Uncanny Resemblance

The Malta Independent on Sunday 

 

  Malta`s difficulty to break into the EU bears an uncanny resemblance to the EU`s own difficulty to break into the rest of the globalised world.

The summit of last weekend ended in failure, thankfully, as UK Prime Minister Tony Blair would have no more fudges with so much waste of resources going to subsidise so few farmers to detriment of the EU consumer and the under-developed world, that gets very restricted access to sell its competitive agricultural produce, including sugar, on EU markets.

Thankfully this crisis has raised awareness among European consumers on the need to re-assess the logic of continuing to allocate so much resources to keep internal EU food products so unnecessarily expensive rather than channel these resources to finance educational development, innovation and research which could help the EU economy to restructure and remain competitive even if most of its manufacturing base will have to migrate to lower cost locations.

While The French, with the complicity of the Germans, did their best to isolate Blair and pin on him the responsibility for failure to reach agreement over the budget for 2007-2013, post-summit events are proving that Blair`s policies have more support among European consumers rather than among the old guard of Europe`s political bodies.

It is becoming increasingly clear that Blair`s policy for the UK rebate to remain a red line non-negotiable area until the EU redesigns its wasteful Common Agriculture Policy (CAP)` to phase out expensive subsidies by the mid-term of the budget period, somewhere around 2010,` has the sympathy of the governments of Sweden, Netherlands, Austria and many of the new members from Eastern Europe. It also has the sympathy of the government in waiting in Germany and if this government can sit around the EU table following next September`s election, then France alone would have difficulty in defending what is shamefully indefensible.

Europe`s old guard tried to play a dirty trick on Blair.` This has backfired and they will probably have to pay for it with their own political skin. Chirac and Schroeder never took seriously Tony Blair`s repeated assertions that the British rebate was a red line area not available for negotiation in the context of an unreformed EU budget.` With the British elections out of the way and with Blair re-mandated as Prime Minister for a third consecutive term, with the EU badly needing a show of unity following the debacle of the French and Dutch rebuff in popular referenda for the EU Constitutional Treaty,` Chirac and Schroeder were confident that Blair would crack under their joint pressure. They were positive that French farmers could continue to enjoy their subsidies for another seven years while Germany would shift the additional cost of structural aid to new member states onto the British by taking away their rebate through, as Chirac put it, a gesture for Europe.

In this ploy Chirac and Schroeder found the support of the Luxembourg presidency who rather than act as an honest deal broker as small country presidency normally do quite effectively,` clearly sided against the British and joined ranks with France and Germany to force Blair to give in. The calculations were that as the next president of the EU council Blair would not dare to veto the financial package proposed by the Luxembourg`s Presidency thus inheriting an EU in double crisis, institutional and financial.

Blair`s strong leadership called their bluff and now the tables are turning. Not that it is reasonable to expect that a budget deal could be struck under the British EU Presidency of July to December 2005. French pride would not permit the necessary concessions to make a deal which would glorify Blair`s stature. But agreement on the EU budget which could eventually lead to some sort of way out of the institutional crisis, is a process which was thankfully started by Blair under the Luxembourg presidency, will be shaped under Blair`s own presidency and probably concluded under the Austrian presidency by this time next year.

The end result would hopefully be a short and clear period of dismantling of most CAP subsidies, much lower food prices for the EU consumer, and more funds available for development and research which is the basis for achieving the Lisbon agenda by making the EU more competitive in the globalised world.

Only when the EU consumer starts feeling that the EU institutions are delivering a better quality of life and not merely taxing him to enlarge and protect the inefficient, will the approval nod from the electorate be given in` popular referenda for reform of the institutions developing the EU into an ever closer Europe.

I am confident that history will regard the current EU double crisis as a turning point for reconnecting the EU with the electorates and for identifying a more sustainable way forward for development and enlargement by enhancing the policy of subsidiarity and opting for flexibility rather than rigidity. Blair will be regarded as the person in contemporary history that breath new life into project Europe easing his eventual migration to EU Commission president as his third term as UK Prime Minister and the term of the Barroso presidency come to their common expiry date.

On the local front we continue to expose inability to understand what really needs to be done to restructure our economy in order to make success of EU membership, indeed to earn our way in a fiercely competitive world.` We still seem to wrongly believe that the solution lies in the type of relationship with the EU rather than accept that the real solution lies inside us.

