ask whether the present exchange rate level is an appropriate level which could be used as a basis for joining the Euro, following which we will be locked into a rigid exchange mechanism and will no longer have access to exchange rate and monetary policy tools to influence the tempo of the local economy.

One of the most reliable measures of the appropriateness of the level of the rate exchange is the REER (Real Effective Exchange Rate) index. This takes into account the value of the Maltese lira against the weighted average rate of the currency of our main trading partners and adjusts the nominal result by taking into account inflation differentials to turn the nominal into a real index.

This index is regularly published by the Central Bank of Malta and as at the end of 2002 it showed that the Maltese Lira was overvalued by some 9% taking 1995 as a base. This happened for two reasons. Firstly because we had average inflations rates higher than those applicable to our main trading partners. And also because the exchange rate basket of currency was over weighted on the USD when this was flying high on the exchange markets and then under weighted now that the USD is sinking.

The last adjustment of the exchange basket was carried out on 22 August 2002 when the USD component was reduced from 20% to 10% and with the weighting of the Euro being correspondingly increased by 10%. `Putting things in this perspective one can come to more informed opinion without ruling out an exchange rate adjustment even in the short term.`

At the time the USD was 2.3413 against the Maltese Lira. It was quoted two days ago at 2.6775 a drop of 12.5%. If the basket adjustment were made on current rates the Maltese Lira would be quoted 2.7% lower than it is being quoted currently. With hindsight the move to adjust the over weighting of the USD was done at a time when the USD was still fundamentally overvalued in its own right.

With inflation rates hitting lows both domestically as well as in the euro-zone, the likelihood that inflation differentials would on their own remove the Maltese Lira real overvaluation is difficult to foresee within the span of a few years. And if this is the case the argument starts taking shape as to whether the necessary adjustment can only come from an outright adjustment of the exchange rate and whether this is to be done now to regain the loss of competitiveness complained of by the FOI survey or whether it can be postponed till nearer the date of entry into the Euro when the next elections would start appearing on the horizon.

Putting things in this perspective one can come to more informed opinion without ruling out an exchange rate adjustment even in the short term.   

Tfigg ir-Rejalta

L-Orizzont 

Matul il-kampanja elettorali kelli zewg okkazjonijiet fejn f’dibattiti televizi mal-Ministru John Dalli ghedtlu li l-finanzi tal-Gvern harbulu minn idejh u li l-ahhar figuri li kienu gew publikati sa dak iz-zmien, jigifieri il-11 il-xahar sa Novembru 2002 kienu juru li kien se jmur zmerc mil-figura tad-deficit li kien habbar fil-budget ghas-sena 2002 jigifieri Lm78 miljun.

Bla tlaqliq kont ghedtlu li l-fatt li l-elezzjoni se ssir qabel ma johrogu il-figuri tal-finanzi tal-gvern ghas-sena shiha 2002 kien ifisser li kollox jindika li rejalta’ qarsa tfigg wara l-elezzjoni.

Ma mortx zmerc. Minkejja li l-Ministru Dalli ripetutament assigurana li kollox kien kif ippjanat u li matul ix-xahar ta’ Dicembru id-dhul tal-gvern ikun qawwi hafna biex il-figuri ghas-sena shiha ikunu dawk li kien habbar fil-budget, issa jidher li dan mhux hekk.

“Mil-figuri li gew pubblikati il-gimgha l-ohra jidher li d-deficit ufficjali tas-sena ‘l ohra kien ta Lm88 miljun, jigifieri Lm10 miljun akjtar milli kien stima il-Ministru fil-budget f’Novembru li ghadda u Lm3 miljuni izjed mis-sena ta’ qabel u wkoll mis-sena 2000.”

Mil-figuri li gew pubblikati il-gimgha l-ohra jidher li d-deficit ufficjali tas-sena ‘l ohra kien ta Lm88 miljun, jigifieri Lm10 miljun akjtar milli kien stima il-Ministru fil-budget f’Novembru li ghadda u Lm3 miljuni izjed mis-sena ta’ qabel u wkoll mis-sena 2000. Mela il-problema tad-deficit mhix talli mhux qed tickien. Qed tikber!

Anke kieku din kienet l-istorja kollha diga’ serja bizzejjed. Izda din mhux l-istorja kollha. Ir-rizultat ufficjali huwa mpitter minn hafna tbazwir u loghob bil-figuri.

Nibdew minn dak li s’issa jafu kullhadd. Tant jafu kulhadd li anke l-ufficcju ta’ l-Istatistika kull dabrba jerga jfakkurulna donnu biex jiskolpa ruhu minn tbazwira bhal din. Qed nghid ghal Lm21 miljuni li gew mislufa lill-MIA mill-Bank of Valletta u ghaddiethom il-gvern bhala dhul ordinarju bhala parti mil-process ta’ privatizzazzjoni.

