The Malta Independent on Sunday
As another year bites the dust and we start the 41st calendar year after independence, we ought to make an honest national assessment of where we really stand. On the axiom that life begins at forty we should then proceed to make a resolution about where we are economically going to take this country, whether to the dogs or to where its true potential lies.
If we look at ourselves through the economic mirror it is quite obvious that most of us, excluding those 15% or so who are living near or below the poverty line, are like pimps living off the economic prostitution of the country while complaining about its lost virginity and values.
Are we not enjoying a better standard of living at the expense of our national competitiveness through our over-valued rate of exchange` Are we not all individually better off as the country finances consumption and pseudo investments through borrowed money which is pumped into the economy creating artificial and unsustainable demand`
Are not most of us enjoying the economic benefit of increased residential property values as low interest rate policy, aimed to help government to finance its recurrent shortfalls with minimum pain, together with increased liquidity generated by the same government borrowing, against a background of dearth of investment opportunities, has forced real estate prices to dizzy height levels`
Whilst the country has experienced four consecutive years of no real economic growth we have individually continued to improve our standard of living through artificial transfer of wealth from the public to the private sector resulting in a massive public debt build-up even whilst the economy was stagnant or outright contracting.` Like the pimp we have been taking a larger share of the prostitute`s stagnant earnings forcing the prostitute to borrow to keep us happy and in the process failing to plough back earnings to sustain economic regeneration.
Basically we have rendered ourselves as rich citizens in a poor country. That this is unsustainable is stating the obvious.` At which point such unsustainability will snap is anybody`s guess as much depends on the psychological stress on people`s trust in our financial system. For as long as the government can continue to finance our `sins` of over-consumption through easy, long-term, cheap domestic borrowing the situation can be carried for quite some time.
But carrying the situation through debt build-up far in excess of economic growth is no durable solution. Financing the problem does not equate to resolving it.` As some point the excessive debt build up will start worrying investors on the sustainability of the financial system and as they demand higher rewards for the perceived higher risks of government funding, the whole system will crash like a tall cardboard structure. So unless we want to leave our children a legacy of worthless financial assets as the state will be forced to roll back the rich citizen to poor country ratio, we must act now before it is too late. After all when we chose to become members of the EU and celebrated the event with glitzy lights and flowing champagne, we also took upon us the obligation to wear the financial discipline of Euro membership.
A discipline to bring the government financial budget to a neutral position, with temporary deficits within 3% of GDP.` A discipline to reduce our national debt to within 60% of the GDP. A discipline to bring down the inflation level to the best practice of existing Euro members. What this discipline means in practice is that we have taken a commitment to reduce our standard of living to within a sustainable level to ensure we can leave a larger share of the national cake to be re-invested to grow the economy and bring a better balance between the macro and micro financial health situations.
This adjustment following long years of benign neglect cannot be either painless or conducted without strong leadership. Clearly we are very mentally and psychologically ill-prepared for the adjustment pain and we have no leadership to take us through the difficult patch where we get motivated to keep our eyes on the prize as we withstand the temporary adjustment pain.
The much talked about and elusive social pact is in reality nothing else than a programmed adjustment pain sharing exercise.` The absence of clear leadership from the government side has meant that the social partners could not agree on any such pain sharing exercise. The totally inadequate measure to forfeit extra days of leave for public holidays that fall on weekend has created a government instigated clash between unions and employers who are committed otherwise through signed collective agreements.
It is no perceived leadership on government side to force social partners to direct clashes to avoid taking real measures that could have temporary political negative fallout. Leadership comes from re-definition of public holidays `and from acceptance that the 1987 decision to re-instate public holidays that were previously abolished was economically capricious and unsustainable.
It is no perceived leadership to demand sacrifices from the social partners, especially from the union side, and then father capricious projects like Dar Malta, or `give away Maltese patrimony like Chambray ( where Memmo & co are getting paid handsomely for giving us back what we originally gave them for free and failed to develop -` a replica of what had happened years earlier on a smaller scale on what is now the Bay Point Radisson project originally given to French investors). It is no perceived leadership to `privatise the Freeport for maximum potential income that does not even cover our interest expenses for a loan raised to finance a small part of the privatised project, or resist making an alpha to omega independent investigation as to why the Mater Dei Project is going to be completed so much out of time, out of budget and on the basis that its high operational cost will mean the sure death of our free public health service.
It is no perceived leadership to promise us curtailment of government expenditure in 2006 and 2007.` If the chain smoker really means to stop smoking he has to do it today and get prepared for managing effectively the nicotine withdrawal symptoms. Promises to stop smoking tomorrow often remain unfulfilled pious wishes.
A honest and equitable pain sharing economic regeneration exercise can only by brokered by a government with` strong leadership qualities which is ready to admit its past faults and show us the way to the future now ( not next year of the year after) accepting in the process to carry part of the pain through politically unpopular measures.
For the new year, rather than a resolution I offer a prayer for this country`s leadership to acquire the qualities desperately needed and so far miserably unexhibited.` Acquisition of such true leadership qualities is the best method to transform into tangible economic progress my otherwise pious good wishes for a Happy New Year to all.
