Sunday, 30 May 2004

Management by Hope

The Malta Independent on Sunday 

Management styles differ. From autocratic to participative, from hands on to remote or detached. There are libraries full of management books and studies arguing which styles are most effective or productive.

Ultimately there are no blueprints. A management style has to fit the person and the person has to fit the culture of the organisation or be forceful, strong and resolute enough to change the culture to suit his management style.

In fact model corporate successful leaders, the likes of Jack Welch of General Electric and Paul O`Neill of Alcoa are examples of how strong character, business acumen, and sharp determination of such business leaders change the culture of a dormant organisation and take it to higher levels well beyond what anyone could have reasonably imagined.

One of the few things that everyone seems to agree upon is that management by hope is dangerous, unproductive and generally fails to achieve the stated objective, no matter how haughty and well-defined this could be.

Achieving set objectives depends on their being effectively communicated and widely accepted. But more than anything else achievement depends on a thorough analysis, study and choice of the most appropriate action plan to reach the objective, a route map with time scales and intermediate targets permitting the evaluation of progress and adoption of corrective measures for variances, and strong leadership to motivate and control the allocated resources in the face of all obstacles and adversities.

Yet we seem to be going about addressing the country`s macro-economic problems on a management by hope style.` This style pervades all levels of government.

Take just for example the budget deficit. How many times since 1996 have we heard governments profess that control of the public deficit is going to be a priority objective. Yet here we are 8 years later facing the highest public deficit ever, both in nominal and relative terms and getting the yellow card from the EU commission for being way way out of what is considered prudent financial management standards, irrespective of the need to comply with such standards if we aim to be admitted to ERM II initially and Euro membership eventually.

Why have we failed? Simply because we adopted a management by hope attitude. We never really adopted a feasible action plan to control the deficit. We just hoped that by talking about it and by making strong pronouncements of intent the problem will take care of itself. It just does not work that way.

Neglect of problems compounds and complicates their solution. Because we wasted eight years hoping to solve the public deficit problem without actually doing anything concrete about it, the situation has complicated itself and we now have a structural deficit of horrifying dimensions, we have accumulated debt levels which have absorbed most of our debt capacity, we have frittered away one-off funds generated by privatisations and dismantling of reserves like the sinking funds for public debt, and we have an economy which has not grown at all these last three years.

At the sector level we have loss of consumers` confidence, dearth of productive investment, tourism with stagnating numbers and contracting value added per available tourist bed, and a general feeling of helplessness. We know we have a problem but nobody seems to know what we ought to do about it other than hope, hoping that hope will change the tough reality.

Sometimes I feel that our political leaders, unable to put together a concrete action programme to offer an effective remedy to our weaknesses, rely on the supernatural to send a magical solution from heaven. Sometimes I feel that the events of 1996 - 1998 have ingrained in the mind of the nationalist government that problems can in fact be solved by hope and prayer.

The experience of seeing a Labour government crumble through internal dissent trying to address inherited problems for which it was not in any way responsible, sends a very strong message to those for whom political survival has priority over doing what`s right and what`s necessary. Seeing government fall back into PN`s lap after less than two years does in some way convince that management by hope and prayer does in fact deliver.

However there are limits to how much one can rely on one`s luck or on supernatural gifts. God helps those who help themselves.

So it is distressing seeing the country`s economy continuing to crumble while the government stands idle doing pretty next to nothing.

I have long maintained that any realistic solution to our economic problems has to stand on three legs ` it has to be a tripod of solutions. No leg of the tripod is effective on its own but together and coherently they collectively produce a stable structure.` So will a tripod of economic solutions - expenditure control, stimulus for economic growth and enforcement of existent fiscal rules  produce a lasting and effective solution to our economic ills.

This week we had a timid effort to make a scratch-the-surface effort for expenditure control.` Government blocked certain budgets expecting to save some Lm10 million. Two of the organisations effected are Tourism and Heritage.` Government parried criticism that it is cutting the budgets of the most productive sectors (both Tourism and Heritage help to up-grade our tourist product to attract a more value-added type of tourist) by arguing that saving will come from operational/administrative budgets and not from marketing or projects budget.

