Sunday, 28 July 2013

The Chairman's territory

Alex Tranter -ex Chairman Enemalta
appointed be ex -Min. Austin Gatt
joined TOTAL when he left
'his territory'

This article was published in The Malta Independent on Sunday - 28th July 2013
A new term has been coined – ‘the chairman’s territory’. It was born concurrently with baby Prince George of Cambridge – the future King George VII (assuming that the monarchy will still be around some half a century down the road).
The term was invented by former members of the Fuel Procurement Committee (FPC) within Enemalta who, on condition of anonymity, revealed to the media that under the chairmanship appointments of former PN Minister Austin Gatt, the process of fuel procurement was considered “the chairman’s territory”.
Here are some very interesting quotes by these internal sources who are now clearly attempting to exculpate themselves from the gross irregularities revealed by the National Audit Office (NAO).
“Enemalta’s fuel purchasing was ‘totally the domain of the chairman’.
‘It was no secret at Enemalta that the fuel procurement process was the chairman’s domain.’
‘It is true that the bids received used to be decided by us (the committee), but it was a chairman-driven initiative. It was the chairman who used to receive the bids on his own e-mail address and it was his office that used to call the shots, even about when the committee would meet to make decisions.’
 ‘The chairman used to present the bids to the committee and we used to negotiate the best bids. That was how the system worked and it was always like this.’
‘The chairman was the main figure in the committee and the procurement process revolved around him.’
‘I was a very important figure in the corporation at the time and still didn’t have access to certain documents as these were deemed to be the chairman’s territory.
‘I used to complain about the system but things only started to change in the latter part of 2010.’”
The chairman of Enemalta during the period covered by the NAO report 2008-2010 was Alex Tranter, who as a defence could only state: “The committee decisions on fuel procurement during my term as non-executive chairman of Enemalta were all unanimous and all committee members present signed all the committee documents endorsing decisions taken.”
One immediately notes the conflicting interpretations that whereas MPC members considered crucial issues related to fuel procurement as the exclusive domain of the chairman, where lack of governance and transparency was the rule of the day, the ex-chairman makes an effort to define himself as ‘non-executive’. Considering we are dealing with procurement worth a handful of hundreds of millions of euros each year, these contrasting stands represent serious stuff.
Now that the police have been called in to investigate, they will surely have to establish how a non-executive chairman had total control of such important processes as to receive bids on his email address.
Irrespective of whether a chairman is executive or non-executive, there should never be anything in a public organisation that is the chairman’s territory or domain. The chairman’s responsibility is to direct the Board to establish the organisation’s business strategy, to choose the right management capable of executing the chosen strategy, and to build the necessary structures with appropriate checks and balances to guarantee high standards of governance and appropriate measures of risk management.
The late Acting President Pawlu Xuereb must be turning in his grave. I remember him when, as chairman of Medigrain responsible for the procurement of grain and cereals, he used to shut the whole procurement committee in the boardroom where bids would come in a short time envelope on the telex machine (no e-mails those days) and no one would be allowed to leave the room or communicate with anyone outside it until the procurement decision process was completed in full transparency with proper and detailed documentation vouched for by all committee members.
The pity is that the NAO was only tasked to investigate the procurement process from 2008 to 2011. It should have been tasked to backdate its investigation to 2004 shortly after the political responsibility passed from the current Central Bank governor and former PN minister Josef Bonnici to ex-minister Austin Gatt.
In fact, inside informers have made the point that: “The way fuel procurement was carried out under Mr Tranter’s chairmanship was the same as under his predecessor, Tancred Tabone, when it was also considered to be ‘chairman’s office territory’.
I have probably read all publications related to financial fraud and cases of gross corruption. The common feature in such cases is that with hindsight there are patterns, which, if spotted, could have triggered earlier investigations. In case of the scandals related to Enemalta, the pattern is that in both main areas of abuse, the winding down of MOBC to favour a private competitor where insiders had a silent equity stake, and the foul play related to fuel procurement, the first step was removal of personnel of integrity who would not have tolerated abuse.
On the political front, the rushed presidential pardon given during an election campaign to a main beneficiary from this corruption and /or lack of governance becomes more questionable following the publication of the NAO report. The beneficiary of the presidential pardon, which is conditional on telling the truth, is showing characteristics of dementia because he remembers clearly what happened more than a decade ago but seems to remember nothing (or at least is not telling it) on what happened during the period covered by the NAO Report 2008-2010 even though he was a major beneficiary of the system and during which period he used to meet regularly with ex-minister Gatt, but never to discuss Enemalta.
Having read the NAO Report, I have to ask, where were the internal auditors? Have the external auditors flagged the gross lack of governance standards to shareholders? Have the external auditors pointed these out to management in the Audit letter of weakness?
Finally, credit is due to ex-Minister Tonio Fenech for bringing back some sort of orderliness to the governance standards of Enemalta soon after he took over its political responsibility in 2010. This is well acknowledged in the NAO report. Cynics might argue, probably unfairly, that the change really happened only in 2011 when the NAO started investigating a brief received from the Public Accounts Committee on the initiative of now Minister Leo Brincat.
But how can Mr Fenech justify that he did nothing to flag the irregularities happening under his predecessor of which he was clearly aware. Once he claims credit for correcting what was wrong he certainly couldn’t claim ignorance. 
When a vote of confidence was brought to Parliament against Minister Austin Gatt, Mr Fenech voted his confidence and by so doing accepted to take responsibility for issues, which he himself defines as “very serious”. 
As a professional auditor and as the person who at the time was responsible for the public purse and the national debt (both the real one and the contingent one relating to guarantees for Enemalta’s borrowings), Mr Fenech should have known better. His duty to serve the nation should have prompted him to call in the police as Minister Conrad Mizzi has done soon after receiving the NAO report.
Not even royalty in modern times, as Prince George will eventually find out, can conduct their affairs without strict governance standards. Under ex-minister Austin Gatt, Enemalta used to be run with the privileges of old royalty.

