Saturday, 28 April 2012

Let's get on with it!

Any debate on particular ministers or government functionaries has very little relevance at this stage of the political cycle.

What people want to know is not whether Minister Mifsud Bonnici is to be declared incompetent and forced to resign so that Dr Franco Debono can get his revenge and wear a flower garland round his neck.  It is not whether RCC has humiliated parliament by negotiating, discussing or co-operating with foreign governments on how Malta could take important foreign policy decisions without going through the parliamentary process.

What people want to know is whether this government still has a parliamentary majority to finish off its electoral mandate and if not when is the country going for elections to put an end to a public charade which has been going on for many months.

What is wrong with this government is not one particular minister or one particular functionary.   What's wrong is the whole set-up as is evident by the fact that we have now had a dysfunctional parliament  for more than four months and thank God there are two money bills with an expiry date on them that are going to force government's hand one way or the other.

These two money bills are extremely important procedurally but in their substance they are a travesty and a betrayal of reality.

Unless the bill for implementing the budget measures is voted into law by 14th May 2012 ,the whole budget for 2012 read in parliament last 15th November will become undone.   Now in reality that Budget is pretty irrelevant.   The EU has forced government to shave off EUR 40 million from the planned expenditure.  Government has committed itself to take upon its books some EUR 25 million expenditure normally carried by  Enemalta and now has agreed to subsidise utility bills to avoid further tariff increases due to the increase in price of imported fuel.    On top of all it is evident that economic growth will not match what was projected in the Budget.

So all in all it would have been more proper to consider the November 2011 Budget for 2012 as dead in the water and re-present a realistic updated new version thereof.    It would be comical if government were to  be forced to wind up parliament and go for early elections by losing a vote on a budget which in reality is already dead.

The other money bill is the transfer of assets and rights to the new Malita Investments so that the latter can finance EUR 80 million funding for the Citigate project outside the normal central government budget.    This is Malta's first venture in financial trickery called securitisation which has landed many other countries in the distress they are presently in.   Whilst countries like Italy Greece Ireland and Portugal are trying to clean their books so that they can call a spade a spade and force serious economic restructuring which has long been avoided while the securitisation trickery was hiding the perilous state of their finances,  Malta is moving in the opposite direction.

The reason is simple.  Government has no fiscal space in its mainstream budget and has to adopt financial deception by eating today tomorrow's lunch without appearing to be doing so.    And we have been warned.  This financial trickery will also be used to clean up Enemalta and possibly also Air Malta.

How are we eating tomorrow's lunch?  In the case of Citigate by committing future Maltese governments to pay a rent for using the new parliament and by channelling to Malita rental revenue from MIA and Valletta Waterfront which would have normally flown into government's hands.    Complicated as much as it seems in reality the principle is simple.    Spend today and pay later so that we can get the current glory of the spending and leave the stress of meeting the financial commitments to our successors.    It would be the same if the project were financed directly through the Consolidated Fund against straight government borrowing.  But by doing so it would raise the measured deficit and the debt and attract discipline from the EU and rating agencies.

So by creating SPV's  and resorting to securitisation, the projects can be completed and money spent today without the deficit and debt being captured in the traditional statistics.   But the technical deception does not change the stark reality that this debt has to be repaid from future growth.    What growth can be expected from City Gate project which is totally non-revenue generating?   What economic growth can be expected from Enemalta if the money has already been spent and the securitisation will simply change bank loans against government guarantees to loans by an SPV outside the mainstream budget but to which we will have to attach revenue streams that normally came into the budget (once Enemalta can never be reasonably expected to repay these loans from its own revenues).

Well Citigate at EUR 80 million is not exactly petty cash. But Enemalta's EUR 800 million is real money; an amount that if included in central government debt where it truly belongs would raise our debt to GDP ratio to very close what is generally considered as the debt trap threshold i.e. a level of debt which is so large that once reached can never be really repaid.

So the nation wants to know who is going to lead it out of this mess which if sustained could seriously prejudice the people's trust in the creditworthiness of their government and by implication also of its banks that are holding a large portfolio of government bonds.

The money bills in front of parliament are much more important than any motion of no confidence and calls for resignation of this, that or the other.  The money bills force resignation or confirmation of the whole set-up.

Obviously Franco Debono is much more interested in condemning this, that or the other rather than the whole government.   But I am confident there are other Nationalist MP's who are as fed up as anyone with the way their government is managing this country in general and parliament in particular and they have the grey stuff and the audacity to defend the interest of the country by forcing their government to end this farce and face the people at a general election.    I have more confidence in other PN MP's who have been showing their displeasure without Franco Debono style tantrums.  I have confidence they will stand up to be counted when the time comes by voting for the country not for their party.

Monday, 23 April 2012

Modern Titanics (4) - Citigate SPV

I have written profusely about this and why I am against such flowery financial engineering.

SPV's make sense if they are used to finance some revenue generating infrastructure project which can be expected to repay itself from the revenues generated over the long term.    For example SPV's are used to build a motorway which can be expected to generate toll revenues from its users to make the SPV funding feasible of repayment from such revenues over the long term.