No one seems persuaded that government is not purely taking the easy way out by cutting the two items, marketing and maintenance,` which are easy to cut as they create no short term ripples though in the long term such cuts will prove to be false economies that compromise growth.` In my experience in the private sector I had several duels with operating managers trying to make up for sales and margins deficiency in their budgetary performance` by economising on marketing and maintenance.` It is just counter-productive false economy that undermines the long term trend of the business and hides problems rather than addresses them.

True solutions in expenditure control cannot come through management by hope techniques or through scratch-the-surface measures like the ones announced for Tourism and Heritage.` If it is true there are economies to be made in the operating expenditures of these organisations than the saving needs to be invested in more marketing and more product development.

Expenditure economies can only be achieved by addressing the over-manning in the core of the public sector and the duplication of regulatory bodies that work for private sector salaries with public sector privileges. It means that any serious action programme has to provide for massive re-training programmes to make excess labour in the public sector mobile and employable in the private sector.` Which means that public finance may have to get worse before it can better and that plans for joining the Euro have to have realistic time-frames which take such problems into account.

Management by hope is only for the optimists for whom hope springs eternal. For those who believe in getting things done through maximum and efficient use of available resources, hope is meat only to protect from unpredictable risks that cannot be pre-managed.   

Friday, 28 May 2004

Something`s Got to Give

The Malta Independent 

I just finished reading a book titled ‘The Price of Loyalty’ that relates the experience of Paul O’Neill in his two-year stint as Treasury Secretary under George W. Bush between January 2001 and December 2002.

As the Italian saying goes it shows that tutto il mondo e un paese. Even in the oracle of democracies, the USA, politics is heavy going for genuine people in the field of finance who stick to the principle that short term electoral stimuli should not be allowed to compromise long term sustainable economic growth. O’Neill was fired by Bush when he could not accept the unproven thesis favoured by politicians that that deficits do not matter.

O’Neill was considered as a stumbling block to fairy-tale gun and butter politics. He maintained that America cannot run and finance expensive wars throughout the world while simultaneously treating its citizens with multiple tax-cuts. Any attempts to do so will unavoidably result in huge deficits, currency depreciation and unstable commodity prices, not least those denominated in dollars including oil. No wonder the financial markets are jittery on the sustainability of such loose policies which O’Neill opposed whole-heatedly.

America being America, basically in charge of the dollar printing press with which it can flood the world to ease financing its deficits inexpensively, can probably prolong such financial irresponsibility well into the future and beyond the President’s re-election test. Next November will prove whether the US electorate is solely impressed by the immediate positive impact of a growing economy or whether it takes also into account that unsustainable deficits will undermine such growth in the long term and challenge America sole-superpower status, dented as it already is by its imprudent use of irresponsible unilateralism.

In the nineties we have had a similar experience in Italy. When its politicians drove it to financial decadence, the electorate had to recall finance people like Ciampi, Dini and Prodi to sort it out of its financial mess and straighten it up to face the Euro challenge. It looks like the politicians are driving Italy again into financial sclerosis which explains why Prodi is ticking off the calendar at his Brussels office, counting the days for his return to Italian politics.

I have been through it in Malta too. When I tried to make some sense on issues like VAT and EU membership, because I argued logically, because I went to the conclusions where the facts led me to, rather than to the conclusions that someone else pre-determined and expected facts be made to fit into such prejudgements, I also found local politics heavy going. Out of loyalty to my own intelligence I had to kiss politics good-bye.

But the story is never ending. Even whilst out of politics what I say does not seem to please politicians. Take the issue of the right level at which the Malta Lira should be fused into the Euro.

I wrote and spoke extensively on the subject. Basically my point was that the Central Bank’s own research shows that the Maltese Lira is some 10% overvalued benchmarked in real terms to its 1995 base. I said that this is one of the reasons why our country is losing out on the attraction of investments as our economy is not competitive.

I argued that the true solution is economic restructuring and that as part of such restructuring we should revisit the value of the Maltese Lira to ensure that we do not join the Euro at an over-valued rate. I warned ferociously against quick-fixes of stand alone devaluation as this would lead to nowhere and any short-term benefit fizzles out leading instead to a spiral of inflation.