As another year bites the dust and we start the 41st calendar year after independence, we ought to make an honest national assessment of where we really stand. On the axiom that life begins at forty we should then proceed to make a resolution about where we are economically going to take this country, whether to the dogs or to where its true potential lies. If we look at ourselves through the economic mirror it is quite obvious that most of us, excluding those 15% or so who are living near or below the poverty line, are like pimps living off the economic prostitution of the country while complaining about its lost virginity and values.
Are we not enjoying a better standard of living at the expense of our national competitiveness through our over-valued rate of exchange` Are we not all individually better off as the country finances consumption and pseudo investments through borrowed money which is pumped into the economy creating artificial and unsustainable demand`
Are not most of us enjoying the economic benefit of increased residential property values as low interest rate policy, aimed to help government to finance its recurrent shortfalls with minimum pain, together with increased liquidity generated by the same government borrowing, against a background of dearth of investment opportunities, has forced real estate prices to dizzy height levels`
Whilst the country has experienced four consecutive years of no real economic growth we have individually continued to improve our standard of living through artificial transfer of wealth from the public to the private sector resulting in a massive public debt build-up even whilst the economy was stagnant or outright contracting.` Like the pimp we have been taking a larger share of the prostitute`s stagnant earnings forcing the prostitute to borrow to keep us happy and in the process failing to plough back earnings to sustain economic regeneration.
Basically we have rendered ourselves as rich citizens in a poor country. That this is unsustainable is stating the obvious.` At which point such unsustainability will snap is anybody`s guess as much depends on the psychological stress on people`s trust in our financial system. For as long as the government can continue to finance our `sins` of over-consumption through easy, long-term, cheap domestic borrowing the situation can be carried for quite some time.
But carrying the situation through debt build-up far in excess of economic growth is no durable solution. Financing the problem does not equate to resolving it.` As some point the excessive debt build up will start worrying investors on the sustainability of the financial system and as they demand higher rewards for the perceived higher risks of government funding, the whole system will crash like a tall cardboard structure. So unless we want to leave our children a legacy of worthless financial assets as the state will be forced to roll back the rich citizen to poor country ratio, we must act now before it is too late. After all when we chose to become members of the EU and celebrated the event with glitzy lights and flowing champagne, we also took upon us the obligation to wear the financial discipline of Euro membership.
A discipline to bring the government financial budget to a neutral position, with temporary deficits within 3% of GDP.` A discipline to reduce our national debt to within 60% of the GDP. A discipline to bring down the inflation level to the best practice of existing Euro members. What this discipline means in practice is that we have taken a commitment to reduce our standard of living to within a sustainable level to ensure we can leave a larger share of the national cake to be re-invested to grow the economy and bring a better balance between the macro and micro financial health situations.
This adjustment following long years of benign neglect cannot be either painless or conducted without strong leadership. Clearly we are very mentally and psychologically ill-prepared for the adjustment pain and we have no leadership to take us through the difficult patch where we get motivated to keep our eyes on the prize as we withstand the temporary adjustment pain.
The much talked about and elusive social pact is in reality nothing else than a programmed adjustment pain sharing exercise.` The absence of clear leadership from the government side has meant that the social partners could not agree on any such pain sharing exercise. The totally inadequate measure to forfeit extra days of leave for public holidays that fall on weekend has created a government instigated clash between unions and employers who are committed otherwise through signed collective agreements.
It is no perceived leadership on government side to force social partners to direct clashes to avoid taking real measures that could have temporary political negative fallout. Leadership comes from re-definition of public holidays `and from acceptance that the 1987 decision to re-instate public holidays that were previously abolished was economically capricious and unsustainable.
It is no perceived leadership to demand sacrifices from the social partners, especially from the union side, and then father capricious projects like Dar Malta, or `give away Maltese patrimony like Chambray ( where Memmo & co are getting paid handsomely for giving us back what we originally gave them for free and failed to develop -` a replica of what had happened years earlier on a smaller scale on what is now the Bay Point Radisson project originally given to French investors). It is no perceived leadership to `privatise the Freeport for maximum potential income that does not even cover our interest expenses for a loan raised to finance a small part of the privatised project, or resist making an alpha to omega independent investigation as to why the Mater Dei Project is going to be completed so much out of time, out of budget and on the basis that its high operational cost will mean the sure death of our free public health service.
It is no perceived leadership to promise us curtailment of government expenditure in 2006 and 2007.` If the chain smoker really means to stop smoking he has to do it today and get prepared for managing effectively the nicotine withdrawal symptoms. Promises to stop smoking tomorrow often remain unfulfilled pious wishes.
A honest and equitable pain sharing economic regeneration exercise can only by brokered by a government with` strong leadership qualities which is ready to admit its past faults and show us the way to the future now ( not next year of the year after) accepting in the process to carry part of the pain through politically unpopular measures.
For the new year, rather than a resolution I offer a prayer for this country`s leadership to acquire the qualities desperately needed and so far miserably unexhibited.` Acquisition of such true leadership qualities is the best method to transform into tangible economic progress my otherwise pious good wishes for a Happy New Year to all.
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