Sunday, 26 June 2005

Uncanny Resemblance

The Malta Independent on Sunday 


  Malta`s difficulty to break into the EU bears an uncanny resemblance to the EU`s own difficulty to break into the rest of the globalised world.

The summit of last weekend ended in failure, thankfully, as UK Prime Minister Tony Blair would have no more fudges with so much waste of resources going to subsidise so few farmers to detriment of the EU consumer and the under-developed world, that gets very restricted access to sell its competitive agricultural produce, including sugar, on EU markets.

Thankfully this crisis has raised awareness among European consumers on the need to re-assess the logic of continuing to allocate so much resources to keep internal EU food products so unnecessarily expensive rather than channel these resources to finance educational development, innovation and research which could help the EU economy to restructure and remain competitive even if most of its manufacturing base will have to migrate to lower cost locations.

While The French, with the complicity of the Germans, did their best to isolate Blair and pin on him the responsibility for failure to reach agreement over the budget for 2007-2013, post-summit events are proving that Blair`s policies have more support among European consumers rather than among the old guard of Europe`s political bodies.

It is becoming increasingly clear that Blair`s policy for the UK rebate to remain a red line non-negotiable area until the EU redesigns its wasteful Common Agriculture Policy (CAP)` to phase out expensive subsidies by the mid-term of the budget period, somewhere around 2010,` has the sympathy of the governments of Sweden, Netherlands, Austria and many of the new members from Eastern Europe. It also has the sympathy of the government in waiting in Germany and if this government can sit around the EU table following next September`s election, then France alone would have difficulty in defending what is shamefully indefensible.

Europe`s old guard tried to play a dirty trick on Blair.` This has backfired and they will probably have to pay for it with their own political skin. Chirac and Schroeder never took seriously Tony Blair`s repeated assertions that the British rebate was a red line area not available for negotiation in the context of an unreformed EU budget.` With the British elections out of the way and with Blair re-mandated as Prime Minister for a third consecutive term, with the EU badly needing a show of unity following the debacle of the French and Dutch rebuff in popular referenda for the EU Constitutional Treaty,` Chirac and Schroeder were confident that Blair would crack under their joint pressure. They were positive that French farmers could continue to enjoy their subsidies for another seven years while Germany would shift the additional cost of structural aid to new member states onto the British by taking away their rebate through, as Chirac put it, a gesture for Europe.

In this ploy Chirac and Schroeder found the support of the Luxembourg presidency who rather than act as an honest deal broker as small country presidency normally do quite effectively,` clearly sided against the British and joined ranks with France and Germany to force Blair to give in. The calculations were that as the next president of the EU council Blair would not dare to veto the financial package proposed by the Luxembourg`s Presidency thus inheriting an EU in double crisis, institutional and financial.

Blair`s strong leadership called their bluff and now the tables are turning. Not that it is reasonable to expect that a budget deal could be struck under the British EU Presidency of July to December 2005. French pride would not permit the necessary concessions to make a deal which would glorify Blair`s stature. But agreement on the EU budget which could eventually lead to some sort of way out of the institutional crisis, is a process which was thankfully started by Blair under the Luxembourg presidency, will be shaped under Blair`s own presidency and probably concluded under the Austrian presidency by this time next year.

The end result would hopefully be a short and clear period of dismantling of most CAP subsidies, much lower food prices for the EU consumer, and more funds available for development and research which is the basis for achieving the Lisbon agenda by making the EU more competitive in the globalised world.

Only when the EU consumer starts feeling that the EU institutions are delivering a better quality of life and not merely taxing him to enlarge and protect the inefficient, will the approval nod from the electorate be given in` popular referenda for reform of the institutions developing the EU into an ever closer Europe.

I am confident that history will regard the current EU double crisis as a turning point for reconnecting the EU with the electorates and for identifying a more sustainable way forward for development and enlargement by enhancing the policy of subsidiarity and opting for flexibility rather than rigidity. Blair will be regarded as the person in contemporary history that breath new life into project Europe easing his eventual migration to EU Commission president as his third term as UK Prime Minister and the term of the Barroso presidency come to their common expiry date.

On the local front we continue to expose inability to understand what really needs to be done to restructure our economy in order to make success of EU membership, indeed to earn our way in a fiercely competitive world.` We still seem to wrongly believe that the solution lies in the type of relationship with the EU rather than accept that the real solution lies inside us.

