Friday, 28 August 2009

Is the Recession Over

28th August 2009

The Malta Independent - Friday Wisdom

History books will show that this was the most violent recession since the War, distinguishable by the speed and the depth of the decline in economic growth in the last two quarters of 2008 and the first quarter of 2009.

Normally recessions set in more gradually and arrive with a degree of predictability. This one was deep and sudden. Normally recessions are the result of the normal cyclicality of economic activity. During recessions the banking sector remains strong and acts as a catalyst, through the supply of cheaper and easier credit, to pull the economy out of its lethargy by stimulating investment leading to sustainable economic growth. This recession is different because it was the banking crisis, especially following the Lehman collapse on 14 September 2008 that led the general economy into a recession. This time round the banking system is still very fragile to offer much support to the general economy.

So all prognoses is that this recession will be harsh and prolonged and recovery will be gradual and fragile with considerable risks of relapse. The argument was that growth before the collapse was fuelled by cheap and easy consumer credit, especially in the Anglo Saxon countries where domestic savings was negative as households spent more than they earned by borrowing second and third mortgages to cash in for consumption the rising values of their residential properties.

Now that the recession forced property values to collapse many households in the Anglo Saxon world are left with negative equity on their residences and consumers have to shift from negative savings to substantial positive savings in order to rebalance their finances. This is good, indeed necessary, for building future growth on sustainable foundations but in the short term it does not help a speedy recovery. In western economies consumer spending is a major part of the economy and if the consumer has to go slow it is likely that the whole economy will have to go slow. Unless....!

Unless the absence of growth in retail consumption in the Anglo Saxon economies is compensated by foreign demand from countries like China, India, Germany and Japan where traditionally the consumer has been more conservative and has capacity to increase consumption without incurring unsustainable debt.

The problem is that these countries are traditionally exporting countries and their economic growth has for decades been built on competitive export industries to meet foreign demand rather than on vibrant domestic consumption. So changing their economic model from export led growth to domestic demand growth, though crucially necessary for sustainable global recovery, necessitates a culture change that cannot be engineered just like flipping a switch.

So by all logic the recovery will be slow. The improvement in the financial asset prices since last March is mainly because last March the markets were pricing the end of the world. Now that governments’ intervention has stabilised financial markets markets can merely price a recession. So whilst the financial markets have shown great improvement since last March going forward to the peak levels of October 2007 will take much longer.

Given this scenario how does the news that Germany and France have seen economic growth in the second quarter for 2009 and are now technically out of the recession, fit into this big picture? Strange as it may seem it does!

Germany and France have not suffered a collapse in their property markets like the economies of the US, UK, Ireland and Spain. Their consumers have always maintained healthy savings ratios. So their consumers have much more capacity to increase consumption if they get incentivised to do so like for example through incentives to accelerate the changeover to more fuel-efficient cars.

But what is particularly relevant is that the growth registered in the second quarter was very minimal, some 0.1 per cent or 0.2 per cent and follows two quarters of sharp contraction.

So when it is said that Germany and France are out of recession it does not mean, as many seem to have understood, that their economy is back to pre-recession levels. It means that following two quarters of contraction their economy has started growing again but from a very low base.

Especially following two quarters of sharp contraction in growth as experienced between September 2008 and March 2009 re-establishment of small growth between April and June 2009 could possibly mean that manufacturing economies like France and Germany, who in the previous six months had suffered lack of orders as retailers and wholesalers run down their stock levels, have seen an influx of orders as stock levels were rebuilt.

Welcome as the news that Germany and France are technically out of recession is, reality does not change much as their economies are still knocking along a low bottom. But at least they are no longer in freefall and it helps to improve the psychology of the consumer. After all the recovery has to start from there!

Sunday, 23 August 2009

Shock During the Lull

23rd August 2009
The Malta Independent on Sunday

Mid-August is normally a time when regular columnists struggle to find topics of interest to keep their readers engaged. Last week proved anything but a typical dry wilderness for interesting news. Let me share three topics with you, which shocked me at a time when I should have been relaxing.

I have been following the serialisation by Labour MP Evarist Bartolo of the process which led to the award of the new power station equipment contract to a Danish firm proposing diesel powered equipment, which is anything but cutting edge in green technology. Bartolo utters no platitudes and surely avoids generic unsupported allegations typical of many cross-political accusations where wrongdoing is suspected but not proven.

