Sunday, 27 June 2004

Now Starts the Real Thing

The Malta Independent on Sunday
27th June 2004

In the last 15 months we had it all. A referendum confirming that a thin majority wanted EU membership, confirmation through a general lection of an exhausted government that was the only default solution for executing the referendum decision, a change of Prime Minister when the elected one decided that he did not want to execute the mandate he had lobbied for, celebrations for the actual accession to EU membership, and most recently EP elections which showed that the electorate was for EU membership not for the government.

Yes we had it all but only by the way of preparation for the real thing.` Now, no more empty talk.` No more fudging of issues. No more escaping reality. No more postponement of issues till this or that event or electoral contest gets out of the way. The real thing really starts here.

Now we have a chance to make it or to blow it. There is nothing in between. Making it means that we do what we have to do to re-structure our economy at a fast pace, to make the economy competitive again on international markets, to invest wisely to sustain and spur economic growth, to cut waste and useless subsidies, and, if we do all this, then to be in a position to attract new Foreign Direct Investment (FDI) to stimulate growth and render the re-structuring exercise less painful than otherwise.

Blowing it means that we think we can continue with our old games where government tries to please most to preserve its electoral popularity, but only at the expense of burdening the economy with huge financial debt-loads which is suffocating it and leaving little room for economic manoeuvring to engineer a reasonably painless re-structuring.

Blowing it means not living up to our EU commitments to bring the fiscal deficit to sustainable low level within three or four years and instead continue to plod along by raising taxes here and there to extract blood out of the economy to finance government`s inaction.` It means we fail to address the fiscal deficit from the expenditure side by cutting public sector operational expenses, including headcount and cost thereof, and be forced to see co-acceding countries with lower standard of living but also with` lower deficit and debt, gradually overtake us as they beat us in attracting FDI which makes their economy grow whilst our stagnates.

Obviously government has made the job much harder for itself in depicting EU membership as some easy panacea for our ills of excess consumption and low efficiency.` It is therefore` quite unavoidable that government has to absorb punches on its chin by the electorate that protests for being misled at least about the short term negative impact of EU membership.

What government has to decide, and very quickly so, is whether it has what it takes to take mid-term punches on its chin whilst pushing ahead with real re-structuring hoping that a few years down the road government can prove that in spite of the immediate negative impact of transition to EU membership, in the long run the tangible benefits emerge. This could result through tighter fiscal discipline, real re-structuring to render the economy more efficient, and success in attracting new FDI to promote sustainable growth.

In the process it is unavoidable that standards of living will have to be scaled back to what is affordable until consumption is stimulated again as a result of economic growth rather than stimulate consumption in a vain and often damaging attempt to generate economic growth.

If the government is not successful in putting this re-structuring through than it would be seriously risking forcing the electorate to elect a Labour government by default in 2008. As a deep-rooted labourite I would like nothing better than to have a change of government next time round if only to give chance for democratic alternation of power to cleanse the PN from the arrogance and nonchalance of some of its elements who seem to assume that they have a natural God-given right to stay in government for ever.

But I think it is neither fair nor opportune for Labour to be elected by default. Because that would mean that Labour will face in government problems much bigger than those it faced in 1996. Some succeed in working miracles as President Lula of Brazil seem, and I underline seem, to be succeeding. But they tend to be the exception, not the rule.

Following a series of incompetent and corrupt governments in Brazil which left an endowment of under-development and huge foreign debts, President Lula was elected in October 2001 on a platform that many understood to involve defaulting on Brazil`s extensive foreign debt so as to apply more resources to internal growth and improvement from popular poverty levels.

Lula the President is unrecognisable from Lula the union leader and presidential candidate. Not only Lula as President ruled out the Argentina-style default route, but effectively regained confidence of international banks by honouring all agreements even at the expense of sacrificing internal growth.` For doing this Lula is not as popular in Brazil as he used to be though he is much more popular on Wall Street. But as he explained when visiting Wall Street this week he is prepared to take the electorate`s blow for the slow growth on his chin, knowing that this is sustainable and avoids the acute hardship of an internal banking crisis which an external loan default unavoidably brings.