Whilst every sector jealously guards its patch and is not ready to appear weak by making any concessions, whilst every sector regularly preaches to others what they have to do to achieve competitiveness and expects all else to change whilst it stands guarding its past acquisitions, our country is continuing to fall back as competitors keep` pacing or racing forward.`

GDP figures for the first quarter of 2005 show that in real terms our economy has contracted when the US grew by 3.5%, China by some 9%, Japan and EU by nearly 2% whilst the new EU members are registering growth of 4%. What will happen to us when and if the global economy cools down as is being indicated by the fall in long term interest rates and behaviour of the bond markets`

Where is our Tony Blair`

Friday, 24 June 2005

As Rome Burns

The Malta Independent 


  As we are busy discussing parliamentary ratification of the EU constitution, a project that by all counts seems dead in the water, as the headlines were this week occupied by the resignation of the chairperson of Sea Malta on disagreement regarding the principle and/or the method for privatizing this strategic national resource, as government tries to impress us on the wisdom of past privatizations as the Freeport new owner announces the intention of investing in new bigger gantry cranes, a mere re-cycling of one year old news and when it happens would be little more than replacement of equipment that has been used beyond its economic life notwithstanding past assurances that Freeport was such an economically successful project that its then chairman deserved a national monument, whilst all this is happening we pay little attention to the more important reality that Rome is burning.

The increasingly efficient and reliable National Statistical Office issued the GDP figures for the first quarter of 1995 by means of a Release on the 9th of June. The fact that the overall economy during this first quarter contracted by -0.1% in real terms compared to a real growth of 1.4% in the previous quarter and 2.9% in the same quarter of 2004 seems of no importance to national media and economic commentators. It got little more than passing mention in the press.

However this does not change the fact that Rome is burning and the heat is being felt even if government friendly media easily swallows the bait of diversion by such issues as the entrenching anti-abortion measures in our constitution; a no priority issue, to say the least.

Ask employees in the private sector whose organizations are finding it increasingly difficult to remain globally competitive from a Malta operating base. Ask them how worried they are about the security of their jobs as their employers continue to squeeze the last drops of productivity by insisting on lower wages and reduced conditions of work. Unlike the public sector, the unions here are relatively powerless in such cases and will generally have to accept the introduction of inferior pay package and conditions of work to safeguard jobs. In the first quarter output in the manufacturing sector, mostly export oriented,` reduced by Lm29 million (more than 10%) value added reduced by Lm4.5 million (more than 5%) and operating surplus reduced Lm3.4 million (more than 7%).

The other pillar of growth, tourism, had a static performance with no growth in nominal terms and a small reduction in real terms. So you have manufacturing and tourism, basically the bulk of the productive sector, in a growth crisis and the overall GDP figures are not worse only through growth in telecommunications, financial services and real estate.

To confirm that Rome is burning ask the small enterprises, mostly retailers, who are finding it increasingly difficult to keep their head above the water as sales and consumption` remain flat and profit margins at micro-level erode as lack of employment opportunities forces individuals to try their luck in some self-employed activity which increases the supply offers in a stagnant market.

The basic truth which we continue to obstinately avoid, is that our productive sectors that sell their wares in the global market, are feeling the pain of loss of competitiveness and this pain unavoidably rubs on to employees in these private productive sectors who have to pay for such loss of competitiveness with their own skin. Compare this to employees in the public sector who not only feel secure in their jobs quite irrespective of performance, but as usual have this week started enjoying their summer half days.

With what moral authority can national institutions like the Central Bank preach from the mountain top on the need for restructuring at micro level ( in simple language read reduced payroll costs and/or increased efficiency) in the context of stable monetary policies when as an institution it is itself a leading example of waste of resources and resistance to the change of restructuring` Now that Central Bank`s formerly quite labour intensive functions related to Exchange Control and Regulation have all but disappeared, what re-structuring has the organization undertaken to ensure that it leads by example`

How long can the country support this apartheid in the labour market where the most productive are the most penalized and exposed to global pressures whilst the least productive are the most protected and unaccountable for their performance If we use the same argument for privatizing a national strategic asset like Sea Malta i.e. cumulative losses of some Lm 3 million over seven years, we would have to privatize most, probably all, public sector departments, authorities and organizations if we submit their operations to the discipline of activity based costing and rigorous financial reporting.

As Rome burns we continue to avoid the task with the highest priority ` that of restoring competitiveness to operators in the productive sector by launching a national effort where the pain of adjustment is shared by all and not only by those directly effected that happen also to be the most productive.