An SPV for Citigate project is a non-starter.  Gitgate project is not a revenue generator.   So basically this is pure financial engineer to hide the debts off balance sheet and to spend now and leave the problems for successors.

You may refer to an article I wrote in the blog some time go explaining why this is mere Greek style cooking the books.

However there are other Titanic aspects, beyond the financial trickery involved in funding this project, which government seems to be ignoring and which continue to expose how detached government is from popular feelings.

It is pretty evident that government is considering this project as a platform to base its re-election prospects upon.    The hope is that in spite of the loss of parliamentary majority, government can limp on until this project is ready for launching to present it to the electorate as a signature for government's credentials.    Prime Minister Gonzi had done something similar in 2008 through the opening up of Mater Dei Hospital.

Now look at these two pictures. 

Which of these pictures warms your heart?

Which of these picture connects the electorate to its government?

The City Gate/new Parliament projectWhen visiting a brand new shiny Mater Dei Hospital in the context of a universally free health service the feeling is one of pride, of thankfulness and gratitude about the ability of government to offer its citizens a better and more professional health service.   It worked for Gonzi in 2008 - it helped the PN to snatch victory from the jaws of defeat, even if by the slimmest of margins.

Now when the people will visit a luxurious just completed Citgate project before the next elections, what vibrations would it create in their mind and heart?

It bet my bottom dollar it would be one of anger and resentfulness, cursing the government for building for 'themselves' a luxurious edifice at a great expense and denying the people from one of the few open spaces in Valletta and for giving such trophy project priority over the needs of the people in having cheaper energy and better infrastructure.

Not only the financing of this project is Titanic but also its political motives.

Sunday, 22 April 2012

Hollande for France and for Europe

This article was published In the Malta Indepenent on Sunday on 22 April 2012

The first round of the French Presidential elections takes place today with the more or less foregone conclusion that President Sarkozy and Socialist challenger Francois Hollande will be chosen to proceed to a two-horse race in the second round on 6 May, when the French electorate will take the final decision about the next occupant of the Elysee Palace.

Opinion polls clearly indicate that Hollande will emerge as the outright winner in the second round, even if the first round is likely to be a neck-and-neck affair.
The main reason why the French seem to be leaning towards Hollande, who would be the first socialist President since Mitterrand, is the ‘anyone-but-Sarkozy’ attitude.
The only evident clear supporter of Sarkozy is Chancellor Merkel of Germany and this by itself is a good enough reason why France – and Europe – need to eject Sarkozy from office and elect a French leader who can restore balance in the Franco-German relationship – which affects the whole leadership of the EU and certainly affects us in Malta as an EU member.

Sarkozy’s presidency, beyond the flamboyancy of his personal life, has been a failure on two major policy areas: he failed to deliver on his promises to liberalise and modernise the French economy and, above all, he has failed to offer a balance to German economic fundamentalism about how to resolve the Euro crisis. Instead, Sarkozy has provided shameless cover for Chancellor Merkel and given a French seal of approval to counter-productive austerity policies that accentuate rather than resolve unsustainable imbalances among 17 countries locked in a monetary union.

It is an undeniable fact that France and Germany are, and for as long as one can see will remain, the effective joint leaders of the EU. Britain has decided to keep itself on the margins, considering the EU more a free-trade area than a political project with a distant destination for economic and political union. In so doing, it has denied itself a pole position that would have served Europe well.

Italy and Spain, as the other large economies of the EU, have not matured sufficiently for a leadership role. They still have internal sovereign problems with strong undercurrents for a separation of important regions and a fractured political system that limits the authority of elected leaders to pursue much-needed economic restructuring to maintain and enhance competitiveness. Italy still needs to resort periodically to unelected technical governments to clean up the mess accumulated under elected political coalitions. Spain still has to find a system whereby central government can have control over the financial commitments of its regions, many of whom still expect autonomy in political decisions without fiscal responsibility for their regional decisions.

Poland will eventually be an important large country leader but its recent accession means it has decades of political maturity before it can take a seat at the top table.

The success of the EU depends on a successful working collaboration between the leaders of Germany and France and this seems to work better when their leaders come from different political stables. Conservative French President Giscard d’Estaing and Social Democrat Chancellor Helmut Schmidt worked as closely together as the Socialist Francois Mitterrand did with Christian Democrat Helmut Kohl. Merkel and Sarkozy both come from the same conservative wing and, in the end, Merkel has become dominant and relegated Sarkozy to a mere stamp of approval to make German impositions look like joint French-German initiatives.

The further development of the EU depends on a strong balance in the German-French leadership duo. While Germany represents economic conservatism, preferring thrift over consumption, obsessed with fears of inflation even when a moderate dose thereof could form part of a cure package for economic ills and focused on exports of high-scale manufacturing, France should offer a balance to represent the interest of countries that depend more on services and tourism for their development.

By their very nature, services and tourism cannot have the inflexible conservatism that Germany applies to its rigid manufacturing philosophy. Services, the diffusion of which on an EU-wide basis still faces many barriers, depend on flexibility, flair and a joie de vivre that is more natural to the Mediterranean temperament.

