Editorial

A report by the European Commission finding Malta far from ready yet to adopt the euro does not come as a surprise at all. In fact, according to the report, just published, Malta does not fulfil four of the five convergence criteria that must be met for the island to join the single currency.

In Malta's case, two of the major difficulties are of course the level of the deficit and of the debt, which both exceed the Maastricht criteria. Even though the government's deficit projections, up to the third quarter this year, are on target, the government admits that the actual figures are still high, and that the year-end target deficit of Lm95 million remains an "important challenge".

The government wants to see Malta join the euro at the first possible opportunity but unless the island doubles its efforts to reduce the deficit, it is unlikely that we meet the target. The fact that practically all the other new countries in the European Union are in the same boat is of little consolation, if at all.

If we come to that, even the giants in the European Union, France and Germany, have fallen foul of the targets that they, together with the rest of the EU members, set in the stability and growth pact of 1997! Indeed, many financial analysts today agree that the pact is no longer workable in its present form. In a way, it is therefore somewhat ironic, to put it mildly, that so much pressure is made on the new member states to adhere to the criteria precisely at a time when there have been so many calls for flexibility.

And yet, Brussels keeps rattling the sabre at the risk - not intentionally, certainly - of pushing the smaller and weaker economies of Europe to take steps they can ill afford.

But irrespective of the requirements that need to be made for the adoption of the euro, Malta has, for its own sake, to step up its efforts to reduce the size of the deficit. Unfortunately, the soaring price of oil will be making the task even more difficult than it already is today. Only the other day, it was announced that due to the rising oil prices, Enemalta was expected to end the financial year with a loss of between Lm11 and Lm12 million, some Lm7 million more than projected.

It remains to be seen how the government plans to tackle the situation arising from this sudden rise in oil prices but clearly one can hardly expect the administration not to do anything.

The most likely action is a rise in electricity and water rates, something that would have to be done in a wise manner in order not to hit unduly those at the lowest end of the earnings bracket. One should not be surprised if this happens even before the budget, which is usually presented in late November.

There is of course more to the effort of reducing the deficit than cutting unnecessary expenditure, although, in the Malta context, this must remain one of the key elements of the administration's programme. If this is taken as a principle, which it should, it would be most unwise on the part of the government itself to sidestep it, as it did when it opted to buy such a huge building in Brussels at this point in time.

Then, other than the required cost-cutting operations and the required structural reforms that are needed in so many areas, what would help the country move ahead is work aimed at generating new economic growth.