Alfred Mifsud

Friday, 17 June 2005

No More Fudges

The Malta Independent 


  Reports suggest there will be no initiative to rescue the constitution, no agreement on the budget for 2007-13 and an unusual silence on what many consider the EU's most successful policy - enlargement. ` (source BBC News 16th June)

These were the expectations at the start of the two-day EU summit that ends today in Brussels under the Luxembourg presidency. What a difference a few weeks make!

Before the electoral thumbs down in the French and Dutch referenda for the EU constitution, there were much higher expectations from this Summit. It was expected to goad the smooth process of ratification for the Constitution at national level. It was expected to broke a deal for the EU Budget 2007-2013 as the Franco-Germanic alliance corner Blair, free from political pressure following his recent re-election, into giving up most of the UK rebate negotiated by Mrs Thatcher in 1984.` This was necessary in the Franco-German eyes so that there will be enough funds for the poorer countries of the recent enlargement without having to increase the overall size of the budget (a German priority) and without sacrificing the benefits enjoyed under the Common Agriculture Policy- CAP (a French priority). Chirac and Schroeder had made a separate deal on such an approach some two years back.

The French rejection of the EU constitution in the referendum of 29th May changed all that. It has greatly strengthened Blair`s position in the EU in general and on the` Budget negotiations in particular as it has freed him from the need to play let`s pretend games to get popular domestic approval for the Constitution, now that the referendum scheduled for next year has been revoked or at least put on hold.

Blair can afford to play tough. While he is assured of his seat round the EU presidency table for the next 5 years he knows that the tandem of Chirac and Schroeder is disintegrating as both seem set to lose their democratic mandate to represent their countries. Schroeder could receive the order of the boot as early as next autumn if he proceeds with his promise to call early elections in September. The result, if such elections are really held, is almost a forgone conclusion ending Schroeder`s political career.

French Presidency elections are two years away but the French electorate`s dissatisfaction with the second Chirac Presidency showed up clearly in the referendum result and his arch rival Sarkozy seems set to edge Chirac out of his job.

The result of such changes in the coming 24 months will mean that the Franco German conspiracy against Britain, which was strengthened during the build-up and the aftermath of the Iraq war, will disintegrate. It could mean that the liberal British model so much despised by Chirac, would find better support if Angela Merkel and Nikolas Sarkozy are sitting at the EU presidency table representing Germany and France instead of Schroeder and Chirac.

In the Sunday sister of this newspaper I wrote on the 29th May 2005, the day of the French referendum, that the probable rejection of the French and Dutch in the then up-coming referenda was probably a blessing in disguise.

I argued that the immediate economic impact of such rejection would be a substantial fall in the value of the Euro on the foreign exchange markets.` It happened just as predicted. These last 18 days the Euro fell some 5% against the US dollar and some 3% against the Sterling pound. No other single measure could have been so effective in breathing some oxygen back into the Euro economies by making them more globally competitive.

I say the same thing regarding today`s negotiations regarding the EU Budget for 2007 `2013.` Disagreement is better than a fudge that would leave the EU countries subsidising rich French farmers for a further seven years whilst denying much needed structural regional support for new member states.

The real problem with the EU budget is not the British rebate.` The rebate was a mere compensation for the excess subsidies drawn by France under the CAP mechanism. Although the share of funds allocated to CAP is reducing the fact is still that 45% of the EU budget is allocated to 2% of population represented by the agriculture sector of the EU 15 whose standard of living is multiple times better than the average in the new member states.

The need for the UK rebate would fall away if France does everyone a favour and climbs down on its obstinate objection to an immediate reform of CAP to reduce the level of subsidies necessary to keep functioning uncompetitive sectors which in terms of fairness should migrate to third world countries if more liberal trade in agricultural produce is agreed at WTO level. Such liberalisation in Agricultural trade is what Africa needs to get out of its poverty trap.` Live Aid and debt forgiveness are useful but temporary measures.` Liberalisation in economic sectors where poor countries can actually compete` delivers permanent economic benefit eradicating poverty and boosting world investment and consumption.

We should not regard the probable failure of today`s summit with disappointment. We have had too many fudges in the past and we need no other if the objectives of the Lisbon Agenda are to be achieved.` What we need is inspired EU leaders who can rise to the occasion and reconnect the people with the EU institutions by working on a Budget and a Constitution based on reality and flexibility permitting EU economic growth and addressing structural unemployment. Chirac and Schroeder do not fall in that category of leaders.

