Varied musings

This article was published in The Malta Independent on Sunday- 21st April 2013

The President’s speech

A lot of smoke has been raised about the partisan nature of the speech that the President read at the opening of Parliament. What is all the fuss about?

It is a tradition that on such occasion the President reads a speech written or approved by the Prime Minister that outlines the key points of the election manifesto approved by the electorate. There is nothing more partisan than an election manifesto, so there should be little surprise that the President’s speech on such occasion has, by its very nature, to be somewhat partisan.

When there is a continuation of the same party in government, usually no issue arises. When there is a change of the party in government, this could create some discomfort for the President who would have been appointed by the previous government but has to read the speech prepared by the new administration which, of necessity, is critical of the previous one.

But this in no way renders the President partisan. Everyone knows that the President is reading an address prepared for him not by him. The Queen in the UK has been doing it for over 60 years and it is widely accepted as part of the democratic tradition. Nobody infers that the Queen is partisan. Acting President Pawlu Xuereb, at the opening of Parliament in 1987, had to read a speech very hostile to the previous Labour administration of which Xuereb was a key component. Nobody interpreted the speech as if Xuereb was repudiating his political credo. No fuss was made about it.

I find it odd that the President himself has expressed the view that this tradition should be abolished and the speech should be read by the Prime Minister himself. I disagree. Tradition counts, and should not be thrown out of the window because the current incumbent of the Presidency feels uncomfortable. What should have made the President and all his predecessors uncomfortable was President Emeritus Fenech Adami addressing a political meeting on the eve of the last election. That indeed was an act of disrespect to the Presidency.

Lady Thatcher

Any person who forces the world to turn his or her name into a noun with an ‘ism’ ending must be someone really special.

Lord Keynes left us Keynesism; Marx left us Marxism; Buddha left us Buddhism. So what should we make of the fact that Baroness Thatcher left us with Thatcherism?

Thatcherism arouses very conflicting emotions to people on opposite side of the political philosophy spectrum. For conservatives, Thatcherism is the re-assertion of market rule over too much government intervention that was creating excessive socialism and economic rigidities. This had led to the ‘winter of discontent’ in Britain in 1979, when cold weather and indiscriminate strikes, led by discredited Arthur Scargill who created far too many problems for Labour Prime Minister James Callaghan, had brought life to a miserable halt before Thatcher won her first election in May 1979.

For the liberals, Thatcherism destroyed the social fabric of modern societies, brought about great disparities of wealth and income and contributed in no small measure to the banking crisis that hit us in 2008 and is still haunting us.

The truth – as always – is somewhere in the middle. In 1979, Britain needed Margaret Thatcher. The unions in Britain were abusing their power and ordering strikes as a first order rather than as a last resort. Labour was too docile to stand up to this abuse of power and the country needed an iron lady who was prepared to go through strikes, come hell or high water, until the extreme union leadership was discredited and removed.

As with most human beings who register a sequence of successes, there comes a time when the person’s determination and strong character morphs from a catalyst for positive change to undiluted arrogance. When this happens, the person stops analysing and taking objective decisions and gradually turns subjective, deciding on the basis that this is right because I say so.

This is what happened to Margaret Thatcher. After substantial successes between 1979 and 1984, the tandem of re-elected leaders on both sides of the Atlantic – Reagan and Thatcher – pushed their economic credo beyond the limits of prudence. Their strong belief in the markets’ unconditional ability to allocate resources fairly and effectively, their misplaced belief that financial markets can effectively self-regulate, their false belief that government is always the problem and never the solution, sowed the seeds of the financial crisis that blew up long after these leaders had retired.

Thatcher never lost an election. She had to resign as Prime Minister when her cabinet revolted and could not take her viciousness anymore, especially when she practically started insulting those who opposed her decision to impose a highly regressive and unpopular poll tax.

Thatcher is a textbook example how an overstay in power can convert the ablest of leaders into arrogant and ineffective specie.

National Debt

A lot of debate goes on about what constitutes a prudent level of national debt compared to a country’s GDP. The euro entry criteria indicated this to be 60 per cent but, following the financial crisis, 90 per cent has become an accepted norm.

Frankly, taken in isolation, the percentage of debt to GDP is of little relevance. Such level of debt has to be considered alongside other factors which are equally important. These include:

a.  The overall state of the economy (developed or developing).

b. The service costs of such debt (a low interest burden makes higher debt more sustainable).

c.  Whether the debt is external or internal.

d. Whether it is in home or foreign currency.

e. The debt’s term structure (ie whether the debt has to be rolled over frequently or is due in the long term).

f. The level of indebtedness of the private sector.

g. The productivity of the assets financed by the debt.

h. The resilience of the country’s economy generally, especially in the face of external shocks.

This explains why Spain and Ireland have grave fiscal problems despite their relative low level of national debt to GDP before the crisis, whereas Japan needed no bailouts despite a debt to GDP of 250 per cent.

In this context, Malta’s current level of national debt is not worrying. What is worrying is the speed with which it has grown over the last decade. This speed must be reduced. Malta’s nominal economic growth must start exceeding the rate growth of its national debt to ensure that it stays sustainable.