This balance has been missing, with Sarkozy adopting a submissive posture for the imposition of a German style of leadership. This lack of balance has led to a seemingly never-ending euro crisis – and the reason is obvious: a prolongation of the crisis is very much in Germany’s interests. The crisis has reduced the euro exchange rate against the dollar to a narrow band fluctuating between $1.30 and $1.34. It has also reduced Germany’s funding costs to record lows below two per cent for its 10-year bonds.

These great benefits for Germany’s export machine come at the expense of fellow eurozone countries. German competitiveness, accumulated over two decades of sacrifice on the part of its workers and unions – who accepted low or no wage increases as a national sacrifice to integrate the former communist east into one Germany, means that it can be competitive with a euro rate of $1.60. It is super competitive with a rate of $1.30, explaining why Germany has record high employment, record exports and high consumer and business confidence, and why Merkel seems reassured of re-election to the Chancellorship in 2013, even if she will need to change her coalition partners by including the SPD and ditching the FDP, who will probably disappear from parliamentary representation, dominated as they have been by Merkel’s CDU.

Fellow eurozone members of the Mediterranean rim – but not only them – need a rate of $1.18 – the original exchange rate at the launch of the euro in 1999 – to be competitive. So by keeping the rate of the euro at 1.30 Germany is eating the lunch of fellow euro countries, including ours.

A strong French president in the duo leadership of the EU, someone less submissive than Sarkozy, will not give the French stamp of approval to such subtle economic plundering. Someone other than Sarkozy will insist that while the distressed economies of Greece, Portugal, Italy, Spain and Ireland have to accept their share of austerity caused by the restructuring of their economies, they need a show of solidarity from Germany and allied countries (Finland, Netherlands and Austria, in particular) whereby the latter permit a higher dose of domestic inflation through wage increases and greater consumption, which increases the demand for goods and services exported from countries in distress.

This is needed so that these countries can show a fair balance of austerity and growth and keep their electorate on board with the restructuring process. Failure to do so will unavoidably mean that at some point in time one of these countries will tire of austerity, go its own way and ignite a dangerous and contagious process of lack of confidence in the sustainability of the euro monetary system leading to its dismantling under crisis. This would mean that each country will be forced to revert to its old domestic currency and there will follow unavoidably a process of competitive devaluations, beggar-my-neighbour policies and restrictions on the freedom of trade and capital movement that form the basic foundations on which the EU prosperity has been built.

A strong French president will hold his ground and explain to Germany that their austerity-above-all policy is counter productive and will backfire sooner rather than later. A strong French President will make Germany face the reality that they have to choose between dismantling the euro, which nobody wants, or further European integration, including closer economic and fiscal policies and the funding of countries on an EU-wide basis through the issue of euro bonds at least up to the limit permitted under the Maastricht treaty, ie up to 60 per cent of each country’s GDP.

Whether Hollande is the right person to restore balance in the German-French tandem of EU leadership still has to be seen. That Sarkozy cannot restore such a balance has been proved by his failed presidency.

Thursday, 19 April 2012

Modern Titanics (3) - The Euro Crisis

The Euro crisis is simply a time bomb.    All measures taken to date have been aimed to extend the lead time before the bomb explodes but next to nothing has been done to defuse the bomb itself.

I have written extensively about what needs to be done to defuse the bomb.  My latest is the thesis on this subject which may be accessed through this link:

But reality is that Germany as the effective leader of the EU has no real motivation to solve the Euro crisis as the crisis is serving its interest well.    Whilst the core of the Euro Group excluding Germany need a Euro rate of Eur 1= USD 1.18 ( the original launch rate in 1999) Germany can remain export competitive with a rate of Eur1 = USD 1.60.   So the current effective rate of Eur 1 = USD 1.30 is very convenient for Germany but a drag on growth for the rest of the Euro area.    This situation is increasing the structural imbalances within the Euro area.

Result is that whilst Germany has the lowest unemployment rate, the highest exports and the best consumer and business confidence in the Euro area, the rest are suffering because of German intrasingence, eating the lunch of fellow Euro countries.

Presently the Deutche Mark which had an  original joining rate of 1.955 is notionally equivalent to USD 0.67.  Without the Euro system the Deutsche Mark would  be at valued at USD 0.82  involving a revaluation of at least 22%.

With such a revaluation Germany would lose its competitiveness and would permit other Euro countries to put in a growth dimension alongside the necessary austerity to reduce domestic consumption and shift production to export markets including Germany and other countries.

Obviously Germany will continue to persist in its role for which is has been masterfully trained.  It will impose austerity on the others, take whatever last minute measure are necessary to keep the system from blowing up, and meantime continue to make a feast out of the misery of others.

At some point in time the Euro ship will hit the iceberg.   A country in the austerity programme will at some point decide it had enough and start a chain reaction of lack of confidence about whether the rest of the Euro area can stay together as a system.  The whole thing will explode in a major panic crisis that forces countries to revert back to their old national currencies, enter into competitive devaluations, adopt beggar thy neighbour policies and roll back all the advantages of free trade/services and free movement of capital and labour that brought so much growth through the EU mechanism which unavoidably will get frozen.

