Flickering candles

The candles on the cake to commemorate the beginning of Malta's third year as a member of the European Union will not light up much dark. The mood is at best quiet, at worst outright sullen. It is not that those who were in favour of membership have begun to regret it. More that there is too widespread a feeling that things have not gone as swimmingly as expected.

That is due to a mix of foolishness and the fate of expectations.

The foolishness was evident in the final stage of the campaign for membership. Too many of the main proposers, and practically the Nationalist Party and the government as a whole, hyped up the positives of membership beyond the merest dash of sense. Nationalist spinners competed with the silliness of the Switzerland-in-the-Med Labour metaphor with further silliness of their own.

They projected EU membership as a cure for all ills, rather than the better way forward, on balance. The imagery was of a quack selling mysterious bottles which would guarantee health, virility, hair growth, and sweet-smelling perspiration. That raised and fattened expectations.

Expectations are easy to fuel but far more difficult to satisfy to the full extent. It is a basic truth that realisation is not really a triplet to anticipation and expectation. That is true in most circumstances. Projecting accession as a means whereby we could all start living off the fat of Euroland was a recipe for probable disappointment.

That recipe was compounded by insufficient general knowledge that the net benefits of being part of the EU take time to come through, and do so as a process. Too many people were led to boost their belief that membership was some form of Big Bang: Malta joins the EU and - lo! - a new paradise on earth is created.

Those of us - like this columnist - who argued the net case for membership while also warning against hyperbole were applauded, and their views exploited, insofar as the we-in-favour bit was concerned. The warnings against creating bubbles of expectation were cynically ignored. Two years on, the foolishness is continuing.

The government and the Nationalist Party beat the drum of the amount of funds - €805 million - that Malta should be receiving under the EU's 2007-13 budget. A tidy sum which, no doubt, if actually and wisely spent, should change much of the physical face of Malta. To give the impression that such EU fat of the land is what membership is all about simply continues to demonstrate that the same government that took Malta into the EU has become the worst enemy of membership.

It is ironic that the Labour side, which vehemently opposed EU accession to the point of persistently declaring, straightfaced, that a democratic Yes vote in the referendum was actually a resounding No, has proved to be more adept at beginning to exploit the mechanisms of membership that do not relate to or depend on the initial programmed transfer of funds.

The funds themselves - tidy though they are up to 2013 - call for wariness. They are, no one ought to forget, intended to make Malta ineligible for further dollops, by (hopefully) raising economic growth and thus enabling Malta to rise above the threshold of income per head which cuts off access to such funds, though other more modest but important EU sources will remain to be tapped. The funds have to be spent, within the parameters and timeframes set by Brussels. Above all, they have to be utilised wisely to ensure long-term value for the money spent.

Two years into membership have not outlined or drafted any form of guarantee that will happen. Malta does require a strong inward transfer of resources to set some of its worst shortcomings to right. The road network is certainly one of them. A more deeply embedded shortcoming is that of mediocrity.

For some strange reason the Maltese people, who can be so finicky and can be master grumblers, are much too inclined to accept the mediocre with a resigned shrug, rather than insist on proper value. Where there is real competition within the private sector, mediocrity is attacked at source by such consumers as are willing to exercise their right to choose, and not be lumbered with shoddy goods and services.

There is no competition within the public sector and, despite untold mission statements, charters and airy boasts that the nature of the beast has been magnificently tamed and changed, mediocrity remains far too prevalent, particularly given the charges and taxes paid by the taxpayer/consumer.

One of the weakest arguments in favour of joining the EU, I used to think, was that membership would force us, as a society, whichever areas we operate in, to ditch mediocrity and actively aim for excellence. That is something, I would protest, that a people should set out to achieve and also expect from those who supply them (economic agents) and serve them (the political administration and public bureaucracy).

Not so, the counter-argument used to run. Being part of the EU will alter perceptions and how they are satisfied, you'll see. If it has happened at all, I am not sure that it has happened significantly. The way our political class conducts its ongoing debate has not helped.

Confrontation on all issues, from the trivial to the profound, does not encourage citizens to see things clearly and reason them out. Constant confrontation is intended to sow and water daily partisanship, in the hope of reaping the reward in terms of votes at local and general elections.

Too much mediocrity within the political class itself should make people cry out enough! A few do so, through the letter columns of the newspapers. Many more shout out silently by denying their vote, as they did to the Nationalists in the European Parliament election, and to both political parties, though far more so to the PN, in the last round of local elections.