Dawn izda ma huma dhul ordinarju xejn. Dan huwa dhul stroardinarju li ma jergax jirrepeti ruhu. Tbazwira ta’ darba. Mela dificit rejali irid jizdied b’Lm21 miljun. Minn Lm 88 miljun irid jitla’ ghal Lm109 miljuni.

Trid tiehu wkoll kunsiderazzjoni ohra. Is-sena ‘l ohra il-gvern dahhal Lm10.5 miljuni mill-iskema ta’ registrar ta’ investimenti barranin. Din ukoll haga ta’ darba. Izda l-gvern dahhalha mad-dhul ordinarju. Mela d-deficit tassew rikorrenti irid jizdied b’dan l-ammont u jkompli jitla ghal Lm120 miljun.

Izda hemm mistoqsijiet godda x’naghmlu. Jirrizulta li matul ix-xahar ta’ Dicembru 2002 id-dhul mit-taxxa tad-dhul (income tax ) zdied minn Lm26.5 miljuni f’Dicembru 2001 ghal Lm40 miljuni. Din qabza ta’ Lm13 il-miljuni zieda ta’ 50% fuq l-istess xahar tas-sena ‘l ohra.

Qabziet bhal dawn m’humiex normali. Jitolbu spjegazzjoni. Zgur li ma kien xejn x’jiggustifika qabza bhal din. L-ekonomija mghaxxa kienet u mghaxxa baqghet. X’wassal ghal din il-qabza stroardinarja fit-dhul mill-income tax? Jista xi hadd ilum jekk fin-nuqqas ta spjega adekwata ghal zieda bhal din, osservaturi ekonomici bhali jibdew jissuspettaw xi tbazwira finanzjarja ohra bhal Lm21 miljun ta’ l-MIA?

Dan specjalment nissuspettah meta matul is-sena inbidlu ir-regoli tal-Provisonal Tax biex id-Dipartiment Tat-Taxxa ikun jista jiddeciedi hu meta it-taxxa provizjorja ghandha tithallas.

“Ir-rejalta tidher mill-mod kif qed jizdied id-dejn nazzjonali u kif il-flus mil-privatizzazzjonu josfru bhal ma toghsfor caghqa meta twabbadha fil-bahar.”

Ha naghti ezempju. Per ezempju entita’ bhal Bank of Valletta li ghanda is-sena finanzjarja taghlaq f’Settembru ta’ kull sena ma tantx jaghmlilha wisq differnza jekk it-taxxa ta’ matul is-sena thallisiex f’Dicembru 2002 flok f’April 2003 u f’Awissu 2003. Il-tlett data jaqghu fis-sena finanzjarja sa Settembru 2003.

Izda lil Gvern jghamillu differenza kbira ghax jekk dhul li normalment jidhol f’April jew Awissu ta din is-sena idahhlu f’Dicembru tas-sena ‘l ohra b’daqshekk ikun qed inaqqas id-deficit tas-sena ‘l ohra b’mod artificjali.

Ma nistax niddikjara li gara hekk. Izda fl-assenza ta’ spjegazzjoni meta hemm lok car ghal wahda, meta tkun taf li nbidlu r-regoli tal-provisional tax, u meta ga ghandna esperjenza ta’ kemm il-Ministru jhobb jilghabbil-figuri biex igib il-bocca fejn il-likk, allura bilfors nahseb li hemm tbazwir mhux hazin fil-figuri tal-finanzi pubblici tas-sena 2002 li ghadhom kif hargu.

Id-deficit rejali tas-sena ‘l ohra huwa mill-anqas Lm120 miljun u probabbli izjed tqis iz-zieda stramba mid-dhul fl-income tax fix-xahar ta’ Dicembru 2002. Dan ifisser li ghadna fejn konna jew addirittura morna lura minn meta faqqghet il-bomba tad-deficit fl-ahhar ta’ l-1996. Lm300 miljuni fis-sena zieda fit-taxxi ma servrew proprju ghal xejn ghax il-gvern nefaqhom flok naqqas id-deficit.

L-ebda loghob bil-figuri ma jibdel ir-rejalta’. Ir-rejalta’ hi dik li hi u mhux dik li jghidu il-figuri. Ir-rejalta tidher mill-mod kif qed jizdied id-dejn nazzjonali u kif il-flus mil-privatizzazzjonu josfru bhal ma toghsfor caghqa meta twabbadha fil-bahar.

Mhux ta b’xejn issa hawn certu tvenvina li l-Ministru tal-Finanzi qed jillobja ha jiehu Ministeru iehor fejn ma jkunx responsabbli mil-budget. Ghax hames snin huma twal bizzejjed biex ir-rejalta’ tohrog u r-rejalta ma tantx hija appettituza. Allura tajjeb li l-problemi jirithom haddiehor, mhux hekk, issa li l-elezzjoni ghaddiet.