Fenech promises consultation on legal notices with stakeholders

The Euro Adoption Bill started being discussed in Parliament yesterday, with Parliamentary Secretary Tonio Fenech stressing that this was just an enabling act and the legal notices necessary ahead of the adoption of the European currency would be discussed with all stakeholders within the National Euro Changeover Committee (NECC).

Mr Fenech referred to the GRTU's decision to quit the committee (see separate story) and urged the chamber to reconsider, saying he would be looking into the complaints which had been made about how the committee's structures worked.

It was important, he said, that the government, the GRTU and the other stakeholders worked together for a smooth transition to the new currency. They should aim to remove uncertainty and fear in the minds of the people because no one would benefit from such a situation and, indeed, retailers could suffer most.

The Parliamentary Secretary said the transition would be brought about with the least changes and lowest costs possible, but the government needed to have the tools to enforce what was basic to the change.

And he insisted that the professions, including IT operators and accountants should not lead their clients to make costly changes which were not required.

For example, no one would be required to buy a cash register to handle dual pricing and accounts would not need to be held in two currencies. At the end of 2007 the balance would just have to be converted to euros. Nor would anyone be required to convert accounts going back 10 years into euros.

In his introduction Mr Fenech said everyone, including the opposition, agreed that the economy stood to benefit from euro adoption but the MLP disagreed with the adoption day.

The benefits that would stem from euro adoption were well known. The euro was the second most important currency and one of the most stable removing the need Malta had to support a small currency.

Euro adoption would also mean eliminating currency risks in commercial transactions with eurozone countries and hence the removal of costs associated with forward buying or insurance against currency fluctuations.

There would no longer be currency exchange costs in transactions involving the euro.

Consumers would enjoy price transparency since it would be easier for them to compare prices with other countries.

Another advantage was control of inflation. The primary mission of the European Central Bank, in contrast to the Federal Reserve, was to achieve low inflation and its monetary policy was geared towards this objective.

Mr Fenech said euro adoption would mean investors would have access to a bigger financial market offering low interest rates.

Euro adoption required greater financial discipline by the member countries, and that in turn translated into higher credit ratings. Indeed, in view of Malta's euro adoption intentions, some rating agencies had already improved the country's rating, and that would continue to improve when the euro was actually adopted. All this was good news for Malta as an investment destination.

While the euro was not a magic wand for Malta's competitiveness and economic growth, it was undoubtedly an important tool towards this end. Hence the need to adopt the currency as soon as possible.

The Opposition was making two arguments to back its claim that Malta should not adopt the euro on January 1, 2008, Mr Fenech observed. The first was the risk of an inflation spike at the moment of adoption while the second was that Malta's economy should have a growth rate of four per cent before adopting the euro.

Mr Fenech said the risk of an inflation spike had to be tackled irrespective of the adoption date chosen.

And he could not understand the argument of waiting for the economy to grow at a rate of four per cent because the euro was actually an instrument to bring about such growth. Indeed, many economists were arguing that the Maastricht criteria should be eased for small economies so that they could adopt the euro earlier and achieve faster growth.

Mr Fenech said that despite these obvious advantages, the government had taken a conscious decision to aim for euro adoption on January 1, 2008. When Malta joined the EU, the European Commission had asked Malta if it wished to join the Exchange Rate Mechanism (ERM II) immediately upon accession in order to adopt the currency on January 1, 2007. The Maltese government, however, wanted to see how the economy responded to EU membership and various studies and assessments were conducted by the Malta Central Bank, the ECB and other European institutions.

Estonia, Lithuania and Slovenia opted to join this first group. The first two were now deemed not in a position to adopt the euro next January 1, and would do so with Malta and other countries in 2008. Slovenia however, was on course for euro adoption this January.

On the basis of the Central Bank's and the EU's assessments, which have been made public, it was felt that the Maltese economy should be ready for euro adoption on January 1, 2008. Convergence had already been achieved in many aspects of the economy. Malta was on course to reducing its deficit to below three per cent of GDP this year while the current inflation rate was at the limit of what the Maastricht criteria required.

Given that there were no major problems in the way of euro adoption, postponing adoption of the currency beyond a reasonable date would have signaled that Malta lacked direction or was not fully committed to financial discipline. Malta would have been labeled as a country having problems. The consequences with regard to the credit rating, and hence, foreign investment, would have been obvious.

The fact that competing countries for foreign investment and tourism would have adopted the European currency before Malta would also have been very detrimental to the economy.

It came as no surprise, therefore, that Malta's constituted bodies agreed that Malta should adopt the euro on January 1, 2008.

Mr Fenech stressed that what the House had before it was an enabling law. This was not a Bill which laid down timetables or other measures. Those were still being discussed or had to be discussed within the National Euro Changeover Committee (NECC) and much depended on whether Malta achieved approval to adopt the euro in the first half of next year.

Therefore, the GRTU may have given a mistaken impression when it complained earlier yesterday that it was not consulted on this Bill.

This Bill was actually finalised and sent to the ECB in February, when the GRTU had not yet decided to join the NECC. It was published by the ECB during that month and anyone who wanted to react to it therefore had plenty of time to do so. Nonetheless, the door was open for meetings with the GRTU on possible changes in the committee change, if they were seen necessary.

He would guarantee to the GRTU and all the other interested parties, however, that all legal notices relating to euro adoption would first be discussed in the NECC. It would discuss if there was need for changes in the way the committee operated, as the GRTU had complained.

He was also prepared to consider helping the NECC's sub-committees, another issue raised by the GRTU.

But all stakeholders had to understand that they could not have a veto on decisions. Solutions had to be found in everyone's interest. The government could not just look at the interests of just one sector but all sectors, particularly the consumer. The GRTU, Mr Fenech said, was proposing a voluntary period of dual pricing and that may be considered. But there would also be a need for a mandatory period of dual pricing and the government had to have the tools to ensure that dual pricing, whether voluntary or otherwise, did not lend itself to abuse.

The government, he said, was committed to keep costs as low as possible for businesses and help them in any way it could, but then one should not expect the government to meet the cost of all essential changes. This was, after all, taxpayers' money.

Mr Fenech said all surveys showed that the people of Malta wanted to adopt the euro, but all feared the changeover period because of inflation concerns. He was sure that most businesses would not abuse but all the stakeholders needed to work together to reassure the people. Raising a controversy over dual pricing certainly did not help matters.

Mr Fenech said that while, for technical reasons, advice had been given for dual pricing display not to start before July next year, it was clear that consumer education had to start much earlier. One could not cram everything in the last six months before euro adoption because there would be confusion. Hence the need for the stakeholders to work together so that consumers would not suffer.

Near the end of his speech Mr Fenech urged the professions including those involved in IT and accountants not to alarm the commercial sector, such as about the need for a contingency strategy, which could be a means to raise their professional fees. The NECC was issuing clear guidelines of what data would need to be converted and this was being kept at an absolute minimum to keep costs down.

One should not allow uncertainty to dampen the advantages of early euro adoption, Mr Fenech said.