Saturday, 26 March 2005


The Malta Independent 


Resurrection is the direct consequence of death.` There can be no resurrection without death. To have the economic resurrection we need, we must either be already economically dead or we must economically die first.

As for many things in life, things may first have to get worse before they can get better. And this week they got as worse as they could.` We have received a clear certification that we are economically practically dead.

A study conducted by a credible London based EU research organisation has classified the 25 EU member countries and the two candidate countries, Bulgaria and Rumania, to measure their progress in terms of the criteria set for the Lisbon agenda. These are the criteria meant to measure the state of competitiveness of each member/candidate country so that the EU as a whole can achieve the Lisbon agenda objective of becoming the fastest growing knowledge based competitive economy in the global village by 2010.

These targets were set in Lisbon in the millennium year and an interim review was conducted last week at the EU head of states meeting. The Lisbon objectives were re-affirmed and countries were given a road map to check their progress along the Lisbon objective route. The target date of 2010 is clearly unrealistic and has been practically abandoned. During the last five years the EU relative rate of economic growth has quite deteriorated rather than improved and the EU is still as far from the Lisbon objectives as it was five years ago.

In the study Malta placed 27th out of 27 countries. We are behind backwater countries of Bulgaria and Rumania who have yet to make it to the EU.` We have the least competitive economy of the whole EU.

This is an economic fiasco of gigantic proportions expertly manufactured by our expired PN government as it has wastefully spent tax and debt revenues to protect us artificially from normal economic cycles.` To gain our political patronage it bestowed us with a let`s pretend standard of living nearing that of` developed countries, which is however based on unsustainable debt financed consumption rather than on a knowledge-rich, competitive and efficient economy.

I just can`t imagine how with a certificate like that our politicians can still speak seriously of making it into the Euro with the first batch of new entrants into the EMU somewhere in 2007/2008.` I fully agree that this would be an ideal objective if we can wear upon us the necessary discipline to restructure and regain the lost competitiveness in time to meet such deadlines. But can anyone seriously believe that in the last half of the legislature leading to elections in 2008 the government has the political will and the economic energy to do what it has neglected doing for the last eighteen years`

Let us well and truly understand the severe economic consequences that would befall us if we were to presumptuously attempt to join the Euro before we actually render our economy globally competitive and reach a more respectable place in the league table of progress towards the Lisbon Agenda objectives.

Joining the Euro would mean that the only economic tool left at our discretion would be fiscal policy and given our structural imbalances we are unlikely to have much leeway to manoeuvre around with fiscal policy and still stay within the boundaries of the Growth and Stability Pact for the Euro. If we were to join the Euro in the economic mess we are in, it would be like betting our life to win a race we are totally unfit for. We could risk collapsing not very far from the start line or possibly even during the warming up before the race starts.

We have had many pious statements of the wishful thinking about the wisdom of joining the Euro in the first batch. Nothing to complain about if we can really be ready for it just as it would be nice if I were to run the 100 metres in less than 10 seconds. But try doing that with all my 100 kilos and without serious, disciplined and extreme training!

In deliberating the Euro decisions our politicians should ask themselves a basic question. Now that the first two years of the legislature are up with very little to show in terms of real re-structuring, are they seriously minded to take the hard measures which are necessary to conduct effective re-structuring to restore our competitiveness in the last three years` Are they prepared to sacrifice their electoral chances at next elections by taking the economic medicine which effective as it may be in economic terms in the fullness of time, is not exactly a magic formula for electoral popularity`

My opinion is that irrespective of the nice words uttered by the Prime Minister in his defeat conceding press conference following the last local elections, words to the effect that his government is minded to continue doing what is right and not what is popular, this government is doing neither what`s right nor what`s popular. Given that for the general elections they have to make a choice they could well be tempted to restore popularity rather than righteousness.

This would exponentially increase the risk of joining the Euro purely for the prestige of sharing a common currency. The Euro Growth and Stability Pact rules have been revised to render the pact quite toothless in exerting fiscal discipline on participant countries. So many broad exceptions have been built into the new rules to depart from the hitherto rigid benchmarks that is now flexible enough to fit all circumstances. So if we want to join the Euro on the new rules we can probably justify many exceptions to join without coming into shape to be able to withstand the competitive pressures following membership.

I am extremely worried that if government tries to approach the Euro membership as an election ploy of prestige without actually getting economically ready for it, the very fact of merely attempting to do so, could remove the only feeding tube which is artificially keeping us economically alive:` the excess saving which makes it easy for government to finance its deficit cheaply and on a long term basis.

If we are not careful the warming up to the Euro project could be our passion and death.` The optimists may see this as an unavoidable route to the consequential resurrection.

No comments:

Post a Comment