Bartolo gave a detailed chapter and verse account of how the successful bidder, through their Malta agent, had privileged, unfair and inappropriate access to internal Enemalta personnel, which, at the very least, gave them additional time to prepare their bid but, more probable and more seriously, helped them influence the technical specifications of the tender to their advantage.

What was particularly shocking in the latest revelations was how government shifted from its original position insisting on gas fired green technology that could be expected to stay well within emissions limits, as they may be tightened up over the lifetime of the equipment, to diesel powered equipment that could well breach such emissions limits as they are expected to evolve during the economic lifetime of such equipment.

Such revelations in a country where good governance has any meaning would have led to either an outright denial accompanied by legal proceedings for slander or libel, or to full scale open and rigorous investigations. But because our governance standards still make many Third World countries surpass us, the only reply we got was perfect silence.

It is the same perfect silence that accompanies claims of schools using their pricing power to increase fees far higher than is justified by the rate of general inflation. I have experienced this as I have been notified that next year’s fees of a private school will be increased by 10 per cent across the board. The school is also seeking to finance new investment for expansion through donation type of contributions, which will knocked off the last bill when the child reaches school leaving age. This “donation” or “advance payment” is not obligatory but, strangely, has to be “opted out” rather than “consented in”. Is this not a deliberate attempt to embarrass parents that opt out? Is this fair when many parents have to struggle in these hard economic days to keep up with current commitments let alone take on new ones?

Schools have pricing power. Parents who typically put their children’s interest first, will make whatever sacrifices are necessary to provide continuity in the children’s educational process rather than shop around for the cheapest alternative. But it is not fair that schools treat parents like sitting ducks without any protection from any regulatory agency that should authorise increase in fees beyond the level of general inflation.

How can we on one hand expect workers to dismantle the partial indexation of their wages through the COLA and then allow operators who have pricing power to use it without any inhibition? The argument that many schools are run on a non-profit basis is no justification for a free hand in price setting. Like all commercial organisations that lost their pricing power during these recessionary days, the focus of their economic survival has to be cost cutting and innovation. Those who simply take the pricing power route need to be regulated.

The last shocker for the week was Minister Austin Gatt finding time in his busy schedule to proclaim in an op-ed in The Times that the establishment of the Malta Transportation (Regulatory) Authority, through the consolidation of the Malta Maritime Authority, the ADT and the Dept of Civil Aviation, will, next year, solve all the travails we have been suffering for decades in our public transport services.

The Minister assures that next year we shall see a radically transformed public transport service, with modern buses, a more efficient bus network, and a private operator with ability and motivation to improve the service and increase patronage. The reform of the unscheduled and taxi service will be completed (with true liberalisation I hope), water taxis will be introduced and the intra-harbour ferry service will be strengthened and extended. All this while building the most important road arteries from the Freeport to San Lawrenz in Gozo.

Why was I shocked at such good news, you may ask? I was shocked because it reminded me of my days at the bank when regular loan defaulters used to demand as of right fresh accommodation, promising free drinks tomorrow to wipe clean yesterday’s faults.

This government is not exactly a new kid on the block. What the Minister is promising for next year has been promised before and should have been in place a long time ago. This government has an inverted sense of priorities. All that the Minister is promising should have been introduced before speed cameras, wardens, VRTs and all the rigmarole that is giving us the worst of both worlds, i.e. expensive discipline on sub-standard roads without any real alternative to private transport.

And before embarking on such grand projects, the new Authority should first solve the problem of reserved parking for residents. Until the time comes when residents start paying local taxes, this concept should be abolished. There is no taxation without representation; equally there should be no rights without taxation. Unless the residents pay something that I don’t pay for, I should have the same right to park anywhere like they do.

What is also shocking is any expectation that the mere merger of various authorities will deliver what was elusive when they operated separately. Set-up and structure are important, necessary, but not sufficient. Equally important are the attributes of determination, managerial ability, transparency and a sense of urgency in efficient execution with political support to do what’s right rather than what’s popular.

Enough shocks for August please!

Friday, 21 August 2009

Politicians in Denial

21st August 2009

The Malta Independent - Friday Wisdom

Healthcare is back in headlines. As the global financial crisis loses its power to surprise and the financial confusion and economic softness become a state of normality, healthcare is dominating the news.