Tuesday, 23 July 2013

Time to be both honourable and accountable

Both gone leaving
Tonio Fenech to carry
Enemalta's PN cross.

Former Finance Minister Tonio Fenech wrote an op-ed in the last Sunday Times which must be considered as an epic in local political journalism.

Sunday Times 21-07.2013 _tonio Fenech_time to be honourable

In his article ex Minister Fenech  makes a colossal admission which is rare in politics.  Let me quote verbatim:

The NAO report findings on how records of fuel procurement meetings were kept in the period 2008 to 2010 are indeed serious. As a person coming from the auditing profession I would say very serious indeed considering what was at stake and the amount of money the corporation spends on fuel procurement.

One must give Tonio Fenech his due and duly acknowledge that once he was tasked with responsibility for Enemalta, there was a quantum leap in governance standards within the Corporation as duly acknowledged in the Auditor General findings.
However, having admitted that he inherited as very serious situation from ex Minister Austin Gatt,  there are obvious questions which  Tonio Fenech needs to answer.  Let us grant him that he really took steps to fix a very bad and scandalous situation.    But is that enough?

When a new manager moves in and finds hanky panky should he be satisfied with  sorting it out to ensure proper standards going forward or should he put on his accountability hat and see why, how, who, since when were things in such a desperate state.

In case of ex-Minister Fenech this assumes added importance as he was also the Minister of Finance.  He was the Minister responsible for our national debt, both that recorded as well as that contingent through guarantees issued by his Ministry in particular to cover the debts of Enemalta with the banking sector.

So whilst understanding his demands for others to act honourably in his regard,  how about his explaining to us why he did not keep proper accountability standards in demanding from his predecessor, from the Prime Minister and from the whole Cabinet explanation of the 'very serious' situation that he found at Enemalta.   Why did he not do  what Minister Mizzi has just done and call in the police, rather just replace the Chairman.

After all ex - Minister Fenech voted his confidence in ex-Minister Austin Gatt when a vote of no-confidence was brought to parliament.  In so doing he automatically wore the mantel of his predecessor's responsibility.

Enemalta is taghna lkoll.   Unfortunately its debts are also taghna lkoll thanks to the very serious situation which Minister Fenech took over without demanding accountability.

Saturday, 20 July 2013

NAO's indictment of Enemalta

These are the sort of minutes that were kept between 2008 and 2011 by Enemalta's Fuel Procurement Committee.   Often minutes were not kept at all and there is clear evidence of gross lack of governance in the procurement process.

Here is a quote from NAO's covering letter to their extensive report:

NAO’s concerns relating to the operations of the FPC intensify with respect to meetings held in 2008 and 2009. Corresponding FPC meeting minutes reviewed by NAO lacked the most rudimentary level of detail and bore no information relating to meeting discussions and decisions taken. Besides being handwritten and mostly undecipherable, these minutes also lacked a basic record of Committee members present.

The above-discussed implications associated with the systems of poor record-keeping and documentation that characterise and pervade the operations of the FPC prior to May 2011 rendered it impossible for the NAO to effectively audit the decision-making process employed by the Committee in adjudicated tender bids received and evaluated. The implications of such severe limitations in the availability of records documenting the FPC’s decision-making process are brought to the fore in those instances when the Committee awarded tenders to bidders who (based on severely limited information at the NAO’s disposal) did not submit the most favourable offer.