Last week Vannessa Macdonald of the Times asked the new Parliamentary Secretary responsible for Finance. Hon Mr Tonio Fenech Alfred Mifsud suggested a devaluation to remove "over-valuation" and to ensure that we join the euro at a competitive rate. Devaluation is not a four-letter word is it?”
Mr Fenech replied: It would be crazy, as simple as that. I disagree completely with Alfred Mifsud's theory. We devalued in the past with zero effect. We had a competitive advantage for a few days which was lost soon after when prices started going up again. All that happened was that we made pensioners poorer.”

Absolutism at its best! Who cares that I did not propose devaluation on its own but accompanied by other measures to ensure that we will not devalue with zero effect as in past. But because Government does not know or does not want, till now, to re-structure, so it tries to kill through misrepresentation those of us who argue on facts rather than wishes.

One could argue that if we re-structure we need not devalue. Fair comment, though I think that the effects of restructuring could produce better and quicker results if the overvaluation that has been allowed to creep into the Lira external value is addressed as well.

We do not unfortunately, have a dollar printing press like the US Treasury has. If we don’t re-structure than something’s got to give. If not the external value of the Lira than it’s the real economy, it is jobs, it is growth, it is our standard of living.

Friday, 21 May 2004

On Course with the Germans

The Malta Independent 

I quote the Financial Times editorial of May 17th, 2004 dealing with Germany structural fiscal deficit problem. I have highlighted some phrases and put next to them in brackets their adaptation to Malta’s situation.


Each year since the beginning of the downturn in 2001 (1996), Mr Eichel, Germany's (our) finance minister, has persistently overestimated the rate of economic growth and underestimated the size of public sector deficits. The latest official estimate is for a 61bn (??) shortfall in tax revenues until 2007. Public finances are a mess, and neither the government nor the opposition has a coherent strategy to fix the problem.

Gerhard Schröder, the chancellor, rightly rejected Mr Eichel's ( Malta’s Prime Minister gladly accepted his Finance Minister’s) proposed remedy, a big value added tax rise. At a time when the economy is severely constrained by weak domestic demand, high consumption taxes are about the most counter-productive policy imaginable. The present economic recovery is driven entirely by exports.

There are fundamentally two reasons for the perilous state of public finances. Neither is fixable in the short term. The first is the public finance system itself. The proportion of discretionary spending in relation to total public sector spending has fallen persistently, thanks to off-budget programmes including those to finance unification (inefficiencies and political accommodation). Mr Eichel ( Dr Gonzi) has too little room to manoeuvre to deliver budgets that comply with the Euro zone’s stability and growth pact. The country is set to breach the deficit ceiling of 3 per cent of gross domestic product in 2005 for the fourth (tenth) year running.

The second - and probably more important - reason is the persistent fall in economic growth rates. Germany's council of economic advisers (Ministry of Finance) estimates the potential annual economic growth rate at about 1.5 (1.3) per cent. Some estimates put it at 1 (0) per cent. Behind the decline in potential growth are rising real interest rates as a result of economic and monetary union (need to protect foreign reserves) and falling productivity growth in some sectors.

Economic growth this year is forecast to return to close to potential. This would normally be expected to improve the budget deficit. But the rate of potential growth itself means this is not happening. An average of about 2 (5) per cent is needed if the public sector and the country's welfare systems are to be sustainable in the long run. Low potential growth rates and the future obligations of German's (Maltese) unfunded pension systems have dramatic consequences for the public finances.

The correct response would be a programme of product and labour markets reforms to raise growth and reforms to reduce the growth rates needed to achieve long-term sustainability of public finances. One urgent measure would be to scrap early retirement schemes, a key factor that knocked the pension system off-balance.

After last year's controversial welfare reforms Mr Schröder has made a more activist industrial policy to create national industrial champions his economic policy priority. He also wants to change the stability pact to legitimise Germany's deficits. (After years on years of financial neglect we now pretend to be capable of taking on the discipline of the Stability and Growth Pact to join the Euro at an early date while paying just lip-service to real reform. Our pretensions are as big as our problems) Neither will change the fact that, with present policies and public finance structures, Germany (Malta) is on course for insolvency.


