Friday, 13 May 2005

ERM 2 ad Blair 3

The Malta Independent

ERM 2 of May 2nd was followed by Blair 3 on May 5th. 

  Even though the option to re-elect, with a substantially reduced majority, Tony Blair as UK Prime Minister for an unprecedented third consecutive term was not a tick box on the ballot sheet, collectively the UK voters delivered the verdict which was most appropriate in the circumstances.

They rewarded Blair with the honour that was not given to any other Labour leader and put him in the same class as Margaret Thatcher who had notched three consecutive victories between 1979 and 1990. But they clipped his wings to show Blair that ultimately he represents and serves the people and not vice-versa.

His handling of the Iraq issue and his leading the country into a war without having inalienable proof of the cause for war, and the subjective way in which he interpreted` intelligence to suit the pre-set objective of going to war, has not gone down well with the people. On the other hand the electorate realised that there was no one on the opposition side who could be trusted to manage the economic progress that has made the British economy under Blair the envy of other Europeans.

So Blair has been handed a very conditional mandate to proceed with his third term as Prime Minister with a majority that has been cut from 167 to 66 seats. Given the liberty with which MP`s quite often disagree and vote against their own government this majority is likely to condition the operations of Blair`s third term and force him to lead in a more consensual manner.

The experience of Thatcher`s third term should be an eye-opener for Blair. Thatcher had assumed that she had become irreplaceable as Leader of the Conservative Party and continued to lead in her third term with the iron hand she had demonstrated in her first two terms.` The problem is that long tenure of power corrupts the human ability to continue making objective decisions and` quite often the decision making process shifts from deciding what`s right through proper analysis to deciding what`s right purely because power tenure grants the person in office the assumed right to put the right or wrong label wherever he or she wishes.

Thatcher`s over-confidence in pushing through an unpopular poll tax instigated an internal revolt that led to her ousting. Blair has been warned that he could face the same fate is he continues making decisions in the style of the Iraq war.` He was quick to respond that he has listened and learned, and having pre-advised that he has no intention of seeking a fourth appointment though wishing to serve a full third term, allows him the flexibility of moving out whilst still on top.

Many have speculated that given the conditionality attached to his mandate Blair should reconsider his promise to serve the full third term and leave earlier. This is quite likely but for his personal ego the timing of his departure needs to coincide with a few successes on the home-front in delivering better value public service and with some opening which would give Blair a prestigious role in some international or supra-national organisation.` It is unlikely that Blair fancies going on pension in his early fifties.

ERM 2 has brought no great shakes to the way we live and do things over here. It is doubtful whether more than a single digit percentage of the population has anything more than superficial understanding of the true implications of such a decision.

From the debate that followed the decision it seems that the only points of disagreement among people who pretend to possess deep knowledge on the subject are basically three:

the timing is not right as we should first stabilize our economy before entering ERM 2.

The monetary authorities should have reserved the right to adjust central parity gradually during the ERM 2 process to ensure we join the Euro at a rate which reflects and sustains our international competitiveness.

The central rate chosen is inappropriate as it locks our lack of international competitiveness thus necessitating a deeper economic re-structuring in the real economy.

These are all valid criticism that government and the monetary authorities have so far replied to with more dogma than convincing arguments. Whilst I have sympathy with the official position on the first two points, without negating the validity of the issues raised by the critics, it is on the third issue that I find the official position most worryingly unconvincing.

The general counter-argument goes like this. Even though independent studies have indicated that the Maltese Lira could be overvalued by up to 6%, even though one appreciates that it is better to err on the side of under valuation rather than over valuation in locking into the Euro, the instability which a one-off adjustment to the central rate could bring would risk neutralising the presumed economic benefits of such adjustment. So the argument is that nominal exchange rate stability should gain priority above all else and it is up to other sectors of the economy to undergo the necessary structural changes to regain competitiveness.

This rigidity will do us no good. Stability is important after we regain competitiveness. We should not enamour stability at an uncompetitive level. The stability of the cemetery does not deliver growth and development. The monetary authorities dogma that all around us should change whilst they remain stable smells like the arrogance which have led the British electorate to chastise Blair in giving him a conditional third mandate. As probably nothing around us will change as politicians lose their fervour for painful restructuring as opinion polls point to loss of electoral support and probable loss of power, the whole issue of ERM 2 and Euro entry will unavoidably have to be re-assessed.

Alfred Mifsud

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