A condemnation stronger than this is hard to imagine.   It is also hard to imagine why the Minister has not immediately called in the police to investigate all those who were involved in this non-system which the NAO defines as an 'affront to the principles of good governance'

Strange that the person who was given a hurried presidential pardon during the election campaign and who it results was a main beneficiary from this affront to the principles of good governance, has not disclosed anything about this period and still keeps all benefits even though the pardon was conditional on telling the whole truth.

Yet whilst the authors of this brouhaha remain unchecked and would not even a comment in self defence to the media, the police are taking criminal actions about events which happened more than a decade ago, and which by comparison are minuscule  probably prescript and where the evidence is solely what was disclosed by the person who is clearly being very economical with the truth, presidential pardon and all.

Wednesday, 17 July 2013

Abolish the troika

European Union Justice Commissioner Viviane Reding addresses the European Parliament's Committee on civil liberties, justice and home affairs in Brussels June 19, 2013. REUTERS/Francois LenoirAt last someone said it!   Abolish the troika!

The honour belongs to EU Justice Commissioner Viviane Reding - see link below:

Viviane Reding - time for troika is gone

I would go further.   There should have never been a troika.  It was wrong for the EU to call in the IMF to solve the problems of Euro countries that needed a bailout and it was wrong for the IMF to accept.   At most the IMF could have acted in a consultancy role but never as an actual lender and a key member of the team that sought to resolve the disequilibria within the Euro monetary system.

When the IMF intervenes it normally intervenes to bailout countries that are in command of their own currency.   Part of the standard IMF recipe involves devaluation of the currency in order to restore international competitiveness of the country in distress whilst it works out an economic restructuring programme.   The IMF has to dose austerity measures caused by the restructuring with the growth policies generated by the devaluation that makes the country internationally competitive again.

This could not be done with Greece, Ireland, Portugal or Cyprus as they are members of the monetary union and cannot devalue their currency.   At most the IMF could have intervened to bailout the Euro area as a whole.   But the Euro area as a whole needs no bailout!

As a whole the Euro area has no financial problems, it runs a small surplus in its balance of payments with the rest of the world and is one of the most affluent economic areas on the planet.   The problems are with particular countries within the Euro area and this explains why I maintain that true solution of the Euro area problems demands a Marshall Plan approach, where the adjustment burden is shared by both surplus and deficit countries.

The  IMF was not formed to take resources from poor countries ( even China is still relatively poor) to save rich countries in a monetary union who should show enough solidarity to save themselves.

Reding is right!  The Troika should be abolished.  Indeed it should have never existed.

Tuesday, 16 July 2013

The power that resists democratic change

Readers familiar with my writings would know that I often make the case that whilst the PL is a stand-alone political party, the PN is a political cell in a broad network of power.  Such network of power is spread across society, in business, in the media, in the Church, in the civil service, among the intelligentsia and wherever there is power that protects the rights of those who would much rather have an eternal PN government.

So when democracy shifts the political power from the PL to the PN there is total and absolute transfer of power in government and throughout society as those old enough witnessed in 1987.   The same could not happen in 1998 as in the less than two years of Dr Sant's Labour government  even political power largely remained intact in the PN's hands.

On the contrary when the democratic process shifts political power from the PN to the PL, it is only the political power that passes.   The rest of the power network is not affected by the political alternation.   And whilst the political network would act like a tailwind for the PN government, minimising its defects and magnifying its virtues,   it suddenly shifts to a headwind for a new PL government minimising its virtues and magnifying its defects or even inventing them even where none exists.

These past couple of days we had  a living example of such reality.  The NAO report about shenanigans in the Oil Procurement system within Enemalta between 2008 and 2011 cost taxpayers millions of euro and nobody claims responsibility.   The PN issued a pitiful statement  that the shortcomings were corrected in 2011 and those at fault were exposed and brought to justice in 2013.

Once they corrected the system in 2011 they must have known of the shenanigans and the PN should therefore explain why they waited until the media exposed the scandal in the election campaign of 2013 when their hands were forced to appear to be taking action.

Now compare that to the case of Minister Cardona who overruled the recommendations by a Unit within his Ministry for award of a rather small legal consultancy contract which is normally given by direct order in view of its relatively small size.   There is an evident ludicrous attempt to blow up this case to big scandal proportions even though the Minister had every right to reject the selection methodology proposed by the Unit concerned which neglected all qualitative aspects and instead used his discretion to include qualitative aspects in the adjudication. 