Rather than joining the EU with the bubbling enthusiasm of sovereign youth and with a store of manoeuvrability in our fiscal policy to ensure we can take the restrictiveness of monetary union, we are in the discomforting company of a mature economy fatigued by the need to finance unification of one-third of its territory following 45 years of communist economic stagnation. Our fatigue instead come from unsustainable growth policies based on debt and consumption rather than saving and investment. Pity that economic fatigue, structural deficit and painful slow reform are probably the only things regarding which we are on course with the Germans.


Sunday, 16 May 2004

Raising Standards

The Malta Independent on Sunday 

My work took me to Paris last week. Always a pleasure to visit the most beautiful and most romantic city in the world inhabited by the most unfriendly people.

There I had to drink 10 euro cappuccinos, had to fight to get a hotel room one fourth the size of my bedroom for double the price of the average five star hotel room price in Malta and got wet most of the times I went out. Yet the place was bustling with visitors from all over the world.

It aches me every time I return from an overseas trip to realise how sadly we are missing to exploit our potential. Because like Malta there is no other country in the world. We can boast of the largest concentration of priceless monuments unmatched in any European city. What you see in Malta in three days you will not see anywhere else in the world.

As Eddie Aquilina’s latest publication says Malta was there before history started. Most other places where tourists fall over themselves to visit, be they Rome, Florence, Venice Paris, Bruges or Bath can put a date on most of their offerings. We can only put an estimate of how long before history our treasures were born.

And those treasures we can put a date upon, like the City of Valletta, should be an attraction of culture and history as much as any other European City. So why, I surmise can’t we get the same quality of tourists that the big cities do? We can’t we get the tourist who spends the Lm100 a day rather than Lm 50 a week staying in all inclusive hotels and probably getting double money’s worth by taking undue ownership of the operating equipment and supplies that give comfort in the hotel room?

The reply to this hits me every morning as I stroll to my office from the Floriana car park past City Gate. This Valletta which should be one of our jewels attracting quality tourism that can really appreciate its bastions, its harbours, its museums and its unique Cathedral, is instead a shameful exposition of our incompetence. A masterpiece of our shabbiness and of our lack of standards which make genuine treasures look like costume jewellery.

Valletta must be the only capital city in the civilised world where each time you walk towards it you have to negotiate your life and perform gymnastics to avoid being hit by a bus as you approach the Triton fountain again as you cross from the Triton fountain to the Valletta City Gate Bridge.

The entrance to our majestic city which should set the scene and flavour for what lies behind the walls instead sets the scene with the most repulsive setting. What on earth has kept us from using a couple of million liri from the huge debt that we have amassed in order to build an underground bus terminus in Floriana with underground walkways and escalators for those that prefer to be carried and giving the rest of us who prefer to walk over-ground the joy of entering our majestic city without risking our life, permitting us to fix our eyes on the beauty of the bastions rather than on the bus we have to come to terms with to keep live.

Once you are ready to say a short prayer for having made it safely through approaching and departing buses and gained access to the City Gate bridge, then the majesty of the bastions is insulted by the bazaar that welcomes visitors over the bridge and under City Gate. A line of white taxis and a handful of pedlar’s stands generally obstruct the approach and make our European city look more like a Turkish bazaar. Certainly our City entrance deserves better if not by replacing the Gate to something more architecturally suitable for a fortified city, at least in keeping the approach clean and landscaped. Taxis and pedlars should have ample opportunity to expose their wares elsewhere. And one need not look too far for this.

Freedom Square is one of the few open spaces left in Valletta. How can we tolerate the confusion of parking that reigns in this square and in the ruins of the Opera House? A taxi stand and a few pedlar’s stand at the edges of the square offering handicraft, arts and such like services would add life and colour. But this has to be properly organised to keep the place attractive and easy to walk through. Valletta needs no car parks. Car should just stay out permitting visitors to enjoy the City without traffic and parking confusion.

And if we can’t find the money to re-build the Opera House lets make most of what’s left by calling it what it is rather than turn it into the most wasteful car park in the world. What is keeping us from building a soft space frame ceiling over the ruins and turn the place into an Opera House museum with pictures and relics showing he glory of the opera house a it stood before it was hit by enemy fire during last war?