May be it's time to mint a new Euro Coin

Tuesday, 17 April 2012

Modern Titanics (2) - The financial sector

Complixity of Dodd-Frank reform after the crisis

Everybody knows the world's financial system was on the verge of total freezing and collapse between September 2008 and March 2009.

The causes are plenty but above all it was a failure of regulation.   I had written extensively about this in a study I had published in February 2010.  Link hereunder:

Typically regulators' reaction to this was something which does anything but regulate.   They introduced additional regulation which is so complicated that banks can easily wriggle out of it arguing that it is counter-productive and therefore things should stay as they are.

An indeed things are staying as they were,  as if no financial crisis has ever happened:
  • Banks that were too big to fail are even bigger
  • Bank bonuses are still atrociously and scandalously huge - Barclays' Bod Diamond, who was saved twice by lady luck rather than skill, carries the arrogance flag here
  • Career investment bankers are still taking overall charge of utility banks - the only exception is Moynihan of Bank of America
  • Banks are still growing casino trading sections on the argument that it is difficult to distinguish between speculative proprietary trading and trading through market making arrangements to serve clients.
  • Complex products are still being issued with annoying regularity and they are as complex and opaque as ever
  • Banks in the US quickly repaid back the rescue funds government gave them when they were in the eye of the confidence storm so as to free themselves of restrictions attached to such funding, including remuneration and dividend restrictions, and go back to their old habits as quickly as possible.
After hitting the iceberg and after being rescued by government, banks are back on the Titanic cruising full speed ahead assuming that the next crisis is many moons away, and that in the meantime huge short term trading profits and bonuses can be squeezed; that when the next iceberg will be hit, governments will be there again to rescue them.  Really  a perfect example of moral hazard, a case of privatising profits and socialising losses.  

How free marketers can justify such an attitude defies all logic.

What was necessary was very simple regulation which could have been written on two A4 pages.   Basically the regulation should have said that if you are a bank that takes retail deposits which are covered by the deposit insurance scheme, then you have to be a utility bank and you cannot do any proprietary trading, market making including, but can only trade on behalf of clients and execute clients orders.

Obviously banks would still want to do investment banking which in the good times is very profitable.   Banks that wanted to do this should have split themselves in two, a utility bank and a casino bank and issue different shares to shareholders who can thus decide on how much risk they want to carry by deciding which shares to keep and which to sell.   Similarly subordinated and hybrid bonds would have had to decide to take a cut in coupon to stay with the utility bank or keep the coupon and go with the casino bank.

The Casino bank would have to remove the word bank from their title and can speculate as much as they want but not with insured deposits.  They can speculate with their own investor funds and with high yield bond investors who choose high coupon over better security.

In this case, banks would no longer remain too big to fail and the taxpayer will not be short changed again as happened in the 2008 crisis, where governments took enormous risks to save banks without getting commensurate rewards for taxpayers.

We are still sailing the Titanic towards a bigger iceberg which we will hit in three, five, ten or twenty years time.  I don't know when.  But hit it we will!!

Monday, 16 April 2012

Modern Titanics (1)

Last weekend the world commemorated the centenary on the Titanic tragedy that still makes the headlines on how it was possible that a brand new luxury liner everyone considered unsinkable could go down in perfectly calm weather merely by hitting an iceberg.

The Titanic was a story of hubris, of over-confidence, of arrogance, of too big too fail!!  Have we heard that elsewhere?

The hubris:
Salvage boats with space for only one-third of the passengers.  Who needs salvage boats when on the Titanic?

The over-confidence:
Carry on full speed ahead to reach destination in record time and ignore iceberg warnings.

The arrogance:
Pretending that it was unsinkable.

Too big too fail:
Even as the Titanic was going down many passengers could not believe it and no undue panic occurred until reality could not be denied anymore.  The orchestra continued to play on the star lit decks till the very end.

The Titanic story is a microcosm of many similar stories currently going on around us like:

  • Recent experience of financial crisis
  • The Euro crisis
  • The sustainability of our health services
  • The rigidity of labour markets
  • Global warming
All these are the result of hubris, over-confidence, arrogance and too big to fail attitude.   They are all Titanics in the making.  The icebergs are clearly visible, we are driving head on into them, but there are too many vested interests in the status quo to heed the warning and change course before it is too late.

This week I will elaborate on these new Titanic stories.  Stay in touch.

Saturday, 14 April 2012

Obama vs Romney

The withdrawal of Santorum from the race for the US presidential nominee of the Republic Party has left Mitt Romney as clear favourite for the Republican candidacy to challenge President Obama's hopes for a second four year term at the White House when elections are held next November.

Romney was a reluctant choice.  The election of President Obama in 2008 pushed the Republic Party to the far conservative right demanding less government, more market rule and lower taxes.   This switch was canonised by the takeover of the House of Representatives in the mid-term elections of 2010 when the voters, disappointed that Obama had not yet delivered on his promises, gave the Tea Party far right section of the Republican Party an influential control of the lower legislative branch.