But we do not have President Lula calibre on the left side of Maltese politics. It is therefore much in Labour`s interest to be part of a solution which the government has to put together without further delay, rather than adopt politically narrow-minded obstructionism which means that when eventually elected by default, such problems would fall squarely on Labour`s lap.

The success of British Labour government since 1997 owes much to the political price Margaret Thatcher and John Major had to pay for revitalising the British economy permitting a Labour government to focus on growth and employment rather than on addressing structural deficits.

For the opposition as much as for the government the real thing starts now.   

Friday, 25 June 2004

The Gonzi Show

The Malta Independent 
25th June 2004

Prime Minister Gonzi took over his new responsibilities at an awkward time. He follows the act of his predecessor who has been extraordinarily successful in his unique style of keeping the country`s financial and economic problems isolated in government and central administration, giving the electorate the false and unsustainable notion that people can be rich whilst their government can be poor and indebted right up to its ears.

Gonzi no longer has the option of continuing in his predecessor`s bad, though politically effective, habits. Firstly because piling up each year`s problems layer upon layer has reduced our remaining debt capacity, has drawn blood and energy out of the economy which is stalling without any real growth, and has rendered the country economically uncompetitive in a globalised world where those who do not succeed simply fail without a margin in between.

Secondly because Malta is now living a new reality as members of the EU.` We no longer have complete sovereignty over economic management. Really in an economically globalised and inter-dependent world we never had such complete sovereignty.` But EU membership rules on their own, together with the obligation to prepare for adoption of the Euro as our single currency, means that we can no longer persist in old habits of avoiding to address problems and simply finance them by writing a cheque from taxpayer`s money or by loading further public debt on an already overloaded debt structure.

The Gonzi show therefore has to be different from the Fenech Adami show. No longer can we have the evident detachment of the Fenech Adami days where the Finance Minister recites annually in the budget presentation the government`s supposed determination to control expenditure and deficits, only to find out with monotonous repetition that there was really no collective cabinet commitment to do so. This has forced the former Finance Minister to apply his energies to camouflage the deficits rather than to address them, which has done very little for the country`s real needs for growth and development through global competitiveness.

So different it has to be, `that Gonzi has courageously kept direct responsibility for the Finance Ministry irking in the process at least one aspirant for the post vacated by Minister Dalli who clearly realised that there are no political rewards left for whoever assumes direct responsibility for addressing what has irresponsibly been left unaddressed for so long. It is widely known that Minister Dalli demanded a change in his ministerial portfolio following his unsuccessful bid for Party leadership and Prime Minister-ship. ` Three months down the road however the Gonzi show has yet to start. With EU membership celebrations and European Parliamentary elections on schedule in the first three months there were clear practical limits to how much could be done or even started before these events were behind the administration.

Some could argue that Gonzi needed time to take stock of the situation. This is hardly the case however.` Gonzi has been Deputy to his predecessor and cabinet Minister for nearly six years. He shares collective responsibility for the state of things as left over by Fenech Adami. The choice to present himself as the new kid on the block free from guilt of inherited pressing problems that need to be addressed with unpleasant measures is not available for Gonzi.

Which means that the Gonzi show must now start without further hesitation. Once the old Fenech Adami way of doing (or really hiding) things is not available any more, once people have sent the new PM clear messages in the EP and local elections that they are discontented with they way the government is managing, or really not managing, the recovery process, then really the risk for Gonzi has shifted.` There is more risk in doing nothing than there is risk in attempting to engineer a real economic restructuring process, painful as this may be.

The risk with doing nothing is that the economy will continue to stall as the costs of EU membership are not compensated by growth generated through new investment. The risk with proceeding in earnest with the re-structuring programme is that four years may not be time long enough to go through the unavoidable re-structuring pain in order to approach the next election with an economy invigorated with re-acquired international competitiveness. A situation where the electorate is convinced that the restructuring pain is behind it and that it can look forward to sustainable growth under PM Gonzi who had the courage to do what his predecessor conveniently avoided.

There is not one day to lose for Gonzi to put his show really on the road. Mid-term electoral losses at local level are a small price to pay for doing what Malta desperately needs and for taking the only route to re-establish his credentials for another term in office come the 2008 general election.` Consultations and consensus building are desirable but not to the point of achieving economic sclerosis where we continue to talk about problems without implementing any real action programme based solutions.