It is all a matter of standards. We have no standards. We had to wait for EU accession to embellish the Upper Barrakka from where visitors can feast their eyes on one of the most scenic views anywhere in Europe; a view that explains how the depth and protection offered by our Grand Harbour has attracted civilisations to Malta from the time even before history began. It is an insult for so much fuss to be made on a project which should be run of the mill.

And lest I be accused of being partisan my intelligence is equally offended by that monstrous stone opposite the law courts to commemorate the re-paving of Republic Street by a Labour administration in 1998. I could not find any such plaques or monuments in Champs Elysees or any of the Boulevards surrounding l’Arc de Triomphe.

Just imagine what quality tourists make of us when they see that monstrous stone to commemorate the re-paving our Malta’s Main Street, something which should be done as a matter of course every so many years to keep it fresh and attractive. They would easily conclude that if we make so much fuss about an ordinary refurbishing job than we have no standards and it shows.

May be it is because I am influenced by the teachings and practices of the late Tumas Fenech who never wanted an official opening or plaque on any of his hotel projects. Ministers who would have made an investor’s life hell to get the project on the road then would expect the limelight of an official opening. For Tumas the standards were not in the plaques but in the commercial success of the project giving fair return on investment, offering employment to hundreds and adding wealth to the national economy. Such standards show in the quality of projects like Portomaso which is a window of what Malta could look like if we were to raise our standards. 

Friday, 14 May 2004

Trapped in Iraq

The Malta Independent 

I am getting the impression that the US-led coalition forces that invaded Iraq are feeling trapped, with no exit or escape route in sight. It seems that they are losing by staying, unwanted and distrusted as they are by those who are keen to fill the power vacuum left by Saddam`s fall. They would also lose by leaving an unfinished job which they have little to show for in spite of the great expense and sacrifice since the invasion force was put together.     
Somehow there is a feeling that the US are being paid by their own coin. It seems that this is a replay of the Afghanistan war which brought down and disintegrated a super-power in the 1980s. Could it be that Iraq will be the cause of disintegration of the other super-power and the end to a uni-polar world?

The irony of all this is that the common personality in both wars that exposed the practical limitations of military superiority is none other than Osama bin Laden.

In the 1980s, the
US – directly and through Muslim countries, particularly Saudi Arabia – was instrumental in building the Muslim resistance movement which defended Afghanistan from Soviet forces. Osama bin Laden led the Islamic fundamentalists that economically brought the USSR to its knees in that it kept financing an expensive and endless war in the mountainous terrain of Afghanistan. The USSR
finally gave the country over to the mujahidin.

Little did the
US realise at the time that the trap into which they had forced the USSR, while delivering the expected weakening of the competing super-power leading to its economic and political disintegration, would give untold strength and war experience to the most Islamic fundamentalist grouping. These are now using their strength against the very same force that brought them together, the United State
which, in their fundamentalist view, is perceived as the great satan symbolising the infidels, both Christians and Jews.

I do not know if it is reality or perception, but I am getting the impression that the fundamentalists, having got rid of the
USSR by tricking them to invade Afghanistan, seem to have played the same trick again by inducing America to invade Iraq

There is hardly any doubt that the biggest victor in the invasion of
Iraq has been none other than Osama bin Laden and his al-Qaeda group of Islamic fundamentalists. By forcing America to focus on Iraq
and use most of its military resources there, they have spared themselves the discomfort of being bombarded and pursued in their Afghan hide-outs from where they continue to put together their strategy of terror.

They have forced the American military to leave the Islamic holy lands of
Saudi Arabia. They have got rid of a dictator like Saddam who ruled Iraq as a lay state oppressing the Shiite Islamic majority. They have brought America’s best military resources to Islamic lands where they could be attacked without much risk and often with impunity, avoiding the need to organise massive excursions as that of 11 September. They have split Nato right down the middle. And last but not least, they have infiltrated Iraq
and obtained fertile grounds for new recruits among those who have suffered from the US-led occupation.

Yet for all the complexity of the situation, compounded further by revelations of Saddam-like torture by coalition forces on Iraqi prisoners – permitting the fundamentalists to project the coalition forces in the same repressive colours as distasteful Saddam – there is no exit route out of this mess.