In the USA healthcare reform was President Obama’s key campaign pledge and there is no surprise that he is showing a sense of urgency in delivering the reform as early as possible in his mandate. He knows this is an issue which would ruffle the feathers of the many who have vested interest in the status quo; a situation where millions of US workers and their dependants are living without health insurance and without the comfort of free or subsidised public health care service as we are used to in ‘socialist’ Europe.

President Obama is experiencing a live confirmation of Macchiavelli’s advice to The Prince that “there is nothing more difficult, more powerless to conduct, or more uncertain in its success than to take the lead in the introduction of a new order of things because the innovators have for enemies all those who would have done well under the old system and lukewarm defenders from those who might do well under the new system.”

The Republicans know that if they block Obama on the healthcare reform, they can render him a lame duck for the rest of his term. Added to the problems of sorting out an inherited financial mess of gargantuan proportions, this would give the Republicans a fair chance of turning Obama into another Jimmy Carter. For the Republicans it is relatively easy to whip up public sentiment against the reform, even from those who voted Obama into his presidency, if they convincingly argue that creating a public health care system which offers cover to the uninsured will involve raising taxes on those who are already insured or force on them reduced benefits as private insurers will have to compete with publicly subsidised competition.

In the UK we had a Conservative spokesman, speaking in support of the Republican campaign against Obama’s healthcare reform plan, who described the British NHS as a disgrace which he would not wish on his worst enemies. He urged Americans to obstruct Obama’s plan to create an American sort of NHS.

This was quickly picked up by UK Labour Prime Minister Gordon Brown, who faces an election in less than nine months, warning the British public that a Conservative government in waiting would dismantle the NHS. UK Conservative Leader of the Opposition David Cameron was quick to distance his party from the comments from one he described as an eccentric outlier, and re-affirmed that a Conservative government would not only defend the NHS but would ameliorate it and strengthen its benefits.

In Malta we have a strange situation. Our politicians are the only ones who overtly profess that our health service, with its universally free entitlement benefits, is sustainable for the long term. Any suggestion coming from economists, central bank, international rating agencies, civil society, political observers as well as retired politicians is politely pooh-poohed. This week we had Dr J. Psaila Savona, a former PN Parliamentary Secretary, publicly arguing that our health system in its present format is unsustainable.

Could it be that our politicians are right and all the rest are wrong? Could it be that while the strongest country in the world is struggling to offer some sort of cover to many who are excluded, and the contributions for those that have cover average about USD12,000 per annum (of which two-thirds are funded by employers), we in tiny Malta are so clever that we can keep a cutting edge health service as a universal social entitlement?

Could it be that in Switzerland, the State only subsidises the health insurance premium of those who are in poor social conditions that cannot afford to pay it and that all health service are then rendered commercially at a charge to the insurance company who normally imposes stiff annual excess limits on the insured (similar to the excess on the motor insurance), and that we in Malta have discovered a formula which has escaped everyone else?

Most unlikely I would say! It is more likely that Maltese politicians read Macchiavelli more attentively and therefore prefer to do what’s popular rather than what’s right.

Someone must however explain that this artificial story cannot have a happy ending. We can pretend for some time but not forever. Reality finally catches up.

Unless we reinvent our health system, one, or a mix, of three things could happen. The government may have to raise taxes to spread the cost of ‘free’ services on the generality of taxpayers. Or government could finance the spiralling cost of free health care, as the population ages and medical intervention would be more like expensive heart surgery rather than run of the mill appendicitis, by running higher budget deficits. Or government will leave everything as is but ration the service rendering it nominally free but practically inaccessible because of long waiting lists, overcrowded wards, and similar deterioration in delivery of health services forcing many to seek private healthcare services.

Raising taxes is unpopular and governments will resist it as hard as imposing fees on health services. Running higher deficits runs foul of our Euro obligations. So by default we will see unofficial rationing of health services. Indeed we are already experiencing it with the roll-back of primary services at regional health centres, long queues at Emergency Dept., and years’ long waiting list for non life threatening surgery.

By default our health service will go down the same route as pour pension system which remains universally applicable but inadequate for most. Just as most have to save separately for addressing inadequate public pensions, most already have or will soon have to take out private health insurance to protect their families from the inevitable rationing of public health services.

And our politicians will continue to crow that they honoured the pledge of keeping public health service universally free. And most of us will continue to smile wryly at our politicians in denial.

