No euro small change

The National Euro Changeover Committee set up in mid-summer after Malta entered ERM II, the euro waiting room, seems to have got well into its stride. The government wants to meet the entry tests of the EU Maastricht convergence criteria by mid-2007. January 1, 2008 is the earliest possible date to adopt the euro, should the EU agree that Malta is moving in the required direction. Insiders are confident that will happen.

In collaboration with the Central Bank the government established a steering committee to monitor the level of progress and preparations of the public sector and the economy during the presumed changeover phase. It is headed by Tonio Fenech, Parliamentary Secretary at the Ministry of Finance, and reports to the Cabinet.

Joseph F.X. Zahra, a very experienced economist who, among other things, chaired the Bank of Valletta for six years, leads the Changeover Committee. Its task is to formulate and implement a specific euro changeover strategic plan to handle the aspects pertaining to the adoption of the euro. The committee is also required to coordinate all matters related to the changeover.

These include an information campaign, private and public sector technical readiness, such as information and accounting systems, cash handling and vending machines, pricing, and currency replacement. The first phase in the strategy defined by the Zahra Committee is a consultation process with public and private stakeholders. A number of implementation sub-committees were set up to focus on critical aspects of the implementation strategy.

Various bodies within the segmented sub-sectors are consulting their members to give the Changeover Committee appropriate feedback. Consumer groups, unions, pensioners and representatives of what are termed general public vulnerable groups will probably focus on potential negative aspects. Importers, traders, industrialists and the tourism sector will try to anticipate the demands the changeover will place on them, not least as regards pricing visibility. The financial area will be concerned with the knitty-gritty of implementation and beyond.

Whenever Malta joins the eurozone the impact and ongoing effect on prices will be crucial to an acceptable outcome. That must rank high in the objectives of the committee. These effects - real and perceived - will be the major input into the first conclusion on whether the changeover, if and when it comes, was handled well.

The primary importance of the effect on competitiveness of adopting the euro will remain on the boil. That factor was discussed at length in the context of the rate to which the government notionally bound itself when taking Malta into ERM II. The controversy that arose at the time is likely to resurface and linger when the euro is adopted.

Meanwhile, the way forward faces an inherent high hurdle. Irrespective of the Malta lira being part of ERM II and 100 per cent linked to the euro, the latter is still a foreign currency. There is no daily exchange risk relative to the euro. While the Maltese lira moves against other currencies in strict line with it, until we adopt the euro there remains the technical risk that the entry parity will be different from the present central rate. Should the confidence of those who feel Malta is on track be borne out the present parity (1 euro=Lm0.4293) will stand.

For the changeover preparations to go forward on the best possible basis while the position remains technically open, a way has to be found to operate as far as possible as if the parity is already final. That rests with the banks.

They have maintained a buying and selling "spread" against the central parity, a considerable cost to those who need to buy or sell euros against the Maltese lira.

If the notion of the Malta Lira transmuting into the euro is to grow smoothly in the national consciousness that spread/cost has to go, or be cut to the barest minimum on all transactions. The banks would not really be taking much of a risk. The earlier they see that, the less difficult it will be to prepare for the changeover to the euro, whenever that comes about.