A quick and rushed exit would be the optimum prize for which Osama & co aspire. Such an exit will give them a chance to control
Iraq or create sufficient instability there so that they have a base from where they can then set their sight on their ultimate objective. This is nothing short of destabilisation of the Saudi Arabian ruling family and the occupation of the holy land of Mecca and Medina which happen to sit upon the richest oil reserves in the world. Any disruption of oil flows from Saudi will send the price of crude oil soaring to stratospheric levels, bringing untold wealth to the fundamentalists which they will use for their cause to free Palestine and annihilate the state of Israel. These are enough ingredients to set the whole Middle East
on fire.
This grim scenario may not be as improbable as seems and it takes doses of wisdom and fortitude which are sadly missing in the current US president who seem to have been outclassed on the geo-political chessboard by resource-less religious fundamentalists.

In choosing their next president, the American voters have the responsibility to put a man in the White House who can do what is good for the development of a new world order and who understands the great responsibility which unilateralism brings.


Friday, 7 May 2004

Nibbling at Problems

The Malta Independent 

“Impartiality on news programmes will be guaranteed by an editorial board appointed by the government.”

The contradiction could hardly glow brighter in this one-liner in the news explaining government’s plan for restructuring PBS by reducing its resources and outsourcing most of the programmes.

Government will guarantee news impartiality on the state-funded channel! This could be as impartial as Dr Joe Mifsud refereeing a Maltese team international football match. Governments of all hues and shades have used PBS as their semi-official mouthpiece.

We have to be highly gullible if we are now to start believing that purely because PBS is being stripped of most of its resources and monitored by a government-appointed board, then the news will suddenly become impartial. Just befriend some of PBS’ journalists and you will hear shameful stories of stupid pressures to give news exposure to items totally devoid of news value but which glorify those who expect to be glorified by public media paid from public funds.

The least that one could expect is that the monitoring board is to have parliamentary representation from both sides, or at least representatives nominated by the Opposition.

But even if this were to be accepted, we would just be duplicating what already exists in the Broadcasting Authority. So while PBS is being restructured it is pertinent to enquire why the Broadcasting Authority is not included in the restructuring package.

If PBS news is meant to be impartial, there is no reason on earth why the Broadcasting Authority, having liberalised the airwaves and given each political party its own media, should stop functioning as a regulator of the whole broadcasting market and instead focus on taking direct responsibility for the community services, including impartial news coverage.

We would thus save money on the duplication of two public service broadcasting organisations and allow private sector operators the same liberty – subject to minimum quality standards in terms of EBU standards – as that enjoyed by the print media.

One could go further and visualise a public service operated directly by the Broadcasting Authority to be funded simply and solely from TV licence revenue, withdrawing from competition for commercial revenue with private sector operators. This would do justice to private operators who provide content without having any access to licence revenue.

But in the final analysis, the restructuring of PBS, though highly visible, is very tangential to the overall economic restructuring that is necessary and which unfortunately continues to be delayed or avoided. What attempts, may I ask, are being made to address the core of the problem in the operation of central government where the excess labour runs in several thousands rather than a couple of hundred?

Why is it that we continue to nibble at the restructuring problem rather than address it at its core? Should observers like me be blamed for thinking that government’s priority in restructuring is not motivated by a logical sequence of the most important down to the least important, but by a sequence which puts priority stress on organisations created by previous Labour governments rather than on central government where there is a majority of pro-government (political) employees?

Why should we accept that because the inefficiencies of the shipyards, Air Malta, PBS and Gozo Channel are more evident through the publication of financial statements drawn up in terms of internationally-accepted accounting standards, these inefficiencies are in fact not dwarfed by much greater inefficiencies within central government which cost many multiples more, but which, unfortunately, are not subject to the same reporting discipline as is applied to commercial organisations?

Solutions can only be perceived and accepted as fair if implemented uniformly and with a logical sense of prioritisation. And certainly those organisations that carry a monopoly status should not go for the easy solution of raising tariffs, as is the case with Gozo Channel, but should first undertake efficiency drives for cuts in the cost of their operation as is the case with PBS. Why use so many different weights and measures between PBS and Gozo Channel?

Unless we go for a total and fair solution, we will continue to nibble at restructuring problems which, as sure as night follows day, will return to haunt us.