Friday, 14 August 2009

Growth Jobs and Social Cohesion

14th August 2009

The Malta Independent - Friday Wisdom

The Pre-Budget Document 2010 issued with this title makes heavy reading during this August lull. Even in the best of productive times the nature of the document, its content, style and presentation is too technical for wide consumption.

It is clearly meant for background setting for more meaningful discussion among social partners at the MCESD. Its timing was designed to ruin the holidays of the economic consultants of the constituent MCESD organisations who have to digest the extensive content over the summer lull to be able to explain it to key executives of their respective organisations before they start making their case in Pre-Budget consultations between the government and the social partners.

Anybody looking for policy choices or specific measures that will feature in the 2010 Budget should not waste their time reading this document. The document is a technical exposition of the current state of affairs of the Maltese economy, a good attempt to benchmark our performance with five other EU states that are roughly at our level of development (Cyprus, Czech Republic, Portugal, Greece and Slovenia) and an explanation of the policy menu from which choices will eventually have to be made to achieve the set objectives.

However for those patient enough to comb through the document there emerge some clear facts which should spark a more serious attempt to tackle the basic defects of our economy. Put in simple layman’s speak why is it that in spite of our relatively low wages and competitive efficiency rates we are lagging behind the growth record of peer countries like Cyprus? Why should Cyprus with lower relative labour productivity have a per capita GDP 92.5 per cent of the EU average compared to our 76.4 per cent? In basic terms, why is Cyprus’ growth potential better than ours?

Obviously these are complicated issues which do not merit simple answers. But unless we keep it simple we would lose the greater part of the audience. So at the expense of some over-simplification I point to two clear specific reasons why this is happening.

Firstly our activity rate (the ratio of people of working age who are actually working or seeking employment) is 58.8 per cent compared to 73.6 per cent in Cyprus. This low activity rate clearly limits the growth potential of our economy. In spoon feeding terms if more people are engaged in productive work we would produce more on a national basis.

Secondly, while we produce more graduates than Cyprus on a relative basis, when it comes to Educational Attainment (encompassing post secondary education in general and not simply at university level) we are the lowest in EU and a far cry from Cyprus. Our 27 per cent of the population in the 25-64 age group that has upper secondary education or higher, compares poorly to the EU average of 70.8 per cent and Cyprus’s 73.6 per cent.

At the expense of over-simplification I prefer to focus on these two major reasons why our growth potential is being hampered so that rather than moving towards the EU average of GDP per capita we are being overtaken by other countries particularly by Slovenia in the year 2001 and Czech Republic in 2006.

And also at the risk of over-simplification I would conjecture that the major reason why the activity rate has remained low in spite of various attempts to lure females back to work after motherhood, attempts which have recently included fiscal incentives, is largely related to the lack of availability of child care centres with facilities and schedules which would permit minimal inconvenience for the children and offer peace of mind to mothers at work.

Should the government offer child care facilities as a social service or should the government act simply as a facilitator promoting investments in such child care facilities by the private sector through fiscal incentives? Should our schools start offering child minding facilities with extra-curricular activities after normal school hours so that parents can pick their children from school after work rather than having to disrupt their work schedule to be home early afternoon? Should our schools start offering a summer schedule to keep our students engaged in extra-curricular activity in the holiday seasons?

Can we find out what Cyprus are doing to achieve such a high activity rate and why our efforts in this regard have so far failed?

Regarding educational attainment it is an area where I thread to offer any solutions. My knowledge of the sector is superficial. Yet the results are clear. Those who make it to university make us proud. But for the rest, i.e. the large majority, we are losing too many by the wayside. We are simply having too many rejects and failures of students who do not go beyond secondary level of education.

I am a firm believer in vocational training. I am a dedicated disciple of those who feel that they can mix work with vocational study as our banking and insurance sectors have been doing for decades. Those who do not make it to university, or who do not like the university feeling, must be offered full time or part time vocational training. We have started doing something but clearly it is not enough. We have to do more, we have to offer more choices for vocational disciplines and we must somehow make it attractive for students not to give up their formal education at age 16.

If we pick up these two messages from the Pre-Budget Document 2010 we would be going some way towards generating growth, jobs and social cohesion on a sustainable basis for the longer term.