Whilst every sector jealously guards its patch and is not ready to appear weak by making any concessions, whilst every sector regularly preaches to others what they have to do to achieve competitiveness and expects all else to change whilst it stands guarding its past acquisitions, our country is continuing to fall back as competitors keep` pacing or racing forward.`

GDP figures for the first quarter of 2005 show that in real terms our economy has contracted when the US grew by 3.5%, China by some 9%, Japan and EU by nearly 2% whilst the new EU members are registering growth of 4%. What will happen to us when and if the global economy cools down as is being indicated by the fall in long term interest rates and behaviour of the bond markets`

Where is our Tony Blair`

As Rome Burns

The Malta Independent 

 

  As we are busy discussing parliamentary ratification of the EU constitution, a project that by all counts seems dead in the water, as the headlines were this week occupied by the resignation of the chairperson of Sea Malta on disagreement regarding the principle and/or the method for privatizing this strategic national resource, as government tries to impress us on the wisdom of past privatizations as the Freeport new owner announces the intention of investing in new bigger gantry cranes, a mere re-cycling of one year old news and when it happens would be little more than replacement of equipment that has been used beyond its economic life notwithstanding past assurances that Freeport was such an economically successful project that its then chairman deserved a national monument, whilst all this is happening we pay little attention to the more important reality that Rome is burning.

The increasingly efficient and reliable National Statistical Office issued the GDP figures for the first quarter of 1995 by means of a Release on the 9th of June. The fact that the overall economy during this first quarter contracted by -0.1% in real terms compared to a real growth of 1.4% in the previous quarter and 2.9% in the same quarter of 2004 seems of no importance to national media and economic commentators. It got little more than passing mention in the press.

However this does not change the fact that Rome is burning and the heat is being felt even if government friendly media easily swallows the bait of diversion by such issues as the entrenching anti-abortion measures in our constitution; a no priority issue, to say the least.

Ask employees in the private sector whose organizations are finding it increasingly difficult to remain globally competitive from a Malta operating base. Ask them how worried they are about the security of their jobs as their employers continue to squeeze the last drops of productivity by insisting on lower wages and reduced conditions of work. Unlike the public sector, the unions here are relatively powerless in such cases and will generally have to accept the introduction of inferior pay package and conditions of work to safeguard jobs. In the first quarter output in the manufacturing sector, mostly export oriented,` reduced by Lm29 million (more than 10%) value added reduced by Lm4.5 million (more than 5%) and operating surplus reduced Lm3.4 million (more than 7%).

The other pillar of growth, tourism, had a static performance with no growth in nominal terms and a small reduction in real terms. So you have manufacturing and tourism, basically the bulk of the productive sector, in a growth crisis and the overall GDP figures are not worse only through growth in telecommunications, financial services and real estate.

To confirm that Rome is burning ask the small enterprises, mostly retailers, who are finding it increasingly difficult to keep their head above the water as sales and consumption` remain flat and profit margins at micro-level erode as lack of employment opportunities forces individuals to try their luck in some self-employed activity which increases the supply offers in a stagnant market.

The basic truth which we continue to obstinately avoid, is that our productive sectors that sell their wares in the global market, are feeling the pain of loss of competitiveness and this pain unavoidably rubs on to employees in these private productive sectors who have to pay for such loss of competitiveness with their own skin. Compare this to employees in the public sector who not only feel secure in their jobs quite irrespective of performance, but as usual have this week started enjoying their summer half days.

With what moral authority can national institutions like the Central Bank preach from the mountain top on the need for restructuring at micro level ( in simple language read reduced payroll costs and/or increased efficiency) in the context of stable monetary policies when as an institution it is itself a leading example of waste of resources and resistance to the change of restructuring` Now that Central Bank`s formerly quite labour intensive functions related to Exchange Control and Regulation have all but disappeared, what re-structuring has the organization undertaken to ensure that it leads by example`

How long can the country support this apartheid in the labour market where the most productive are the most penalized and exposed to global pressures whilst the least productive are the most protected and unaccountable for their performance If we use the same argument for privatizing a national strategic asset like Sea Malta i.e. cumulative losses of some Lm 3 million over seven years, we would have to privatize most, probably all, public sector departments, authorities and organizations if we submit their operations to the discipline of activity based costing and rigorous financial reporting.

As Rome burns we continue to avoid the task with the highest priority ` that of restoring competitiveness to operators in the productive sector by launching a national effort where the pain of adjustment is shared by all and not only by those directly effected that happen also to be the most productive.