For the conservative wing Romney was too liberal.   But in the end they must have realised that without a moderate candidate to appeal for the centrist independent votes, Obama would have had an easy win against an extreme candidate.  Ultimately the whole Republican Party is uniting behind Romney's challenge as their best chance to make Obama a one-term President.

Obama has delivered on some important issues during his first term.   The capture and killing of Osama bin Laden is the most obvious.   His handling of American involvement in deposing Libya's dictator is a stark success in comparison to the gaffes of his predecessor in Iraq.  The US disengagement from Iraq and quite soon also from Afghanistan are strong credits for Obama.

Even on the economy Obama can relate a good story.  He inherited a very bad hand from Bush.   When  in January 2009 Obama took the vote of Office, unemployment was increasing at some 700,000 per month and the unemployment rate of 7.8% was clearly on a steep upward trajectory. The US car industry was facing bankruptcy.    The financial crisis was roaring on and the capital markets were dropping like a stone.  Consumer and business confidence had disappeared.

Now the economy is growing again at about 2.5% p.a. which though below the average long term trend of 4% is a breadth of fresh air when unemployment has fallen from a peak of 9.4% to 8.2% presently.  Employment is increasing at some 200,000 per month which is just about enough to see the unemployment rate fall below 8% by November elections.  The US car industry has been successfully nursed back to health and saved by Obama strong initiatives from the brink of collapse.

Obama faces however two major platforms of criticisms.    Firstly that his interventionist economic policies in voting stimulus to revive the economy is too socialist, goes against the American doctrine of free market and has delivered huge fiscal deficits and debts accumulating at a speed that is clearly unsustainable and could challenge the world's acceptance of the role of the US Dollar as the principal reserve currency.   In particular this criticism is pointed against Obama's signature piece of legislation through the introduction of wider health care services - generally referred to, disparagingly, by the Republicans -  as Obamacare.

Secondly that the recovery is too slow compared to other recessions and that unemployment is bound to stay high and deficits will explode unless serious initiatives are taken.

Obama can easily dispose of the claims that under his watch recovery has been too slow compared to past recessions.  The 2008 collapse was no normal recession.  We have not seen anything like it in the post-war history and any comparison to previous recessions is unfair unless one goes back to the 1930's depression.   The 2008 financial crisis was not a normal cyclical recession.   It was a collapse of the financial sector which dragged the rest of the economy into a deep and sudden recession.    Such recessions do not follow the normal recovery pattern.   Recovery from such financial crisis demands deleveraging from deep over-borrowed situations by the private sector and this process takes time.  Unless aided by the public sector by taking on its account debts through stimuli as the private sector work down their debts, the recession could turn into a depression.

Whilst it is always difficult to prove the counter-factual Obama should compare his recovery to the 1930's depression and shows how his 'stimuli', his deficits and his interventionist policy saved the US from a depression that in the 1930's lasted a whole decade and brought onto the population untold hardship and social scars.

Regarding the need to have a medium to long term plan on how to work down the deficit once the economy is restored to normal health the difference between Obama and Romney, between the political philosophies of the left and the right, is whether this should be done simply by expenditure cuts as the right believe or whether the approach should be a balanced one involving also an element of revenue increase through higher tax incidence.

This could be seen as a fight between the 99% vs the 1% and should deliver an easy electoral win as whilst the 99% individually have little or no wealth, especially compared to the 1%, individually they have one vote just like the 1%.   So democratically the 99% is 99 times more powerful than the 1%.

But it does not work that simply especially when many among the 99% have an inbuilt aspiration to become part of the 1%.

Obama is making tax fairness as his flag carrier policy for the need to balance the budget in the medium term.   His argument that those earning more than one million dollars per annum should never pay tax at less than 30% is sensible and should inspire the 99% to support him.    The Republicans argue that the rich 1% already pay a tax rate higher than the 99%, that Obama's policies are stimulating class hatred and that more taxes on the rich will scare away investment and employment.

This class hatred argument whenever tax fairness is sought is an old game.   Whilst it is true that on overall basis the rich pay higher taxes and higher tax rates than the poor, it is unfair and socially offensive that at the margin the extra dollar earned through the fruit of labour is taxed at a higher rate than the extra dollar earned through the fruit of capital.   In America the marginal personal tax rate for normal income is 30% but the marginal tax rate for dividend income and Capital Gains is 15%.

The Republicans remain dead set against tax increases, in deference to their loyalty to the 1%, and will only accept tax revenue increases through normal economic growth and streamlining of the tax code to eliminate the intricacies of the tax breaks so complicated that even the IRS have difficulty to understand so that no corporation ever effectively pays anything near the 35% corporate tax rate.

The Republicans want to achieve fiscal sanity by rolling back government expenditure, including the entitlements programs like Medicaid, Medicare and Obamacare which for them are European socialism and alien to the US free market psyche.

Obama needs to be at his best to gain re-election as the 99% do not necessarily vote for their own present interest and are often influenced by the 1% they aspire to become part of as realisation of the American Dream which is now being pedalled successfully by the so many reality TV programs which detach so many viewers from the reality of their daily lives.