Sunday, 9 August 2009

The Queen`s Question

9th August 2009
The Malta Independent on Sunday

“Why did no one see the crisis coming?” Queen Elizabeth is reported to have asked one economic practitioner during a public audience.

The question in its simplicity challenges the basis on which economic doctrine was built since Margaret Thatcher and Ronald Reagan threw Keynesian doctrine in the garbage bag and focused economic thinking on the merit of the market’s ability to resolve all problems and lead to sustainable economic growth.

The Queen seems to have a habit of asking the right question in the most simplistic way. During the last London G20 photo session when Prime Minister Berlusconi was calling President Obama from some distance away, the Queen turned and asked all around her “Why has he got to be so loud?” Recent events exposed how, in spite of mani pulite, Italian politics is still dominated by string-pulling favours including procurement of escort girls and the promotion of such beauties to front line political roles. They have shown that Berlusconi is loud in more ways than the most obvious sense.

Still, the question as to why no one saw the crisis coming is a question that has been asked by many. How is it possible that practically in the time it takes to bat an eye-lid, the world economic scenario could change from one of ebullience into one of extreme gloom and uncertainty? How is it possible that a world, which one year ago was living with record oil prices fuelled by demand as a result of strong economic growth, could so suddenly turn into crisis where the world financial system would have collapsed were it not for very extreme measures taken by governments, which involved the recapitalisation of large banks and the orchestration of enormous stimulus fiscal packages, to keep the economy from falling into a depression?

In putting such a question, the Queen made an implicit assumption that, however, is unsustained by historical facts. In asking how no economist had seen the crisis coming, the Queen was expressing her belief in the false claims made by modern economists that economics has predictive properties setting it aside from other social sciences and putting it closer to the natural sciences that can make precise forecasts, such as when the next eclipse of the sun is due, or when Venus will be closest to earth.

This time last year I wrote a piece about futurology, economics for the next 50 years, for a local media agency company that was celebrating its 50th anniversary since inception. This is how I started my contribution:

“Economists are generally better at explaining why yesterday’s prediction about today were not realised than in making accurate forecasts about tomorrow. That is a health warning readers would do well to bear in mind.”

This is not to say that in any way I claim any merit for foreseeing the crisis, or at least the acute extent of it. Far from it! It is just that I was underlining the predictive limitations of economics in spite of all the sophisticated mathematical models that lead many modern economists to believe in their predictive powers.

Indeed, very few economists did actually foresee the crisis. Among them, Dr Doom Nouriel Roubini and Black Swan Nassim N Taleb risk being accused, in the fullness of time, of being permanent bears that, like the dysfunctional clock, show the right time twice a day. George Magnus, chief economist of UBS, was more accurate, as it was he alone, in the first quarter of 2007, who explained the risk of the housing problem in the US leading to what is technically known as the Minsky Moment, i.e. the situation where liquidity dries up as the banks start distrusting each other because of their exposure to an asset which has gone bad.

But even these ‘special ones’ never really predicted that the fallout of the US housing crisis could be so big as to cause a worldwide financial crisis leading to the most severe post-war recession.

The point is that rather than a natural science, economics is not different from other social sciences. Indeed, J M Keynes, whose teachings are again becoming fashionable following failure of the doctrine that the markets can take care of themselves, had said, “economics is a moral and not a natural science”. More recently, George Soros, the hedge fund manager par excellence, has been building up the philosophy of reflexivity in his various publications, explaining that human behaviour impacts economics, which in itself influences human behaviour through the concepts of greed and fear, the animal spirits that were first explained by Keynes.

Capturing such reflexivities through mathematical models in an attempt to render economics as a natural science is an illusion.

The reason why no one really saw the crisis coming is that disequilibria were building up gradually over such a long period of time that humans made the false assumption that we could live with these disequilibria as a state of normality forever. We believed we could have the inverted logic where the poor peasants of China were financing the excess consumption of the rich US consumer and that this could go on forever, as the excess consumption was helping the Chinese peasant to find a more remunerative and stable job in the cities.

Such artificialities can last a long time but not forever. At some point in time, like the straw that broke the camel’s back, the whole system will implode. But until it does, most of us are tricked into a state of artificial normality. That’s why, Your Majesty, no one saw the crisis coming. Because human weakness makes you see what you want to see and not the reality hidden beneath the surface. Because while the party is going on, regulators, politicians and their economists find it so difficult to take away the punchbowl because if they try to do so, they will be punished by the party revellers who vote in the democratic process. That’s why they say every country gets the government it deserves.