Nevertheless, mediocrity continues to prevail to a far greater extent than one had expected, even though one does recall that the important intangible effects of membership do not come through a quick fix, but are part of an ongoing process. It is evident in the way works already partially financed with EU funds are executed, as if nothing has been learned from the relative quality failures along parts of the kilometres of roads reconstructed with funds under the fifth Italian protocol.

On a different plane some of the lukewarm attitude that has developed over the first two years of EU membership is due to the way the real difficulties arising out of accession are handled. The disenchantment of farmers who heavily massaged to see only the good side of being with the EU, without being explicitly warned of the dangers to their very existence, is probably the most acute.

The other side of the coin is the vastly increased interest in Malta as a financial services centre, which membership generated.

A particular aspect of EU membership that is making a growing number of people feel ill at ease concerns the adoption of the euro. A time limit is not set by when new members have to discard the national currency making the euro their currency as well, thereby giving up two potential policy instruments: the freedom to adjust the exchange rate (for which read devaluation), and to influence the domestic interest rate level independently of what the rest of the Eurozone does.

The Malta Government is among the authorities of the 2004 accession crop who have targeted a relatively early definitive date. An economic discussion attracted disagreement by various economists either on the timing, or on the exchange rate. At the political level the Labour Party disagrees on both counts.

Recently there has been a new development. An issue of a very arcane nature was flung into the political arena. When Malta too adopts the euro as its currency, the level of the currency in domestic circulation will come under the strong EU spotlight.

Monetary policy includes influencing the money supply, of which currency in circulation is the first component. An overly high component can weaken the influence on economic activity and prices, which the European Central Bank attempts to exert on Eurozone through changes in interest rates.

There is in place, therefore, a mechanism to discourage a country from maintaining a high level of currency in circulation in its system. It could include penalties on the erring country's central bank. It is not technically possible to say at this stage to what extent Malta will be penalised, and starting from when.

That will be a matter for discussion once it becomes clearer whether there is the necessary convergence to the so-called Maastricht parameters in relevant indicators used to assess eligibility for the adoption of the euro, including the relative rate of inflation, the structural annual deficit and the public debt relative to GDP.

The gun has been jumped. The Labour Opposition accuses the Central Bank that, in a briefing it gave it, it had not drawn its attention to this matter. The heat is on, forging political doubt over the euro and, by association therewith, over the whole project of EU membership. The anniversary candles flicker more and more weakly.

One may presume that when the monetary authorities - the Central Bank and the Finance Ministry - are in a position to give fuller details, which would depend on the state of play with the European Central Bank and other EU institutions, the issue will become clearer.

One will be able to see whether this will be one of the negatives of membership, without tipping the net balance.

I refer to membership, and not to the adoption of the euro, deliberately, as I suspect that some of the heat is unnecessary. Without doubt the situation should be explained, when it is possible to explain it on the basis of facts at hand. But whatever the explanation is, once the political parties are now all committed to membership, it is a matter of timing.

If we do not join the euro at the start of 2008, we shall still be obliged to join later on. That could happen within the lifetime of a Labour administration, if the MLP wins the next general election, as it is positioned to do, and, given a kind wind, an able hand on the tiller and a strong crew, should look forward to winning the one after that as well.

If, should the euro be adopted during that period, currency in circulation in Malta is also too high relative to the ECB and EU norms, the penalty mechanism would still be triggered off.

While calling for whatever clear information that can be made available, surely there should be another call - addressed to the owners of the more than Lm500 million held in cash at home. These hoarders are not only making Malta risk penalties when it eventually adopts the euro as its currency. They are forfeiting Lm10 million annually in interest, if one assumes a nominal rate of interest of only two per cent.

Remarkably, in fact, Maltese people and businesses, hold more than double the amount of currency in circulation (well over a billion - one thousand million - liri Maltin) withdrawable on demand in current accounts with the deposit money banks, receiving nil or very low interest.

Combining both aggregates many thousands of people are effectively donating a handsome cash present annually to the government and to the banks.

Two years of EU membershp have not induced enough of the Maltese to learn some financial basics - like giving to the poor, but not to the banks and unnecessarily to the government.

Nor have the political parties given a thought to telling that to the people before whom they strut spout so regularly.

Flickering candles? Why bother to light them at all?