It is time for Gonzi to show that he can lead.

Friday, 18 June 2004

The Message

The Malta Independent 

The outcome of the EP elections was discernable to experienced observers. I dared pre-indicate it in my contribution of last Sunday to the Malta Independent on Sunday. My only slight miss was in expecting the AD candidate to be eliminated before the third PN candidate,` with AD votes being transferred to create the` possibility that if all AD votes migrated back to the PN they could still win the third seat in spite of the miserable 1st count performance.

As it happened the size of the defection from PN to AD was larger than my prognosis so the third PN candidate was eliminated and the AD candidate stayed in the running with the third MLP candidate, with the latter being elected without a full quota.

Elections deliver a result well beyond the numbers. And I think it would do well for the main contestants to heed the real underlying message. This was not a winner takes all contest.` It was a bit more than a friendly match in preparation for the real winner takes all contest in 2008. If a week is a long time in politics, four years is an eternity and there is therefore ample time for contestants to heed the message.

The first message for the PN government from the EP election is that it is in power,` courtesy of the MLP who misguidedly, and much against my wishes, bundled the EU issue with the election issue thus playing straight into the PN`s hands in making EU` membership and a Labour government mutually exclusive. `Given a chance to show their displeasure with this government the electorate did it resoundingly.` One should put this in context that in the local elections of 2002, one year before the last general election, there again Labour had trounced the PN by 9% and indeed had obtained an overall majority.`

So twelve months before the April 2003 election and 15 months after it we had a largely similar result. The election result of April 2003 is a deviation from this unmistakeable trend caused by a very specific and unrepeatable factor of the MLP`s disastrous bundling of the EU issue with the general election.` The message for the PN government is clear.` The electorate is tired of them, it considers that they are under-performing and that they offer no tangible solution to the strategic problems which their benign neglect policy has landed us into.

To the MLP the message from the EP election is less clear but it is there lying just beneath the surface. The electorate is saying that no matter how dissatisfied it is with the PN it is not yet quite comfortable to mandate MLP with an overall majority. And to win government an overall majority is needed. Indeed it is not quite heartening for a Labourite like me who expects his party to win government handsomely when facing a fatigued government four years down the road, that even in the face of such a whopping defection where the PN saw their vote dwindle from nearly 52% to less than 40%, the MLP vote stayed static at just over 48% and failed to win an overall majority as they had done in the 2002 local elections.

MLP can only disregard this message at their peril. Celebrations are appropriate to mark the three MEP seats objective.` However, celebrations cannot blind the MLP to the need to analyse the EP result in depth and see what is keeping those who are giving up on the PN government from trusting the MLP as an alternative government.

For AD the message is perhaps hidden even deeper and well below the surface. That they had a performance at the top end of anybody`s expectations is quite undeniable. But ultimately AD, like any political party, exists to register success beyond moral victories; success that could be translated into some form of executive authority.` In spite of all the progress AD is still finding tangible success elusive and has not even managed to score progress at local election level where one would think that AD should present itself better to build a platform for the general election.

Nothing in this result should make AD hope than come next general election they can extend the progress to give them a realistic chance of gaining parliamentary representation. My view is that AD is still perceived as the protest party ` a party to vote for to show displeasure at your traditional party without risking harming the party`s prospect of winning the general election.

AD`s challenge,` if it means to mature into a real political force, is to graduate from being perceived as a protest party to a party that can offer real solutions for the country`s problems. No amount of protesting will, on its own, ever get us one millimetre nearer to finding true solutions.

Seen in a wider context the MEP elections carry a message for the institutional development challenges confronting the EU, especially the promulgation of the new Constitution.` The disconnection between the EU institutions and the people remains. If anything the new EU members from eastern Europe seem to have been quickly infected by the lethargic bug of EU citizens versus the Organisation.

This could only mean that whilst these countries have voted overwhelmingly to join the EU in membership, this was mainly done on a point of principle to proof their European credentials. Now that the point has been made, the new EU citizens of Eastern Europe wanted to register their discontent towards the EU for being so tight-fisted vs. the new members in smoothing their integration at an economic level.