The two cases are incomparable in terms of their gravity and size.   Yet while the Enemalta scandal was basically buried by the media as soon as it saw the light, the case of Minister Cardona is being blown up to make a scandal where absolutely none has been proven.   

With elections only the political power passes.  The rest stays where it was resisting the democratic change that the people voted for.

Sunday, 14 July 2013

Let's not waste a crisis!

This article was pubished in The Malta Independent on Sunday - 14 07 2013

There is one absolute certainty about how the EU works. It is 99 per cent talk, talk and yet more talk, and the real decisions that take the remaining one per cent are only taken when an impending crisis forces politicians’ hands to abandon their comfort talk zone and do what needs to be done to avoid being overwhelmed. A second near certainty is that when decisions are forced on EU politicians, quite often these are temporary measures that are just enough to tame the crisis without doing what really needs to be done to address the problem at its core.

It is in this context that I judge the Prime Minister’s action this week to raise the irregular immigration problem to crisis levels also in the context of Pope Francis’ visit to Lampedusa and the visit to Malta of EU President Van Rompuy. The only way to raise the issue to crisis level is by threatening to behave irrationally to mirror the irrationality of EU northern nations by allowing the full burden of the immigration problem to be shouldered by the southern border states.

Often the threat is more effective than the execution. And it is fair to presume that the Prime Minister used the threat knowing that once Europe is awakened from its slumber to smell the coffee, execution will not be necessary.

Malta is a generous nation. Our heart bleeds for the tragedies of each and every immigrant that is forced to seek refuge. But charity begins at home and we cannot sit idly carrying a disproportionate burden whilst the northern members pursue their talk-talk games about a human crisis unfolding on our shores.

If anyone wants further proof of the games that EU politicians play, one needs only observe what is happening in the limping measures being taken to resolve the euro crisis. The eurozone economy has contracted for six consecutive quarters. This week, the IMF revised its 2013 forecast down again: it expects the eurozone to shrink by 0.6 per cent this year. The outlook in the core eurozone economies has worsened but the brunt of the pain is being borne by the peripheral economies.

Greece is in its sixth straight year of recession; Spain’s unemployment rate stands at almost 27 per cent; Italy’s credit rating was downgraded this week. Years of joblessness, economic hardship and edicts from creditor countries are straining the political fabric in Portugal and Greece.

The bail-outs of Greece, Portugal, Ireland and Cyprus have saved these countries from economic death but rendered them permanent occupants of the sick bay with little prospect of a permanent resolution as austerity measures continue to crush their growth prospects.

Meanwhile, the euro area is holding endless meetings on how to avoid a future banking crisis. A new architecture is being put in place for having some sort of banking union, with a single regulator for the largest banks, a single resolution mechanism for dealing with banks that hit the rocks without burdening the taxpayers, and eventually a common deposit insurance scheme.
This is all well and good but it will lead nowhere because we are designing the roof without taking care of the foundations. It is necessary to make preparations for such re-designed banking architecture but, first and foremost, before preventing a crisis tomorrow we must resolve the crisis of today. We must clean up the banks to ensure that solid foundations are prepared for tomorrow’s re-designed architecture.

Banks are central to Europe’s prospects. The fear, especially in peripheral economies, is a repeat of Japan’s experience in the 1990s, when “zombie” banks staggered along for years, neither healthy enough to lend to firms nor weak enough to collapse. Without such effective credit channels, the problem economies will remain mired in eternal recession verging on deflation. Without effective transmission mechanism, the ECB monetary policy becomes sterilised.

The eurozone will not work without a banking union, but a banking union requires a bank clean up first, including the sanitation of German regional banks. Germany hints that it might consider taking on such mutual obligations in the future, but not now. The problem is that now is when the banks are half dead. Waiting for zombies to come back to life is a fool’s game.

There are many danger signs in Europe. The average price-to-book ratio for European banks remains below one, suggesting that investors think lenders are worth more dead than alive. In America, where banks were recapitalised quickly, the ratio exceeds one. Italy’s two big lenders, UniCredit and IntesaSanpaolo, have ratios of 0.34 and 0.42 respectively. Investors think such banks are worth only a fraction of the value they show on their books!