Tuesday, 10 April 2012

Mintoff vs Mintoff

There is a vibrant debate going on about the bias or objectivity of the documentary film ' Dear Dom'.  I have not seen it and don't intend to, purely because I have lived Mintoff all my life and as the Maltese saying goes ' lil min tafu tistaqsix ghalih'.

I stand by what I had written about him in 2000 and maintain that notwithstanding the negative side post-31st march 1979 Mintoff should have a reserved place in history as one of Malta's greatest heroes.
I leave it in the Maltese original as published in il-KULLHADD on 9th July 2000.


Mintoff vs. Mintoff

Il-kobor tadak li ghamel Duminku Mintoff ghal Malta sal jum tal-Helsien fil-31 taMarzu 1979 ma jistajichdu hadd. Ikun zball li xi hadd icekken dawn il-kisbiet minhabba dak li gara wara.

Tant hu kbir dak li ghamel Mintoff sal-kisba tal-Helsien li huwa biss Mintoff stess li jistajcekken il-kobor tieghu. U minn dak li ilhi nara u minn dak li rajt fil-monologu sic intervista ta’ din il-gimgha, jidher li anke Mintoff stess wasal fil-final tadan it-tkissir.

Jien nsostni li l-istorja taMintoff ghandha zewg kapitli kuntrastanti. Wiehed jispicca propju f’dik id-data li nkurunat dak kollu li Mintoff kien hadem ghalih ghal 32 sena shah taattivita’ fix-xena poltika. Dan huwa kapitlu taglorja li juri li Mintoff ma kienx biss il-politiku izda kien ir-ruh tal-pajjiz. Dak li bid-dinamizmu u l-perzwazjoni spira tieghu lil Malta biex tohrog mill-era tas-servitukolonjalista u neo-kolonjalista, u tilbes il-mantell tanazzjon liberu. Nazzjon li bbrilla f’Helsinki fl-1975 biex pogga fuq l-agenda politka internazzjonali il-bzonn tapaci fil-Mediterran.

Dan kien kapitlu takisbiet socjali, kisbiet ekonomici u kisbiet intelletwali li kienu ghamluna kburin li ahna Maltin. Kapitlu takisbiet demokratici fejn l-ghaqda tal-haddiem nnewtrallizzat ix-xibka tapoter ta’ min bil-kapital jahseb li jixtri li jrid u ‘l kulhadd.

Ma tmien tadan il-kapitlu glorjuz hemm il-bidu takapitlu iehor iswed. Kapitlu fejn Mintoff ma setax jaccetta il-bidliet li gab hu stess. Kapitlu fejn Mintoff ried jirristringi il-helsien li gab permezz tat-tkisser tal-gagga kolonjali billi jorbtilna spaga ma saqajna u jiddeciedu hu ghalina f’kollox, mic-cikkulata li nieklu sat-television li naraw. Kapitlu fejn Mintoff sa setax jaccetta li la darba ghallimna kellna dritt nuzaw mohhna u mhux nobdu dak li jghid il-mexxej bil-ghama. Kapitlu fejn Mintoff ma gharafx li fil-helsien il-pajjiz jehtieg tmexxija differenti minn dik mehtiega fil-process tal- kisba tal-helsien.

Il-kapitlu taMintoff wara Marzu ta’ l-1979 huwa iswed sew. Kien qisu ribell jiggieled kawza li kienet diga mirbuha u fil-process ikisser dak li kien inbena.

Ibda mit-tkissir tat-Times u l-invazzjoni vjolenti fid-dar privata tal-Kap ta’ L-Oppozizzjoni. Dawn mizuri anti-demoratici li jittradixxu dak kollu li kien iggieled ghalih. Il-kolmo ta’ din ic-cahda intlahqet bir-rizultat tal-l-elezzjoni taDicembru 1981.

Tista ggib l-iskuzi kollha li trid izda l-fatt jibqali dak in-nhar il-maggoranza tal-poplu ghazlet Gvern Nazzjonalista. Kieku Mintoff gharaf is-sinjal taz-zmien kien jikber fl-istutura kieku sab mezz kif din ix-xewqa tal-poplu, fl-ispirtu tademokrazija prattikata, tigi mwettqa.

Minflok zarma l-kredenzjali demokratici li kien bena billi mexxa b’mod ripressiv kontra x-xewqa tal-poplu. U kompla jaghmel dan anke meta fid-deher irrezenja minn Prim Ministru biex mar jisparpalja Lm40 miljun fl-loghob spekulattiv fir-rizervi tal-Bank Centrali, jilghaba taespert f’materja li fiha huwa anqas minn novizz. Kompla jindahal lil Karmenu Mifsud Bonnici b’mod imprudenti li tax cans lil persuna gentili bhal Karmenu jaghti timbru gdid lit-tmexxija tal-pajjiz.