Sunday, 12 June 2005

Gimmicks Jokes and Tragedies

The Malta Independent on Sunday 


Defining a splinter organisation that has been set up to oppose the mainstream management of the Malta Labour Party as a gimmick or a joke seems panic dressed up with over-confidence.

In a country where the difference between government and opposition could be a mere handful of votes no political party can afford to treat with disdain any splinter organisation that can challenge the mainstream and that even if not successful in its own right, could be effective enough to distract votes that turn a majority into a minority.

As a genuine Labourite, I consider the creation of splinter organisations as a serious cause for concern. I personally have had my own differences within Labour with the Leader and with the Board of Discipline and Vigilance. My criticism in the summer of 2003 proved too much for them to stomach and they threatened me with disciplinary measures unless I tone it down. Owing nothing to anybody I decided that I could not stay inside an organisation that rather than face criticism, prefers to muzzle it.

However I still have Labour Party`s interest and basic principles very much to heart and would not act in any way that challenges Labour`s prospects for electoral success.` Once I cannot work within the present version of Labour I opted out of politics altogether.

The right of others who cannot find shelter within Labour to form their own grouping cannot however be denied.` Their being labelled as a gimmick or a joke does not help to keep open possibilities of re-integration in good time to ensure that Labour faces the next general election as a single united front.

I do not share the ideals of the new MLP grouping that seems to have been set principally to oppose the mainstream MLP approach to vote in favour of the EU Constitution even though international events seem to have rendered such Constitution as dead in the water. I concur with the mainstream Labour decision to vote in favour of the Constitution irrespective of its eventual fate, and this out of respect to the sovereign decision taken by the Maltese electorate in March/April of 2003.

Yet what I find, as genuine labourite, truly sickening is the way the leadership who used to describe EU membership in `allahares` (God forbid) terms before April 2003 now expect to preserve their own personal credibility whilst pedalling policies which they had vehemently opposed before the election. What I find as gimmicks is the way the party resources were abused between April 14th 2003 and May 1st 2003 to give a very unfair advantage to the incumbent leader to beat his actual and potential challengers in the leadership contest.

What I find as a sick joke is making the national executive decide in favour of instant election for party leader before a proper analysis of the reasons for the electoral defeat, on the basis of public declarations by the incumbent leader that he will not be seeking re-election, and for this to change without the national executive ever being given the opportunity to review its decision taken on the wrong premise through misrepresentation by the incumbent leader. What is even more sickening is that the eventual report of analysis of the electoral defeat which laid blame mostly on the leadership, so much so that it called for a mid-term reconsideration of the leadership positions, was instantly buried away without any access being given to party delegates, let alone the general public.

The present Labour leadership would do well if they stop calling dissenters names and instead make a critical analysis of what is causing so much internal dissent. My view is that the dissent is caused mostly because grass root labourites are having difficulty to understand how diametrically opposed policies could be digested when propelled by the same faces who used to vehemently oppose positions that now are being described as reasonable and acceptable.

Echoing the pains of all such labourites, why I ask, was it therefore necessary to lose an election on the principle of EU membership Why was it considered` so blasphemous before April 2003 to accept the people`s verdict about EU membership in a referendum and we kept insisting, in purely kamikaze terms, that only the verdict in a general election` would be conclusive in this respect`

If we find it easy to change policies after an election defeat why could we not change policies after a referendum defeat in order to give us a fair chance of winning the election`

The problem with the Labour Party today is one of credibility. It is obviously natural for a party to review its policies and change them, if necessary, following an election defeat, especially if such defeats come in monotonous succession.` But new policies can only be credible if promoted by new faces.` Hence why the statute of Party calls for leadership election after every general election and hence why it is necessary and logical to conduct such elections only after a proper analysis of the causes of the electoral defeat, especially if the incumbent leader is seeking confirmation.

What credibility can there be if the same leader who used to describe EU membership in allaharesqatt terms before April 2003, in spite of internal questioning of such policies by many including yours truly, now would have us subscribe to the EU constitution as if he were a new kid on the block`

My judgement is that the creation of various splinter groupings in the left wing of Malta`s political spectrum is the symptom not the cause of such division. The cause is that Labour has refreshed its policies without refreshing its leadership.` That makes it impossible for people like me to continue militating in the ranks of the Labour Party. Out of loyalty to the underlying principles of the Party I can stay out of politics completely but others who have politics in their blood stream are being forced to exert their political energies in groupings created in parallel to the Labour party.` In the process they are weakening the chances of the political left` to score when it matters.

