The America`s Cup of The Euro

25^th May 2007

The Malta Independent - Friday Wisdom

 

The America’s Cup is for yachting what the World Cup is for football. Contenders from all parts of the world, supported by robust corporate sponsorships, battle it out in the Louis Vuitton competition to decide who among them will win the privilege of challenging Swiss-based Alinghi, the winner of the last edition of the America’s Cup.

But whoever wins the Louis Vuitton Cup, whether Luna Rossa or Team New Zealand, who will be contesting the final, will have very little time for celebration. Because the Louis Vuitton is not the real objective but merely a means to get the right to challenge for the real prize; the right to challenge Alinghi to see who will be the 2007 winner of the America’s Cup.

This is an appropriate analogy with our situation vis-à-vis the euro. Our having passed the Maastricht criteria test and given the all clear to join the euro on 1 January, which will be formalised at the ECOFIN and Heads of EU governments summit next month, is like our winning the Louis Vuitton Cup. It is satisfying, but it is not the real prize. It is not the America’s Cup! But it does give us the right to challenge for the real prize of making efficiency gains through attraction of new investments needed to help the restructuring of our economy to make it more flexible and more competitive.

I can only repeat what I had stated in my contribution of 5 January 2007, in this column, entitled The challenge comes after:

“The true challenge for making success of the euro will not be 2007. It will have to be a few years down the road when we can draw some conclusion about the success or otherwise of our euro project. Unlike what many might think, the euro challenge is not in the preparations for smooth changeover, which will be largely forgotten a few weeks after the event. It is in the process of the unfolding years after the event that will decide whether the euro has enabled us to accelerate the restructuring in order to preserve our competitiveness.

“2007 is pretty much a transitory year. Being the last full year before the latest date for holding fresh elections, governments tend to go soft on the restructuring process. Such issues like restructuring of the health services and a thorough overhaul of our fiscal system will have to wait till after the next election. The government has no tools to manage the economy in 2007. Fiscal policy needs to remain restrictive to pass the ultimate euro test. Monetary policy has effectively already been ceded to the ECB, which cannot be expected to fine-tune its monetary stance with Malta in mind. Exchange rate policy has never been used to manage the economy since 1992. It has been rather meant to deliver an anchor of stability to our external trade.

“All in all, therefore, 2007 will be a cruising-along year. The real challenge comes after. Making success of our joining the euro depends on our determination to continue restructuring to avoid waste, as is currently inherent in our public services, and accepting that there is no such thing as a free lunch. The euro is certainly no free lunch. It is a veritable challenge.”

The real challenge comes after. Just as Luna Rossa or Team New Zealand do not consider winning the Louis Vuitton Cup as their real objective, we should not consider being accepted to join the euro as our ultimate destination.

For Luna Rossa and Team New Zealand their real objective is beating Alinghi and carrying home the America’s Cup. Without this the Louis Vuitton success would be nearly meaningless.

For Malta, our euro objective is to use it as a catalyst to stimulate our re-structuring process, to make our economy more flexible and more competitive. It is the attraction of quality investment to make such restructuring smoother and less painful. It is the acceptance that nobody owes us a living and that we have to shed our wasteful practices if we are to win in the globalization game.

Thankfully we are being blessed with the opportunity to conduct such restructuring in the context of a booming European economy, which is surprisingly on the upside beyond anybody’s reasonable expectations.

Luna Rossa, Team New Zealand and Alinghi will know soon enough this summer who of them will go home carrying the America’s Cup and signing fat commercial endorsement sponsorships for the years ahead. For us it will take a few years down the road before we know if we can really celebrate winning the America’s Cup of the euro.