If the EU means to have a working Constitution endorsed by a broad based cross-section of its citizens then the message of the citizens disconnection cannot be ignored as the bureaucrats continue negotiations behind closed doors. Otherwise the EP will continue to be stuffed with an ever-larger dose of euro-sceptics eager to bring the organisation to a grinding halt.

Sunday, 13 June 2004

Strange Campaign

The Malta Independent on Sunday 

Strange things happened during the election campaign for yesterday`s EP and local elections. Their significance goes far beyond the election results that will come out next week.

Let`s start with the unusual, but not so strange. Alternattiva Demokratika (AD) put together at their best campaign ever. In acknowledgement that people are more likely to shift their voting preferences at mid-term elections rather at general glections, AD must have considered the EP election a do or die for its survival and development.` They were clever in posting a single candidate to focus their effort on one face and one name. They even cashed in handsomely on the unfair onslaught by the PN regarding the abortion issue which most considered as scraping the religious barrel by the PN. It made AD look like the underdog that needs protection from the unfair treatment of their big brothers.

In the early part of the campaign the PN seemed more interested in cutting AD to size rather than to address their traditional MLP opponents. Somewhere along the way the PN must have realised that so much focus on AD was probably serving them as good publicity increasing the size of the defection from PN to AD.

Wednesday evening I went to watch a movie at St James Cavalier and having some spare minutes before the movie I crossed over to the Upper Barrakka to enjoy the serenity and the view.` It was not to be. There was a staged activity going on and I found myself at the fringes of a sizeable crowd when I realized that it was a promo event for AD. As I hurriedly sneaked out, not to raise anybody`s hope of an additional vote defected from the traditional camps, I could not but register that this time AD was indeed making an all out effort, with no evident need to economise on the cost of the campaign.

Do they stand a chance of winning the fifth seat, I asked myself.` Maths tells me it is unlikely even though AD will register a much improved performance over the general election outturn.` Competing with the whole territory considered as one district would probably change AD`s fortunes in a general election. But in the EP elections where only 5 candidates would be elected AD would have to secure original and inherited preferences of nearly 17% of the valid votes cast to elect their candidate. This is the same threshold they would need to elect a candidate in any district in a general election. The barrier is still too high for AD to score tangible result. A sixth seat would have reduce that barrier to around 14% - not quite easy but more do-able.

If AD don`t get the fifth seat much less would it be possible for in independents to stand any chance. Many of them have an appeal to niche sectors. But whilst I am sure many sympathise with several aspects of what these independents stand for, most would have been put-off by the brashness and the rude intensity with which they exposed their causes during the campaign, often showing towards others the same intolerance they complained of for themselves. I would very much doubt whether if their collective votes were tacked on to AD`s they would collectively have made it for the sixth seat.

Which probably means that the fifth seat will go to one of the main political parties who should easily share the first four seats and fight it out for the fifth one. Would it go to the PN for the sake of continuity or would it cross over to the MLP in a clear message to MLP that the people wanted to vote it in government at last elections but were forced not to by Labour themselves when they made EU membership and a Labour government mutually exclusive? 

Surveys published by Xarabank indicate clearly that the size of defection from the PN`s side is bound to be more sizeable than any defection from the MLP. So indications are that the advantage that the PN had over MLP at last elections will disappear and the fifth seat is up for grabs till the last vote. I would not at all be amazed if what makes a difference is whether those who defect from the PN to vote AD would continue with their preference on the PN thus swinging back these votes into the PN`s fold once AD have their good run but fail to make it to the finish.

But on the basis of their campaign the PN certainly do not deserve the third seat. They had one of their worst campaigns ever.` It was half-hearted, relying solely on the media without the usual capillarity at grass roots level to stimulate enthusiasm and get out the vote.

But even their media management lacked the near perfection typical of when EFA was in charge and RCC used to manage the media. The strange things that happened are too evident to go unnoticed. Was it co-incidental that the Malta Employers Association presented a report to the MCESD proposing 'rundown' of 12000 heads from central government employment? Or was it orchestrated by factions more interested in foisting a bad show on the new PM on his first electoral outing rather in seeing their Party do well? 

I remember that when in 1997 the group of seven wise men had presented a report to the then Labour government proposing a much more socially responsible way for shifting excess labour in central government (in numbers much smaller than 12000) to the private productive sector, the PN kept harping on it for 12 months till the pre-mature 1998 elections making it sound as if Labour has already approved the vicious plan, and was only waiting for the elections to pass to start throwing civil servants out on the road.