I don`t condone their actions but I will not call them a gimmick or a joke.` May be a tragedy would be a more appropriate definition of the situation; a tragedy sourced by the inability of the people who matter to understand that people in politics should not regard themselves as a permanent fixture and new policies need new faces if they are to be accepted willingly and convincingly without causing cracks and friction. A tragedy that, if goodwill and good sense prevails, can still be avoided.

Friday, 10 June 2005

Is the Euro Forever?

The Malta Independent


  Let me put it this way. Our joining the Exchange Rate Mechanism (ERM II) of the Euro on May 2nd, 2005 has not brought any luck to the common currency. The month of May and the first week of June have proved very turbulent not only for the foreign exchange value of the Euro, but particularly for concerns being raised about the sustainability of the single currency project.

A subject which was hitherto taboo and which no one was allowed to discuss not even informally, is now being deeply analysed all over the financial and political media around the world.

It culminated this week with suggestions coming from an Italian Minister that Italy should consider holding a referendum on the issue of restoring the Lira as the national currency, in order to get off the grip of the Stability and Growth Pact underpinning the single currency, which demands painful adjustment that Italian politicians seem incapable of delivering.

Just as we set to join the Euro others are openly discussing leaving it, whereas economists are openly expressing serious concern on its sustainability even if no country would dare to exit the system.` The question whether the euro is forever is a hot topic of debate in the economic press.

This is hardly surprising given the events we had these last couple of weeks. Monetary union depends for its success on a commitment for a political union. History shows that monetary unions that were not under-pinned by a political union proved short-lived.` The Latin Monetary Union involving Italy, France, Belgium, Switzerland and Greece collapsed in 1920 after 60 years because of lack of fiscal discipline amongst its members. A Scandinavian monetary union in 1873 proved short-lived as political circumstances pulled countries apart rather than closer together.

The` German Central Bank used to argue in the 1980`s that monetary union was to be the end result of a political union.` Eventually this view changed and the Germans accepted that monetary union could be a catalyst to bring about a political union. The official view is that monetary union can survive and function well without a political union if three conditions prevail: fiscal discipline, central bank independence and a high degree of product and labour market flexibility.

Two of these three basic conditions are currently unobtainable and the one which seems to prevail, at least nominally, i.e. the independence of the central banks, has been undermined by dilution at the political level of the Stability and Growth Pact following German and French inability to abide by its old version. Furthermore the independence of central banks can only be effective if set in context of a shared identity embedded in common political institutions.

The rejection of the Constitution Treaty in France and Netherlands signifies that this shared identity is missing and that` individual members countries seem more obsessed with defensive protection of their past gains rather than in sharing the EU-wide objective of seeking structural adjustments to make the Euro economy more competitive in terms of the Lisbon agenda.

Fiscal discipline seems to be becoming the exception rather than the rule and seven out of twelve euro countries are likely to breach he Maastricht fiscal criteria during fiscal year 2005. Product and market flexibility is being rolled back rather than pushed forward as the service directive continues to be resisted even though services account a large and ever increasing part of the Euro economies.

So doubts on the sustainability of the Euro project in its present form have solid foundations in history as well as in economics. But contrary to what many may think it is not the weak countries that may decide to leave the Union. It would be far too painful and expensive for Italy to actually exit the system given its high level of debt and the high interest premium they would have to pay international investors to maintain their appetite for non-euro Italian sovereign debt.

Italy would never leave the Euro by way of a free decision. But unless they reform they could be forced out by circumstances. Between 1999 and 2004 Italian labour costs rose 1.3% per annum more than the EU average. Their loss of competitiveness is evident and aggravating. The past option of restoring competitiveness through rate of exchange adjustments is not available anymore and yet the country`s employers and trade unions behave as if nothing has changed.

Unless they reform urgently Italy could be forced out of the Euro by a deep crisis as stronger members threaten to leave the Union as they become increasingly unwilling to expose their economies to Italian style inflation. The pressure to leave will come from the strong members not from the weak members.

These events are a timely eye-opener for us as to how dangerous it is to attempt to join a monetary union at an uncompetitive rate and without first conducting the structural adjustment necessary to render our economy globally competitive before locking into a single currency with other stronger countries. This lesson can only go unheeded at our own peril.  

Friday, 3 June 2005

The Bicycle Theory

The Malta Independent

  The bicycle theory states that one cannot stand still.` Unless one moves forward the bicycle will lose its equilibrium and the rider will fall of it.