Alfred Mifsud

No More Fudges

The Malta Independent 

 

  Reports suggest there will be no initiative to rescue the constitution, no agreement on the budget for 2007-13 and an unusual silence on what many consider the EU's most successful policy - enlargement. ` (source BBC News 16th June)

These were the expectations at the start of the two-day EU summit that ends today in Brussels under the Luxembourg presidency. What a difference a few weeks make!

Before the electoral thumbs down in the French and Dutch referenda for the EU constitution, there were much higher expectations from this Summit. It was expected to goad the smooth process of ratification for the Constitution at national level. It was expected to broke a deal for the EU Budget 2007-2013 as the Franco-Germanic alliance corner Blair, free from political pressure following his recent re-election, into giving up most of the UK rebate negotiated by Mrs Thatcher in 1984.` This was necessary in the Franco-German eyes so that there will be enough funds for the poorer countries of the recent enlargement without having to increase the overall size of the budget (a German priority) and without sacrificing the benefits enjoyed under the Common Agriculture Policy- CAP (a French priority). Chirac and Schroeder had made a separate deal on such an approach some two years back.

The French rejection of the EU constitution in the referendum of 29th May changed all that. It has greatly strengthened Blair`s position in the EU in general and on the` Budget negotiations in particular as it has freed him from the need to play let`s pretend games to get popular domestic approval for the Constitution, now that the referendum scheduled for next year has been revoked or at least put on hold.

Blair can afford to play tough. While he is assured of his seat round the EU presidency table for the next 5 years he knows that the tandem of Chirac and Schroeder is disintegrating as both seem set to lose their democratic mandate to represent their countries. Schroeder could receive the order of the boot as early as next autumn if he proceeds with his promise to call early elections in September. The result, if such elections are really held, is almost a forgone conclusion ending Schroeder`s political career.

French Presidency elections are two years away but the French electorate`s dissatisfaction with the second Chirac Presidency showed up clearly in the referendum result and his arch rival Sarkozy seems set to edge Chirac out of his job.

The result of such changes in the coming 24 months will mean that the Franco German conspiracy against Britain, which was strengthened during the build-up and the aftermath of the Iraq war, will disintegrate. It could mean that the liberal British model so much despised by Chirac, would find better support if Angela Merkel and Nikolas Sarkozy are sitting at the EU presidency table representing Germany and France instead of Schroeder and Chirac.

In the Sunday sister of this newspaper I wrote on the 29th May 2005, the day of the French referendum, that the probable rejection of the French and Dutch in the then up-coming referenda was probably a blessing in disguise.

I argued that the immediate economic impact of such rejection would be a substantial fall in the value of the Euro on the foreign exchange markets.` It happened just as predicted. These last 18 days the Euro fell some 5% against the US dollar and some 3% against the Sterling pound. No other single measure could have been so effective in breathing some oxygen back into the Euro economies by making them more globally competitive.

I say the same thing regarding today`s negotiations regarding the EU Budget for 2007 `2013.` Disagreement is better than a fudge that would leave the EU countries subsidising rich French farmers for a further seven years whilst denying much needed structural regional support for new member states.

The real problem with the EU budget is not the British rebate.` The rebate was a mere compensation for the excess subsidies drawn by France under the CAP mechanism. Although the share of funds allocated to CAP is reducing the fact is still that 45% of the EU budget is allocated to 2% of population represented by the agriculture sector of the EU 15 whose standard of living is multiple times better than the average in the new member states.

The need for the UK rebate would fall away if France does everyone a favour and climbs down on its obstinate objection to an immediate reform of CAP to reduce the level of subsidies necessary to keep functioning uncompetitive sectors which in terms of fairness should migrate to third world countries if more liberal trade in agricultural produce is agreed at WTO level. Such liberalisation in Agricultural trade is what Africa needs to get out of its poverty trap.` Live Aid and debt forgiveness are useful but temporary measures.` Liberalisation in economic sectors where poor countries can actually compete` delivers permanent economic benefit eradicating poverty and boosting world investment and consumption.

We should not regard the probable failure of today`s summit with disappointment. We have had too many fudges in the past and we need no other if the objectives of the Lisbon Agenda are to be achieved.` What we need is inspired EU leaders who can rise to the occasion and reconnect the people with the EU institutions by working on a Budget and a Constitution based on reality and flexibility permitting EU economic growth and addressing structural unemployment. Chirac and Schroeder do not fall in that category of leaders.