Why? Because the amount of shaky loans keeps climbing: worryingly, there are more non-performing loans in the Italian banking system than there is core capital. Lots of peripheral banks have been loading up on their own shaky governments’ bonds. Mortgages account for even more bank assets and house prices keep falling – at the fastest rate on record in Spain in the first quarter.
Loans to non-financial firms contracted in May by 4.1 per cent in Italy, five per cent in Portugal and 9.7 per cent in Spain. Banks in strong countries are lending less across borders. Lenders in weak countries pay more to borrow than banks in strong ones. This divergence ripples through to customers: the difference in the cost of borrowing between German and Spanish firms rose from a mere six basis points in the summer of 2011 to 149 basis points earlier this year. So much for the ECB low interest policy!

As long as Europe’s banks are not strong enough to lend, its economy will struggle to grow. The ECB will undertake an “asset-quality review” before it takes up the role of eurozone banking supervisor next year. Banks that fall short must be recapitalised – by raising fresh equity from private investors, by bailing in creditors and, in some cases, by bringing in public money.

But this would re-establish the pernicious link between weak banks and weak governments. Countries whose governments have been bailed out, and others like Spain and Italy that are undergoing deep restructuring to avoid having to request a bailout, are in no position to recapitalise their banks. Private equity has little appetite for bank risk.

It is high time Europe’s politicians give the ECB the green light to monetise the ESM so that this rescue fund will have all the necessary funds, without relying on approval from 18 national parliaments, to recapitalise zombie banks and bring them back to life through the only medicine that works: fresh capital. Exposing banks as under-capitalised without having a ready solution to recapitalise them is a sure way to create a crisis of confidence that could spread like wild fire.

The EU’s talk-talk politicians know that nothing will work before sick banks are cleaned up and recapitalised. Yet, as we saw this week, the EU continues to make grand plans for the future but only takes baby steps to resolve the problems of today. Greece was given another morsel of €2 billion from the pledged rescue funds, even though it is clear to one and all that Greece is getting nowhere and these funds will never be repaid. The important thing is that Greece does not blow up again before the German elections in September.

Only a crisis will force the EU into real action. Prime Minister Muscat did well to raise the irregular immigration problem to crisis level. The challenge is how not to waste this crisis.

Saturday, 13 July 2013

Germany's bad economics

The central theme of my writings about the Euro crisis has been that Germany, in dictating the EU's response, is going about it the wrong way.   And Germany should now better if its leaders can re-read their 20th century history.  Whilst a true solution requires the use of the Marshall Plan as a model, Germany is insisting on using as a model the Versaille Treaty.

My article in tomorrow's TMIS will continue on this theme.

It is good to see, however, a chorus of internationally renowned economists who are finally singing from this hymn sheet.  See this article in yesterday's FT by the most famous economics historian Niall Ferguson.   I really enjoyed reading it and hope you do too.