Fi zmien meta l-Partit Laburista mar fl-Oppozizzjoni baqa jindahal minghajr l-awtrotatal-kariga izda biss bl-awtoritatal-persuna, dwar min u kif ghandu jmexxi. B’indhil bhal dan ir-rizultat ta’ l-elezzjoni tal-1992 kien inevitabbli u previdibbli. Li ma kienx prevedibbli kien li Mintoff ma kienx ser jaccetta l-ghazla ta’ Leader gdid li ma kienx imbierek minnu.

U dan il-fatt kien bizzejjed biex mil-bidu nett ma accetax it-tmexxija ta’ Alfred Sant u kien jikkritika kull haga li Sant kien jaghmel. Il-kolmo tadan intlahqet bl-aktar mod kiefer meta Mintoff cahad lil Partit Laburista u bi tkomplija tat-tkisser tad-demokraizija li tant kien iggieled ghaliha, waqqagvern elett demokratikament bl-akbar maggoranza li qatt gab gvern laburista.

Il-kuntrast taMintoff taqabel l-1979 u tawara johrog minn memorja li ghandi takonferenza stampa li kien ta qabel l-elezzjoni ta’ 1976. Gurnalista staqsih xi haga u fil-process uza il-fraziil-partit tieghek”. Mintoff kien dlonk ikkoregih u qallu li hu ma ghandix partit tieghu. QalluJien tal-Partit”.

Qabbel dan mat-tezi li meta hareg ghall-elezzjoni fl-1996 ghalkemm hareg mal-Partit Laburista u bl-arma tal-partit, huwa kellu programm ghalih. Mela issa veru ppretenda li l-partit sar tieghu biex flok ibaxxi rasu ghar-rieda tad-decizjoni tal-Konferenza Generali tal-Partit li approvat biss manifest wiehed, dak ufficjali, jippretendi li jimponi fuq kulhadd il-programm tieghu.

Il-kobor taMintoff taqabel l-1979 tant u kbir li huwa biss jista jkissru. U qed jaghmel dan bl-akbar efficjenza kif taxhieda sewwa din il-gimgha. Veru kaz ta Mintoff vs. Mintoff.

Sunday, 8 April 2012

Resurrection for the euro

This article was published in The Malta Independent on Sunday on 08 April 2012
Not only because it is Easter but mainly because the alternatives to a euro resurrection are too dire to contemplate, it is of utmost importance for European leaders to truly embark on a determined plan to save the currency, reconstruct it and resurrect it to its aspired status as a unifying force and a challenger to the dollar’s reserve currency status.

Unfortunately, recent events involving serial crisis bailouts, debt default and acute stress on the debt management ability of key eurozone countries has put the euro on reverse course. It has become a source of division between EU states and international investors are questioning its sustainability, which is an indispensable ingredient for an aspiring reserve currency.

The risk of the euro dismantling has suffered a severe adverse shift in the short space of three years, considering that in 2009 it pompously celebrated its first decade of relative calm and successful existence. Since then it has embarked on a seemingly unstoppable reverse journey from the unthinkable, to the very remote hypothesis, to the not impossible, to the very improbable, to the quite possible, to the present status of very probable unless something serious is done to restructure its whole setup.

We have arrived at a stage where a hefty prize of a quarter of a million pounds sterling (second only to the Nobel Prize) has been posted by the UK’s Lord Wolfson for the best thesis setting out a practical way of dismantling the euro with the least possible damage and disruption. This week, the work of five short-listed contestants has been published.*

My submission to this contest focused on how to save the euro rather than how to dismantle it. It was not short-listed. It seems that there is a strong wish from UK quarters to bury the euro rather than cure and resurrect it.

The five short-listed contestants have, in my opinion, made a futile effort on how to embark on an orderly process to deconstruct the euro without causing economic chaos. Unfortunately, this is not possible. One of them even dared to emphasise the need to maintain the utmost secrecy about such plans. How this could be done if the plan is publicised through an open competition defeats me.

If the euro is to be wound up, the process cannot be managed. There will be a very disorderly implosion with countries being forced by events to revert to their national currencies under severe stress, leading to the forced adoption of policies that betray the very principles on which the EU was founded. Countries will have to freeze bank deposits, impose strict control over the movement of capital, restrict free trade and, unavoidably, be dragged into beggar-thy-neighbour policies of competitive devaluations to maintain international competitiveness as the domestic money supply will have to be increased and the domestic currency debased for the sovereign to acquire the funds to meet payment obligations on its debt which is forcibly converted into domestic currency, causing a great loss of value to its holders.

It could lead to anarchy and the re-emergence of the military to take over due to the inability of democracy to keep order. Once the military sit on the seats of power there is little to stop the rules of economics being replaced by the rules of military might and a continental depression, possibly forcing a world-wide recession, would be a similar scenario to what brought about major continental repression and conflagration.

Unfortunately, the most influential leaders of euro countries, Chancellor Merkel of Germany and President Sarkozy of France, have proved themselves short of the necessary leadership skills to address the euro crisis. So far, all the measures have been designed to buy time rather than address the real crisis.

The decision-making structure in the EU is deficient and creates serious conflicts of interest between what such leaders need to do to save the euro system and what they need to do to keep their popularity with their domestic electorate on whom they depend for their political mandate at elections in France this spring and in Germany within 18 months.

