Evaluating Membership

16^th June 2006

The Malta Independent - Friday Wisdom

Our political leaders crossed swords this week debating whether two years down the road EU membership has been a positive experience. Not surprising you might add, as our political leaders tend to disagree on most issues, even trivial ones, and therefore cannot be expected to make a fair evaluation of EU membership from a common vantage point.

To objective observers the evaluation cannot produce a black or white answer. There is no doubt government had over-promised in depicting EU membership as a panacea for our ills, as instant as our morning coffee. Over-promising naturally leads to under-delivery. Judged on this basis there is no doubt that many feel disappointed with their first hand experience of EU membership. It has not been as fruitful as they were made to expect.

Consequently in absolute terms it is perhaps easy to write off EU membership as a disappointment. We did not get the inflow of foreign direct investment experienced by other new EU members where for example Slovakia is being branded as the new Detroit for auto manufacturing. Job creation is as slow as it was before membership, inflation is somewhat higher and the oppression of high oil prices has eroded our standard of living. Though in reality oil price oppression has nothing to do with our being in or out of the EU, it is quite unavoidable that in their assessment of post-membership experience people fail to distinguish between variables directly related to membership and others that have nothing to do with it. Everything tends to get packaged.

It would be unfair to make such rash assessments. EU membership has never been for the short-term. While government has no doubt exaggerated the instance of accruing benefits, this is not the same as saying that for the long term the benefits being enjoyed by others who seem to have been better prepared, should not accrue to us as well.

Really it depends on us and on none other. The truth is that we approached membership with an uncompetitive economy, with a chronic fiscal deficit and institutionalised rigidities which were depriving our economy from the flexibility it needs to grasp opportunities and make the most of the new realities of membership.

For sober analysts whose judgement is based on the long term rather than quick fix short term solutions EU membership can be considered as a positive experience if for nothing else, for the fact that it is forcing on us the discipline to address issues which have long been neglected.

Finally we seem really coming to terms with reducing the fiscal deficit to sustainable levels from the over-blown level it has been since 1996. We lost eight years looking and turning the problem upside down without addressing it at its source i.e. by cutting expenditure rather than raising taxes.

The discipline of EU membership and the consequent obligation to shape up for the Euro, has forced us start doing what needs to be done.

We are finally freeing the economy from monopolistic rigidities in our transport sector. We have started with the lubricating rigid port systems that do not sit well with the competitive pressures of globalisation, and I hope we can extend this to other inland transport segments including passenger transport.

Without the discipline of EU membership I doubt if our politicians would have had the will to take such measures which whilst pleasing to central bankers, economists, rating agencies and armchair critics, are not at all popular with the electorate. They are even less palatable it they have to be executed simultaneously with oppressive measures reflecting the wealth transfer we are being constrained to suffer through the astronomic energy prices.

For me whilst the jury on our experience of EU membership is still out when judged in absolute terms, which is well understandable as this is a long term project which should be judged by long term results which depend on us, on our good sense, wisdom, prudence and determination. In relative terms, benchmarked to where we would have been today without EU membership, I have no doubt that membership has been a positive experience.

Now this is hard to prove as it is just impossible to state with precision where we would have been today if we had opted for non-membership. It is impossible to prove that had we opted for Dr Sant’s Partnership the EU would have went out of their way to negotiate a specific deal to suit our circumstances or would have put us on the back burner, whilst they focus their attention on integrating new members and preparing candidates, including Turkey for membership.

From someone who had argued the superiority of Partnership over Membership in quite emphatic terms this might look like flip-flopping. It is not. I have consistently argued that Partnership’s theoretical superiority could only be translated into practical advantages if we had the self - discipline attributes of the Swiss and leadership qualities in the best of Mintoff terms. Events since 2003 have more than convinced me that we fail on both counts. We have no Swiss type self -discipline (would we vote in a referendum for working a 44 rather than 40 hour week?) and we certainly have no strong political leadership in the degree needed to make Partnership work.

We need external discipline to save us from ourselves and this is the best we are getting from EU membership. For all I know this lack of discipline trait in our genes and our dissatisfaction with the EU’s external discipline could work to Dr. Sant’s favour come next elections. I do not however understand what room for manoeuvrability there is for whoever is elected but to press ahead with the much needed re-structuring, painfdul as it may be, to render our economy flexible and competitive to make the most of EU membership.