Merkel’s ‘deutsche Michel’ ploy is bad economics

The euro project had fiscal implications from the start, says Niall Ferguson
Deutscher Michel
Is Angela Merkel, the German chancellor, a female reincarnation of the “deutsche Michel”? Back in the 1840s cartoonists portrayed Germany’s everyman answer to John Bull as the victim of unscrupulous neighbours, who picked his pockets and stole the shirt off his back. It has been interesting to see the revival of this pre-Bismarckian self-image in the recent discussions about the causes and consequences of the eurozone crisis.
According to German economists such as Hans - Werner Sinn, the crisis has a simple explanation. While the virtuous German Michel toiled away, reforming his jobs market and controlling his unit labour costs, less scrupulous peripheral countries became uncompetitive by gorging themselves on cheap euro credit. When the crisis struck, the European Central Bank and other EU agencies sought to bail out the peripheral countries at the expense of the savers and taxpayers of the “core” – also known as the German Michel.
This narrative has popular appeal. Most Germans agree with Mr Sinn when he says “the new currency was conceived as a unit of account for economic exchange that would not have any wealth implications at all”. They share his view the peripheral countries need to do whatGermany did after 2003 – reduce their price levels and regain competitiveness through domestic deflation.
But this argument is simply not credible. It rewrites history by pretending that the project for a single currency did not have fiscal implications from the outset. It understates how much “Michel” has gained from the euro and how much he would lose from its collapse. And it condemns southern Europe to a protracted depression that could ultimately destroy the euro.
There is an alternative narrative of the euro to Mr Sinn’s. The German economy in the 1990s was seen by many as the sick man of Europe. The costs of reunification were much higher than anticipated. Germany ran a current account deficit every year between 1991 and 2001. The euro solved these problems. The current account swung into surplus, peaking at 7 per cent of gross domestic product in 2007. The deficits of the other eurozone countries were the flip side of these German surpluses. Germany’s highly leveraged banks financed those deficits by buying the bonds of the peripheral countries.
The crisis of the eurozone did not happen because the southern states failed to enact German-style labour market reforms. The crisis was a transatlantic banking crisis from which the German banks were in no way exempt. Labour market reforms would also have done almost nothing to address the underlying institutional problems that are to blame for diverging competitiveness within the eurozone.
Now Europe is in a desperate mess that simply cannot be solved by deflation on the periphery. The situation in the south is much worse than most Germans realise. Gross debt will top 100 per cent in five states this year. From Ireland to Cyprus there have been drastic contractions in per capita GDP. Unemployment rates are terrifyingly high. This is a toxic mix and one that is politically unsustainable.
What can be done? First, banking union needs to go ahead because the crisis in the sector cannot be solved solely with sovereign backstops. That means a single supervisory mechanism, a European resolution authority and deposit insurance scheme. Secondly, some fiscal integration is needed as otherwise at some point peripheral sovereigns must default wholly or partially. A common eurozone budget is needed; eurobonds can no longer be a taboo.
Europe’s monetary union always implied some measure of fiscal union. Those who signed the Maastricht Treaty either should have known it – or knew it and should have admitted it. For there is no example in history of a successful monetary union without at least some fiscal integration.
But, in return, there needs to be meaningful structural reform in all eurozone states. The German belief in a quid pro quo is quite right. The illusion was to imagine that such reform could somehow be induced via a fiscal compact – Ms Merkel’s attempt to Germanise the periphery. Not only the US experience but also the German experience is that federalism is more likely to lead to institutional convergence than mere confederation.
A century ago, the German Michel underwent a personality change. One 1913 cartoon showed the brave young Michel in a sailor suit, standing up to the seaside bully John Bull. A year later, the same Michel, now athletic in build and giant in stature, was sweeping aside the Entente armies like dust with his broom.
After 1945, Michel reverted to type: helplessly watching the building of the Berlin Wall, tearfully welcoming its downfall. Now we have come full circle, returning to the Michel of the pre-1848 era, that Biedermeier figure much given to self-pity over the extortion perpetrated against him by his wily neighbours.
That may be good domestic politics. It may even help Ms Merkel secure re-election in September. But it is really terrible economics.
The writer is Laurence A Tisch professor of history at Harvard University. This article is an abridged version of his Ludwig Erhard Prize acceptance speech on June 27

Sunday, 7 July 2013

When is a coup not a coup?

That is what is rightly being asked about the events in Cairo this week when a democratically elected President was removed by the Egyptian military following strong street ( Tahrir Square) protests about his undemocratic rule.

Tahrir Square protests
Pro-Morsi protests
The US has not dubbed it at as a coup as so doing would have automatically aborted the USD one billion plus aid given directly to the Egyptian military without which the latter would collapse.  It is therefore difficult to imagine that the Egyptian military did not clear their lines with Washington before taking the drastic decision to remove President Morsi and put him and senior members of the Muslim Brotherhood party under house arrest.

Yet a coup remains a coup even if called by another name.   Presidents and governments elected through the ballot box should be removed by the ballot box not by street protests or military interventions.

There are other similar events in recent history when something similar happened.  In 1991 the Algerian military intervened to cancel an election that the Islamists were set to win.   And in 2006 the Palestinian Hamas were isolated internationally following their electoral victory in Gaza.

The underlying message in all this is that democratic credentials are not simply about winning free and fair elections.  It is also about respecting the rights of the minority whilst executing the will of the majority and ensuring that nothing is done to prejudice the right to free and fair elections when the democratic mandate expires.

Morsi was accused by a large swathe of the Egyptian population that he was presiding in the interest of The Muslim Bortherhood not in the interest of the whole Egypt.   This forced the Army's hand to intervene in an undemocratic way to safeguard democracy!!!  An oxymoron par excellence.

The important thing now is that the Army recognises that the role of choosing Egypt's leaders belongs to the people of Egypt not the Generals and that a quick return to a democratically elected civilian administration must be found soon.

Thursday, 4 July 2013

The Euro: problems asleep will re-awaken....soon

This time last year we were in the thick of the Euro problems.   See my article of 1st July 2012 as per link below:

01.07.2012 Euro eject seat button

Then on 24th July last year ECB President Mario Draghi announced his whatever it takes policy and the market calmed down.   See my article of 30.07.2012 as per link below:

30.07.2012 Whatever it takes

Mario Draghi's bold action, in spite of internal dissidence from the German Bundesbank representative, bought time for the politicians to address the real problems in a calmer environment.    But it certainly did not solve the underlying problem of the Euro.