How can Chancellor Merkel remain popular with her domestic base if she spells out the truth that the euro can only survive through German solidarity with fellow euro countries to heal their economic ills and render growth and competitiveness in Europe much more balanced? Chancellor Merkel has not been showing the sort of vision needed from leaders to pass to the next level of an ‘ever closer Europe’. Her insistence on austerity as the lynchpin of re-sanitisation for the economies of euro countries in distress shows her total blindness to the fact that Germany is itself one of the main sources of instability to the euro system and cannot simply expect the rest to become models of German Puritanism.

Members who give up their monetary sovereignty to form a monetary union can only survive if they operate comparable economic policies, including fiscal and borrowing policies, with homogeneous economic growth to ensure that the individual components all keep moving forward at roughly the same speed. The present euro model has delivered the exact opposite and is therefore clearly unsustainable.

Germany has kept its domestic costs down as its workers and unions accepted a long freeze on wages in a heroic contribution to facilitate the integration of the former communist east into one Germany. This means that whereas Germany is now super-competitive and can easily live with a euro rate of $1.50, most of the other eurozone members need a rate close to the original $1.18 in order to be competitive and Greece would need a rate of below parity to become internationally competitive.
The result is that, in spite of all the euro system instability, German super-competitiveness is keeping the euro above $1.30 which is fine for Germany but not for the rest of the group.

Unfortunately, this situation, together with the additional benefit of ultra low interest for German bonds, is such a short-term boost for Germany, that Merkel has every incentive to sustain the status quo by taking measures that only buy time rather than offer real solutions. But this is untenable and is the best way of ensuring that the euro will eventually implode – with dire consequences that will certainly not be in Germany’s interest.

Anyone who thinks the Greece situation has been resolved through the debt write-off, and that Greece can now become competitive and normal again, is grossly mistaken. Greece, for all the austerity that is being imposed on the most innocent of its people, is still an economic basket case. It will have to default again in two or three years’ time and this time the debtors left for further write-off will no longer be the private sector that has been very dishonestly dispossessed through the last debt write-off. The next one will include inter-governmental debt, including Malta’s loans to Greece under the bailouts. Malta might just as well start writing off the loans that it has been forced to make to Greece when, in reality, it was Germany and its likes that should have carried that burden rather than sharing it with the late arrivals to the euro. The late arrivals such as us did not benefit as did Germany from Greek largesse whilst it was going on when Germany looked the other way as it sold Daimlers and BMWs to the tax-evading Greek tycoons.

How many suicide notes such as this one, left by a Greek pensioner this week, can the system tolerate before it implodes?

“The occupation government has annihilated all traces for my survival, which was based on a very dignified pension that I alone paid for 35 years with no help from the state. And since my advanced age does not allow me a way of dynamically reacting, I see no other solution than this dignified end to my life, so I don’t find myself fishing through garbage cans for my sustenance.”
The euro political dynamics will change after the French elections this spring. Whether Sarkozy is re-elected, or is replaced by Hollande, France will adopt a less docile stance towards Germany. It will insist on a substantial increase to German wages as an indispensable ingredient for balancing out the austerity imposed on countries constrained to rein in their fiscal deficits and therefore needing export demand from German consumers to deliver complimentary growth to austerity, so that, unlike the Greek pensioner, the rest of the EU can see the light at the end of the tunnel.

For further elaboration on what needs to be done to save the euro, see the link below to my thesis** on this crucial subject for the protection of our economic well-being.



Friday, 6 April 2012

What happened to the laws of mathematics?

Following sharp increases announced to the retail prices of fuel at the pump and gas cylinders Government has announced that

"despite the increase in oil prices, it will absorb increases in energy costs to keep electricity prices stable."
What happened to the laws of mathematics?  If government had to cut forty million euro from its recurrent expenditure to deliver what the EU is demanding according to the fiscal pact, how can it now absorb such additional expenses to keep utility rates stable?

Two possibilities come to mind:

  • either the price increase of fuel and gas is subsidising the increased costs of electricity ( which government has denied).
  • what government is absorbing on its own bills on this side of the elections, will as happened  in 2008, be more than undone on the other side of the coming elections.
Take your choice!

Monday, 2 April 2012

Leading by the wrong example!

Watching CNBC news this morning the scroll said :

German Budget deficit to drop to 0.9% of GDP in 2012 - Finance Minister
That is leading by the wrong example!!  That explains all my arguments in my previous post about why Spain and other countries in distress should gang together and refuse the crazy EU fiscal pact to have permanent neutral budgetary positions.   Ireland has a good chance to do so in their referendum.

Germany should not be trying to balance their budget at this point of the economic cycle.  They should be expanding their deficit by putting more spending power in their consumers' pockets so as to balance out the contraction of economic activity of countries in distress whose austerity is causing contraction of domestic demand.

The Euro can only survive if the chronic surpluses and deficits are balanced out.   We cannot all aim to be Germans and aim for chronic surplus.   Germany's surplus is somebody else's deficit.

Germans are attempting to defy the rules of mathematics!