Sunday, 2 May 2004

Now that the Lights are Down

The Malta Independent on Sunday 


Now that the lights are down and the festivities are over, the honeymoon period will only carry us till the 12th June when the elections for European Parliament are due. Beyond that there lie the threats and the opportunities which can break us or make us.

Unfortunately one has to be unrealistic to feel positive about the way we are positioning ourselves for the challenges ahead. We still seem to think that EU membership on its own will cure our ills and that we can expect an influx of foreign investment and new job opportunities purely because we will be perceived better by investors as an EU state.

It just does not work that way. This week we had a rude reminder, for those who are willing to read the sign of times and not be blinded by the demagoguery of celebrations and preparations for EP elections, of how much the other 9 acceding countries have progressed on the road of successful economic restructuring.` A stark comparison of how much better they are position themselves to make the most of EU membership.` They are just leaving us behind.

Making the most of EU membership will in the final analysis have to be measured in terms of the increase in foreign direct investment flows that membership generates. To make sure that the wave of pre-accession investment continues after membership, the other 9 acceding countries have all embarked on a fiscal reform reducing corporate tax to a range between 12% and 21%.

This policy makes sense for countries in an early stage of development, especially those with small populations. Concessions made in the domestic corporate tax regime reduces the tax take from the domestic base. But this is more than compensated by` the attraction of` new foreign direct investment which generates economic growth and ultimately increases the tax flows to the Exchequer whilst providing jobs and macro-economic stability.

This policy is proving so successful that right in the week of celebrations leading to the 1st May accession date, German Chancellor Schroeder found it necessary to spoil the fun by warning the new candidates that Germany does not appreciate at all their reducing the corporate tax rate so much. Schroeder complained that this creates unfair tax competition.

Schroeder is half right in arguing that way. As the major contributor to the EU Budget, Germany finds it hard to accept that its money is subsidising new accession countries to develop their own economy and attract foreign direct investment by offering across the board lower corporate tax rates. But half right is not good enough.

The purpose of the enlargement is to permit quick economic integration of the candidate countries helping them to achieve average EU GDP levels in the shortest time possible. This would only be possible if investment flows move from the high cost high tax countries like Germany to low cost low tax countries like Hungary, Czech Republic, Slovakia, Poland etc. etc.

The promise of accession to EU membership has forced on these countries the determination and willingness to accept the pain of rapid economic re-structuring.` Countries like Germany have on the other hand moved very slowly towards re-structuring leading to anaemic economic growth, high unemployment and loss of investments that relocate to more flexible and competitive economic environment offered by the 8 east European acceding countries.

Rather than begrudge the right of new acceding members to administer fiscal policy, which is still a matter of domestic jurisdiction, to their best advantage in order to travel as fast as possible on the road to economic integration, Germany would do well to consider this challenge as an opportunity to press on with its own reforms.

Failing this it is quite unfortunately possible that come next year, when negotiations for the EU Budget provision for the years 2007-2013 will reach their climax, Germany, in recognition of its re-dimensionised economic status, will make the argument to a fairer distribution of the burden of financing the EU.` It will pull back its budgetary contribution.

All this is interesting, but where does it all leave us in Malta It leaves us with a bad taste that whereas other acceding countries are scoring high on the attraction of foreign direct investment, aided further by the adoption of docile corporate tax regimes,` in Malta we have not seen any influx of foreign investment and we have been travelling on the opposite fiscal road, that of raising the fiscal burden.

Our corporate tax rate of 35% is high enough to put us off the consideration list of any supplier of FDI seeking the best location inside the EU. The mechanisms of the Business Promotion Act on how this could be effectively reduced provide an unattractive, confusing and unappealing substitute, which is in fact no substitute at all.

Our past excesses of lax public spending has placed us in a fiscal tight spot that is prohibiting us from claiming the opportunities of EU membership by offering competitive corporate tax rates to attract new investment.

When the lights are down and the celebrations fade into history it is such experiences which will decide whether we dwindle or prosper inside the EU. It is these experience which will decide whether we want to emulate Ireland or Greece. Unfortunately we are leaving our EU fortunes hostage to chance by continuing to talk about restructuring and social pact, whilst effectively doing pretty little about them except the extravagance of using our precious tax money to send able-bodied persons in early retirement.` Some restructuring!