This creates a practical dilemma.   Experience shows that European leaders will only do what really needs to be done, will only take the essential but hard decisions which could make them unpopular with their domestic audience, at one second to midnight.  Unless they are forced into such decisions by an impending crisis they will not use productively the waiting time which may be bought from time to time through temporary measures.   And this is exactly what happened.

The core problems of the Euro, which are a major threat to its sustainability, have remained unaddressed.   In simple language these problems which no one seems willing to address seriously are:

1. How can countries like Germany at the virtuous extreme and Greece at the negative extreme actually survive and prosper within a monetary union that has no provision for fiscal transfers?

2. How can countries in distress including the five that have been formally bailed out ( Greece, Ireland, Portugal, Cyprus and (partially) Spain) possibly work out successfully the extreme economic restructuring required if their domestic banking system is broken and the supply of credit to SME's is just not available - meaning that ECB's monetary accommodation is not reaching those that really need it as the monetary transmission mechanism is dysfunctional?

Addressing these issues requires major political commitments from Germany and surplus countries, that no politician would take during an election campaign such as Chancellor Merkel is facing next September.  

European leaders like Merkel are caught in the democratic deficit conundrum that presently rules the EU.  While Merkel gets her democratic mandate from the German electorate, her actions, for better or for worse, affect the lives of all EU members.  

German Chancellor Angela Merkel and French President Francois Hollande pose for a group picture after the Conference on Promoting Youth Employment in Europe in Berlin, Germany, Wednesday, July 3, 2013. Merkel was bringing together officials from across Europe Wednesday to discuss how best to get young people into jobs, and is insisting that money alone won’t end high youth unemployment. (AP Photo/Axel Schmidt)
Merkel and Hollande
at Berlin Conference for
Promotion of Youth Employment
Quite often this represents a conflict between what is in the narrow interest of the German electorate and what is in the broader interest of the EU.  This conflict of interest is often for the short term as for the longer term Germany needs a strong Europe just as every other EU country.   But a politician's time frame is as long as the period to next elections and hopefully it is only after the September elections that whoever is elected in Germany can take a long term view of the problem of the EU and the Euro.

What's for sure is that the current initiative whereby Germany is promoting the unemployed experienced youth in Europe's periphery countries to move to Germany where there is a substantial skills shortage,  is an insult to the true spirit of the EU.   It is short termism for the elections not a true solution to the problem.

The true solution to the problem is:  What needs to be done to revive the economies of periphery countries in distress so that these countries can offer fair prospects for the best of their youths that the country has paid through its nose to have them properly educated and skilled?   If the cost of such education is to continue to be borne by the periphery countries but the benefits will be enjoyed by Germany through the cheap attraction of such imported skilled labour it is truly a case of making things worse not better.

Monday, 1 July 2013

Making bureaucracy help not hinder

This article was published in The Malta Independent on Sunday - 30th June 2013

Without bureaucracy there would be anarchy. Too little of it and you have the law of the jungle. Too much of it and you have abuse of power, corruption and a serious drag on economic activity and development. The challenge for the country is to have the right dose of bureaucracy: one where it is a help – not a hindrance – to social and economic development.

Nowhere is bureaucracy – and sometimes the lack of it – more asphyxiating than in the Justice and Rule of Law systems.   Two examples relating to property ownership will illustrate this point.

In 1982, Malta passed the Land Registration Act. This was intended to be the beginning of a process whereby all property in Malta would be registered, with rights and obligations, in order to facilitate and minimise the cost of property transfers and establish property rights more clearly. Thirty years down the line we still have a dual system whereby part of Malta is a compulsory registration area and other parts are voluntary. Progress towards total registration is glacial.

As a consequence, property transfers are still subject to extensive but unofficial searches in title of current and prior owners, involving substantial effort in terms of time and expense. Yet we still have a system where no one can be totally certain of the property rights acquired on transfer contracts, to the extent that notaries are having to insert substantial disclaimers and health warnings in their contracts to indemnify themselves from liability that could otherwise befall them in terms of law.

Take another example. Few remember the clashes of the 1980s between the then Labour Government of Mintoff and Mifsud Bonnici and the Church to render its school services free of payment. A temporary solution was reached in the mid-1980s for the government to begin subsidising Church schools and for negotiations to start for the Church to transfer to government its extensive property inventory that was not required for ecclesiastical purposes. The intention was that through such “sale” of property to government, the Church could gain access to liquid funds that could be used to finance its schools. This agreement was concluded in 1991 and led to the Ecclesiastical Entities (Properties) Act of 1992 which set up the Joint Office.

