Sunday, 23 September 2012

Busuttil breaks what served us well

This Article was published in The Malta Inependent on Sunday - on 23 September 2012
There is no doubt about it. Both main parties have got themselves fully geared for a political campaign this past week.

Why endanger a consensus
that's working?

The Prime Minister’s denial of autumn elections seem unconvincing as in the end mathematics is a science that leaves no room for interpretation. Without a majority in Parliament and with Franco Debono having nothing else to lose, the Prime Minister knows that risking a vote in Parliament on the 2013 budget could only serve to make a bad position worse.

Further proof of the proximity of an election is the action being taken by the government party to sharpen the candidate line-up. Most prominent among these is the candidature of Dr Simon Busuttil MEP, who is considered by many to be a very likely contestant for the PN’s leadership if the current incumbent steps down following defeat.

It would take a performance at the polls disastrous enough to discredit not only the current Cabinet but the whole party administration machinery to allow space for anyone outside the inner circle to have any chance of success in bidding for leadership of the PN in Opposition.

In promoting Busuttil to the front line, the PN is executing a strategy aimed to regain the trust of voters who deserted. PN voters who, disgruntled with the old faces, are willing to vote for change. As the Prime Minister desperately emphasised at the mass meeting last Thursday, the PN can organically deliver all the change voters need. The PN hopes that in Busuttil dissatisfied PN voters would see enough of the change they desire to continue backing their party to stay in government.

Consequently, it is crucially important for Busuttil to act statesmanlike and to define himself as a credible agent of organic change within the party, where the core values persist but the arrogance accumulated over long years of uninterrupted tenure gets washed away and replaced by youth and vigour.

Yet Busuttil blundered big time in his first media encounter following his official announcement that he would stand for election. The first gaffe was not modest at all at a time when the modesty and humility of new blood should have been his hallmark to deliver a striking contrast to the arrogance of the has-beens. Asked about his apparent anointment to party leadership to succeed Lawrence Gonzi, there was only one answer that Busuttil should have given; an outright denial and that any talk of succeeding to Gonzi was out of place.

Yet Busuttil only protested against his being labelled as the anointed one and did not in any way negate his ambitions for party leadership. He inexplicably argued that he would have stood a better chance for leadership if he did not contest the election. Inexplicable, because while it is true that the PL leader has taken this route to become Leader of the Opposition, there is no doubt that a strong electoral showing would make Busuttil’s bid for eventual leadership much more credible. Joseph Muscat’s route to the top was harder without a seat in Parliament, and his achievement is an exception dictated by the opportunity of three successive electoral defeats rather than a model road map.

Still more serious is the second gaffe. The assertion that if Joseph Muscat is elected and delivers what he is promising, then Malta would have to seek an EU bailout within 12 or, at the most, 24 months.

Any suggestion by anyone in high places that there is any possibility of the country being forced to seek bailout rescue is serious stuff. Even if it were true, it is not something that should be said lightly. It could make investors pause and consumers turn cautious. It could become a self-fulfilling prophecy, causing small problems to turn serious and complicated. It could lead to dilution of the strong home bias of Maltese investors who may stop subscribing to government borrowing needs and start preferring to export their savings instead.

The light-handed manner in which Busuttil made such an unverified and highly damaging assertion is nothing short of atrocious. Firstly, the only specific pledge that Joseph Muscat has made is that he will make it a point to reduce the burden of utility bills for households and enterprise and to fund such reduction from efficiency gains in the generation and distribution of water and electricity. Muscat has so far refused to quantify such reduction and has been severely criticised by the PN for remaining so vague about his promises. Evidently, Muscat knows the risks of quantifying such reductions before being able to quantify the costs of energy procurement. Who knows what the price of oil will be after the next election and who knows what hedging commitments will be inherited from the current administration?

Muscat has been emphatic that the promises he is making will have to be funded from economic growth not from parallel taxation or additional borrowing. So how Busuttil could deduce that under Labour the country would have to seek an EU bailout possibly within 12 months is simply incredible.

But there is more to it than that. Even if, hypothetically, Labour would be forced to additional borrowing in order to maintain its pledges, this would still be a million miles away from being forced to seek an EU bailout. Countries who had to seek an EU bailout were those for whom the normal financial markets were unwilling to extend credit at sustainable interest rates. Thankfully, the thrift culture of our households remains strong enough that demand for government stocks at very moderate rates, even for long durations, has been consistently robust. Our banks remain overly liquid with a loan to deposit ratio of around 70 per cent and the far greater majority of government funding is all internal.

It is not only the size of the debt that renders it unsustainable or otherwise. Sustainability also depends on the rate at which government can borrow, the duration for which it can borrow and the source from where it can borrow. Spain has a very respectable national debt to GDP ratio by international standards, even lower than ours and lower than Germany’s. But because Spanish households are in debt up to their ears and Spanish banks have no liquidity to lend, as their balance sheets have been burnt by property lending turned bad, Spain has to borrow from foreign banks at high rates and for a relatively short duration, making frequent rollover of its debt stock an unpalatable experience which adds to macro-economic uncertainty. Per contra, Japan has one of the highest debts to GDP ratios in the world but it can still borrow without difficulty at very cheap rates for long durations as its debt is almost totally subscribed by Japanese savers.

If as a country, not simply as a government, we are net lenders to the outside world how could anyone who aspires to be an eventual Prime Minister even dare suggest that without him at the helm the country will be forced to seek bailout from foreign lenders we do not require to borrow from?

This sounds to me as undiluted political arrogance that has forced erstwhile PN sympathizers to seek refuge in other quarters. It reinforces the distasteful image that Busuttil’s presence was meant to soften.

Busuttil’s gaffes can be attributed to lack of experience of the national political scene but it could also be attributed to something much more disquieting. Is Busuttil suggesting that if Labour wins the next election and he takes over the PN party leadership, he will follow a political style of total obstructionism to the extent of scaremongering and dissuading local savers from subscribing to government bond issues?

One of the successes of the economy is the development of the financial sector. Labour’s consensual approach to all legislation and initiatives has contributed enormously to such success as foreign investors are assured of continuity whoever gets elected. I personally was appointed to the board of governors of the predecessor of the present MFSA by the Fenech Adami administration between 1992 and 1996, when John Dalli as Finance Minister and Lino Spiteri as shadow minister were in continuous consultations about the financial architecture that transformed the former offshore regime to a more internationally saleable onshore structure.

Someone once told me that PN governments tend to do better than Labour governments only because PN governments benefit from a more loyal Opposition!

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