Does this theory apply to the EU now that two founder countries have rejected through national referenda the Constitutional Treaty which was proposed to give the legal framework for taking the EU forward to make success of the recent enlargement and prepare itself for future challenges` Challenges that are daunting. Challenges to restore American type economic growth to European economies by adopting the Lisbon agenda as much as challenges to extend the confines of the EU to include such countries as Turkey, Croatia, Serbia and may be Ukraine amongst others.

The magnitude of the significance of the No vote by the French and the Dutch should not be under-estimated.` The EU has consistently said that no plan B exists and once plan A has met with what presently appears to be an insurmountable barrier, the situation cannot but raise doubts about the future viability of the EU.` It is universally agreed that the present legal framework through the Nice Treaty, which will have to continue to operate until replaced, is totally unsuitable for the efficient functioning of an enlarged EU of 25 soon to become 27.

So if the present is unworkable and we cannot seem to agree on a proper replacement the default position could be death by attrition.

I am not that pessimistic. Quite the contrary, I would argue that the French and Dutch vote was a needed reprimand to the EU elite to come up with the leadership qualities to carry the people with them forward to the EU integration project rather than continue to seek integration through bureaucracy.

If the French and the Dutch have not delivered a yes vote it is just as much because the people in these states are unhappy with the way they are being governed domestically which in turn is forcing them to take an unrealistically protectionist view of the need and logic to integrate neighboring countries into the EU even if this causes transitory adjustment pain to existing members.

The process of ratification should continue to move ahead, and hopefully the Maltese parliament will do so quite soon with an overwhelming majority if not total agreement. The EU must as of now prepare a plan B for a situation where by the end of the ratification process four or five members would have failed whilst the other twenty odd would have ratified giving the four fifths needed to keep the Constitution project alive.

And the plan B has to focus on the economy with special emphasis on the employment situation.` It is illogical to assume that people will vote for a treaty that they perceive to be a threat to their existent jobs.`

So it is absolutely essential that if the French, the Dutch and other dissenters will eventually have to be re-approached with a fresh referendum to keep the Constitution project on track, there must be some doses of flexibility added to the Treaty but above all there has to be a substantial improvement in the economic scenario of the EU countries.` The measure of dissent against the domestic government would hopefully by that time have been overcome through fresh elections.

Whilst at political level the EU leaders should start discussing what measures of flexibility ought to` be included in the Treaty to justify a re-run of referenda where necessary ( may be a different kind of membership should be considered for members joining post 2007 ` thus keeping these countries EU aspirations alive without causing undue adjustment pain to existent members) it is on the economic front where immediate measures are necessary.

Some measures are market driven and indeed the same negative vote has forced the market to give the EU economies what they badly need, a more competitively priced Euro on the foreign exchange markets. Since the French Sunday no vote the value of the Euro has fallen by 4% against the USD and it is now just a whisker above its launch value in 1999. On this score the French refusal was a blessing in disguise.

But more needs to be done.` In particular the European Central Bank (ECB) needs to revise its objectives and economic policies. We cannot have such a powerful institution in charge of coordinating a single monetary policy for the whole Euro area almost completely unconcerned by the` unemployment situation and focusing solely on inflation and stability. Stability at high levels of unemployment is hardly a desirable objective.

The ECB needs to mature and develop by accepting a greater role in economic management as the Federal Reserve does for the USA. The ECB needs to accept that with the Euro now well and truly accepted as a reserve currency and many countries eager to diversify the over ` exposure of their reserves versus the USD by adding more Euros, they must take counter measures to keep the value of the Euro competitive. This is particularly important for Euro countries that depend mostly on exports for growth and job creation.

So the 3% budget deficit limit, desirable as it may be as a long term objective, needs to by widened to permit but job creation initiatives by domestic governments through infrastructure investments, as well as weakening of the Euro exchange value as market operators get deterred by such increasing deficits and risks of higher inflation. This is a luxury that reserve countries can afford as the recent US experience has shown. It is now the responsibility of the EU to grow its deficits and economies to give time for the US economy to consolidate its growth without risking disequilibria of a magnitude that threaten global economic stability.

The EU bicycle has to continue moving forward as we pedal, admittedly more slowly, towards ratification by remaining countries, flexible revision of the Treaty and more aggressive economic policies to promote job creation based on export competitiveness which will eventually bolster domestic consumption. This is the tripod that can keep the EU constitution project on track.

Alfred Mifsud