This was a one-sided agreement if ever there was one and Prime Minister Muscat would do well to include its revision on the agenda of negotiations with the Church. Through this law, a Joint Office was created for the management and registration of all Church property transferred to the government and for which the Church was richly compensated. It was given 10-year bonds with interest coupons of seven per cent and with a premium of 10 per cent payable on maturity. These bonds have long since been cashed and re-invested by the Church, as they matured in 2002.

Yet the government is still bound by all the conditions of the agreement that limit what it can and cannot do with the property, and the Church still has the rights of supervision over such land as if it were still the owner. Furthermore, 20 years down the road we still have a Joint Office which apparently is still grappling with problems regarding title of property transferred and paid for. What is even worse is that nobody in Malta can really be sure of their private property rights, knowing that the Joint Office legislation gives it the right to register its title retroactively without actually having to prove it. So if the Joint Office were to decide that a third party-owned house is built on land included in the Joint Office agreement, it can register its claim even without the need for proper documentary proof, and cause serious problems with third party rights to private property.

Surely, 20 years is long enough for government to know exactly what property it has taken over from the Church and to have its proper title verified and registered in order to give third parties peace of mind about property rights in Malta.

Bureaucracy in the Courts of Justice sets a standard that challenges anybody’s patience. Cases that are just postponed for judgement on a never-never basis, dozens of cases called at the same time, so that you have to be at court by 9am but may have to wait your turn until 11 – if not face a postponement without any hearing, lawyers that are expected to be in three court halls defending three separate cases at the same time, expensive procedures to summon witnesses that have to be repeated and paid again if the case is postponed by the magistrate or judge, and so on and so forth.

We have come to accept this as an unavoidable way of life, a cross we have to carry – just like sickness and old age. But things should not be like this and fortunately something now seems to be moving.

The first report launched for public consultation by the specially appointed Commission chaired by Mr Justice Giovanni Bonello for a holistic reform of the justice sector makes a noble effort to uproot justice systems from their present dysfunctional state and put them on a platform where their modus operandi and efficiency is transparent and accountable to the public that the Courts are supposed to serve.

The Chief Justice’s complaint about a lack of consultation with the judiciary before the publication of the report is a symptom of how the Bench has acquired a forma mentis where they consider themselves a cut above the rest of society. The report was launched for general consultation with all interested parties, including the judiciary, the legal profession, the administration and the general public. Why the judiciary expected to be consulted before everyone else demands an explanation.

Then we recently had criticism from the EU Commission that the lack of reform of our justice system, which remains mired in inefficiency, is a drag on our economic development and will continue to deter foreign investment that expects to operate within clear and defined property rights. The Commission was referring to civil rights which establish how lenders can protect the security rights obtained from borrowers and the procedure to enforce such security rights where necessary. It also refers to our grossly outdated bankruptcy laws, by which creditors have to wait for ever for recovery of their claims from the bankruptcy process and debtors have no facility for a court-approved Chapter 11-style restructuring that would give them a fair chance of continuing operations following debt restructuring if the Court feels that the business can still be saved, if restructured.

But one cannot put all the blame on the Court. It is not the Court’s fault if we do not have proper and modern bankruptcy laws. Laws are enacted by parliaments – not by courts. And the Court does decide cases that are meant to defend the interests of the general public, even where the politicians seem incapable of doing so. Take the decision of Mr Justice Ellul this week regarding the illegal boathouses at Armier.

The Court ruled that construction on publicly-owned land at Little Armier is illegal and caravan occupants have no legal title to the land. Any logical human being would reach the same conclusion. But politicians held at ransom by narrow segments of the electorate entered into negotiations to reach a compromise where there should be none.

The Court added that the letter sent by the government in April 2003 could not be deemed a binding contract for the parties who were carrying out the negotiations. The letter was explaining what the government was proposing. It was inconceivable, the Court said, that that letter could be construed as a binding contract that allowed those who had illegally occupied public land to continue occupying it. Neither was the confirmation issued in 2008 a binding contract between the parties, for no one was entitled to occupy public land without a legal title. Referring to the fact that the caravans had been provided with water and electricity services, the Court said that the law of the land was clear.
Transfers of public land had to be carried out in terms of the law.

Whilst denying no one the right of appeal in respect of the Court’s decision, politicians should be joining hands and celebrating that they have been freed from their bondage and can begin making plans for the proper development of the area in the public interest.

And if any preferences are to be given for the right to use or purchase any such re-development, the privilege should not be given to those who have illegally occupied the land for decades. They have had their turn already. It is now time for the rest of law-abiding society to have a fair chance.