Was it co-incidental that in the week prior to the elections a senior minister threatened in parliament to close down the shipyards if they can`t be run in black` Was it co-incidental that in the two weeks before the election the Times showed untypical interest in exposing the alleged scandal involving the Foreign Affairs Ministers using his weighty influence with foreign government organisations to favour family business interests? 

My conclusion is that the calm that EFA used to impose whilst the Party focuses on the electoral objective was this time completely missing and factions were more interested in embarrassing the new PM to weaken his still fragile hold on the Party. The PM replied with the clear roman dictum `mors tua vita mea`.

This cannot be a good omen either for the fortunes of the PN in these elections as well as for what to expect thereafter.

Does this mean that the third seat could lean Labour`s way? Quite possibly so but Labour`s success should not be measured by winning or losing the third seat. It should be measured by the progress, or lack of it, in the percentage of first count votes. If no solid progress now that the PN have so much going against them, then when? 

Friday, 11 June 2004

UN`s role in Iraq - Rediscovered

The Malta Independent 

At last we had something positive from Iraq. Finally it seems that the US has been forced to accept that it cannot go it alone and allowed the UN to perform its role as a peace broker among the various factions that are pretending to have a say in the process to restore sovereignty through democratisation in a state that seemed set to implode into civil war.

Finally it seems we are to have a UN resolution which endorses the transition of sovereignty to an interim representative government selected with the assistance of the UN special envoy for Iraq Laqta Brahimi, until this interim administration organises formal and internationally supervised general elections early next year.

It would appear that finally the US has had to accept to address the ambivalence of its position of wishing to restore full sovereignty to Iraq whilst at the same time keeping forces inside Iraq without a covering UN resolution and without being invited by a sovereign government. Though it seems that the final UN resolution is short of giving an outright veto to the interim Iraqi government on the permanence of the US coalition troops in Iraq, it provides for substantial consultation with the government before use of any force.

The civilised world now hopes that the US coalition will provide the necessary cover of security to ensure that free and fair elections are held to produce a sovereign democratic government for Iraq that can truly start taking direct responsibility for the country`s own security with assistance as may be requested through a UN peacekeeping force.

Hopefully the interim representative government, will succeed to gain the trust of the various factions, sufficiently to bring their conflicting expectations to the round-table conference which will be called to stimulate international assistance for the reconstruction of Iraq permitting the country to use its vast natural resources for its own development.

One week`s good news remains a fragile base for confidence that the process will continue without too much obstructions from terror factions that plan to impose their fundamentalism rather than allow the democratic development desired by the majority.

However one sees far more prospects of success now that the UN has been restored to play a central part in the process to democratic elections, reducing the perception that all was a mise-en-scene by the US to install a puppet government to serve its (US) political and economic interests.

President Bush has reluctantly had to accept that the price of unilateralism could be as high as risking the status of the US as the sole super-power.` He has paid a high price in adopting blindly Pentagon`s simplistic theory that America had a right to attack other countries in pre-emption without going through the process of gaining UN approval for any belligerence which was considered necessary to protect national interest.

Through this learning process President Bush has had to learn that whilst cultural and language ties with UK could help to take their toeing the US policy line almost for granted (though it is doubtful whether any future UK Prime Minister will be as accommodating to US policy as Tony Blair has been in the Iraq saga, paying in the process great expense in terms personal popularity), the French are much more independent minded. They hold the key to the support of other UN security council members Russia and China who probably could not economically afford to adopt the leading role in opposing the US resolution for UN cover for its premature attack on Iraq. 

  With hindsight it is clear that France played a very useful role in cutting America to size and forcing it to realise that Super-power status does not provide a licence to side-step multilateral checks and balances before a country attacks any other, irrespective of size or economic status.

These positive developments in no way mean that the war on terror has been won. It means however, that contrary to what has been happening when the US imposed unilateral aggression, the people of imploding countries no longer feel the natural attraction to fight perceived US arrogance by condoning or supporting terrorism.  It means such people are given a realistic hope to achieve their sovereign aspirations through a democratic process supervised by the UN.