Friday, 7 August 2009

What Shape the Recovery

7th August 2009
The Malta Independent - Friday Wisdom

By all reasonable indications the international recession, which started in the 4th quarter of 2007 and went into a free fall in the second half of 2008, has probably bottomed out in the second quarter of 2009 and is currently on a path of recovery.

Malta’s economy works with a time lag of about six to nine months so will probably not experience any feeling of recovery before the first half of 2010.

The big question however remains about the shape of the recovery. Whilst any recovery can only start after a period of stabilisation where things stop getting worse, it will make a big difference for people’s way of life whether the recovery is quick or protracted.

In this regard economists speak in terms of an alphabet soup to define the shape of the recovery.

The optimists speak in terms of a V shaped recovery where the ascent will be as steep and as quick as the descent, meaning things will get back to normal pretty soon and we can look back at a rather longish recession stretching six or seven quarters as a salutary experience to iron out excesses in the financial sector, force corporate to get more efficient through determined cost cutting and form a solid basis for sustainable growth for the longer term.

The pessimists speak of an L shaped stabilisation rather than a recovery. They argue that the economy had grown unsustainably based on over-consumption fuelled by easy credit, which has brought about the near collapse of the banking system. Consequently the decline is in essence a return to a state of normality where consumers will have to save more and spend less in order to restore health to household budgets. This means that the ‘new norm’ is an economy operating at a permanently lower level than its peak of late 2006 early 2007, and any attempt to accelerate its recovery will be futile, as it will not give time for the formation of a solid base for a truly sustainable growth path. So the world must accept that recovery will be a very long and slow process.

The in-betweens speak of a W shaped recovery. They argue that the financial crisis caused the economy to go into an acute and abnormal freefall and that once credit is now slowly slowly flowing again, the recovery from the free fall part of the recession will be reasonably quick, but beyond that the economy will struggle to go back to the peaks of 2006/2007. Consequently, while we may develop some sense of quick growth, through restocking and resumption of suspended investments in the first part of the recovery, the path will not be a straight steep ascent. The in-betweens propose an escalator type of recovery with occasional vertical falls through economic lift shafts as mixed economic indicators will occasionally force investors’ and consumers’ fear to overtake greed.

So in a nutshell that is the alphabet soup of the recovery. Will it be a V? Will it be an L? Or will it be a W?

The ongoing domestic debate about the future of our COLA system of legislated wage increases can only be meaningful if we make certain assumptions on the shape of the international economic recovery.

If we believe like the optimists that recovery will be V shaped we may continue as we are, as resumption of strong economic growth can absorb the increased COLA induced costs without compromising competitiveness.

If we share views with pessimists that the (non) recovery will be L shaped than there is not much to discuss. The present COLA system will compromise our competitiveness forcing factory closures and a frightening rise in unemployment where Unions will drop their resistance to dismantling of COLA as job retention will become more important than wage benefits.

These are extreme views and the likelihood is that we will have a W shaped recovery, which however still allows for a great variety of dimensions from a flat oriented W to an ascending type of W.

It is here that the social partners who brokered the COLA with government approval way back in 1990 must ask themselves whether the existing mechanism is a help or a hindrance to smooth industrial relations and general competitiveness.

There is no doubt that elements of the COLA will have to be retained under all circumstances. Non-unionised employees have little protection to maintain the true level of their wages without COLA and joining a Union is not a free option for everyone in practical terms whatever the theory of constitutional rights.

It is furthermore difficult to see the Unions making concessions at this stage when the COLA mechanism is expected to deliver a substantial wage increase to all employees to make up for the spurt in post 2008 elections inflation.

Yet whilst hoping for the best we must be prepared for the worst. In the pre-budget discussion government should do more rather than merely express the view that it will not change anything unless there is the agreement of all parties. Government must be active in brokering such an agreement , which, whilst rewarding employees for the already suffered loss in the real value of their wages, also protects employers from drastic loss of competitiveness in a harsh economic environment.

Part of the restructuring of the COLA system may have to involve government making a one-off contribution to bring these conflicting objectives into a reasonable equation, but only if for the future the system is overhauled to reduce its own impact on future inflation and competitiveness.