The war on terror has to continue as the minority who want to return to 14th century caliphate style Muslim states, will do everything to break the UN sponsored process to democratic sovereignty. But the war on terror is unlikely to be won by guns alone. It is best addressed by taking genuine initiatives to restart the Palestine peace plan leading to sovereign formation of a Palestinian state that can live in peace with Israel and benefit from the economic power that Israeli technology can spread to the region if political obstacles can be overcome.

The UN success in Iraq should provide stimulus for the resumption of UN sponsored peace talks between Israel and Palestine where the US is engaged to bring pressure for concessions on Israel and the EU to do likewise on the Palestinians.

Friday, 4 June 2004

Pensions for Elections

The Malta Independent 

I just don`t get it why pension reform should be any issue related to EP elections. It just shows the low quality politics that citizens of these islands are getting and why we never seem to pre-empt problems rather than just address them or, quite often, ignore them.

The lack of sustainability of the current pension structure is not something that can be pinned on this or any particular previous government. It is a problem we created collectively mostly through` registering success in improving our quality of life by leaps and bounds since the pensions system was first introduced in 1956 and then overhauled in 1979.

It is a problem created mostly through our success to extend the expected life beyond pension age from six years to twenty years. Any system meant to sustain pension benefits for six years will have problems to do the same over 20 years. Add to this the demographics of low birth rate following the post-war baby boom and social elements in the current system where benefits are very loosely related to the contributions, and there should be at least one thing over which consensus should be easy.  

This is that the current system is unsustainable. That doing nothing is not an option. That if we just leave the problem for posterity the result of our inaction will be a strong double negative. A huge burden on public finance to make up for the increasing annual deficit of the pension system and insufficiency of the benefits to maintain reasonable standards of living for pensioners as the two thirds concept will only apply, through the capping mechanism, to those retiring on a relatively low salary.

Pensions are therefore everybody`s problems. It is the duty of the government to bring out this problem into the open and to make it a priority on the national agenda so that those still far away from pension, with a time frame permitting for provision of supplementary retirement benefits, can adjust their consumption and savings pattern in good time before it is too late.

It is therefore incomprehensible why government is treating the various reports and studies it has on the subject, including the latest on from the World Bank, as if they were the Fatima secret. It is just as equally disgusting that the opposition chose to make this government weakness as an election issue for the EP election inferring that Labour MEP`s could somehow provide a solution to our pensions problems.

I commend that the opposition should fill the void left by the government and publish and comment on all the aspects of the pension problems to raise awareness thereof at ground zero. But doing so as part of an electoral campaign and giving the impression that the problem can be solved by the mere election of Labour MEP`s can only be interpreted as clutching at straws by whoever is seeing these relatively unimportant MEP elections as a personal survival issue.

Reality is that proper handling of the pension problem is probably in the interest of the opposition more than that of the government. Pension is one of those problems with a long lead time. It can be easily previewed to reach its climax in a time frame between the years 2012 and 2025.

With next election not due before 2008 this period when the pension problem should peak is most likely to be a period when the current opposition will be in government unless this country is going to have a permanent state of elected dictatorship. So the opposition has every incentive to help firstly in raising the public`s awareness to the problem and secondly in avoiding to give the impression that the problem can be solved by doing nothing about it and can be solved by simply electing a new government capable of generating higher economic growth.

Of course strong economic growth will make all problems more manageable. Of course increased female participation rate could for some time ease the pension problem or extend its peak into the future as such female participants, who normally generate `much less than 30 years contributions, would eventually become entitled to benefits in their own right often unrelated to the value of the contributions paid.

But these, on their own, will not solve the pension problem. The unavoidable truth is that keeping the present retirement age at 61 and burdening the pension system with an average of 20 years benefit period for each retiree is just unworkable. The maths just does not add up. You can turn the problem upside down, left and right, inside and out the present retirement age is unsustainable.` And to avoid sharp shock adjustments during a time when Labour could expect to be in government there is every reason for the opposition to join the government in a joint effort to address the problem in a national front where the maths is allowed to speak to fill the void of pious hope.

The government should on the other hand stop tinkering about the pension issue and make it a national agenda item regarding which the opposition is to be offered a meaningful role.