Opposition sees Euro adoption Bill as 'premature'

Opposition finance spokesman Charles Mangion has described the Euro adoption Bill as "premature" because there were various sectors that were still uncertain about the impact of the euro changeover.

Dr Mangion was speaking in Parliament on Tuesday shortly after the Bill was moved by Parliamentary Secretary Tonio Fenech.

Dr Mangion said the adoption of the euro was not a political issue since this was a requirement of EU membership. There was disagreement, however, over whether Malta should adopt the European currency on January 1, 2008 as the government hoped. Labour did not want to instil fear or uncertainty in the changeover process, but it had to state the facts as it saw them.

It viewed this Bill as being premature because there were various sectors that were still uncertain about the impact of the euro changeover. It would have been better if the National Euro Changeover Committee (NECC) had first made its reports available for discussion by an ad hoc parliamentary committee. This would have helped to ensure much better legislation in preparation for the transition.

What recommendations, if any, had the NECC made? What were the problems it anticipated, the plans it could suggest or the risks it foresaw? How would the changeover affect liquid cash held by individuals or corporate bodies?

The Bill's deficiency emanated from the fact that it was simply an enabling bill, with just five clauses. All it did was to give the minister the authority to issue legal notices. It was clear that the minister's greatest powers would be sanctions to discourage and punish abuse, including the suspension of businesses.

This showed that the fear of abuses was shared by the government, and justly so because it was its responsibility to deal with abuse. It was also clear, however, that the government lacked confidence in the various bodies that existed to prevent price abuses.

Dr Mangion noted that at the opening of the debate, Parliamentary Secretary Tonio Fenech argued that the euro would make for a more stable currency. Yet Malta already had a tradition of currency stability, with the value of the lira having been based on a basket of currencies for many years before Malta joined ERM II. Therefore it was clearly not the case of adopting the euro to instil stability.

Neither could one be led to believe that the euro would increase Malta's competitiveness. Competitiveness gains would be achieved only through government policy and action.

And the benefits of euro adoption for tourism were limited because about half of Malta's tourists came from Britain, and they would continue to need to convert their Sterling.

Similarly, Malta would still need to continue to pay for its oil purchases in the dollar.

The country's biggest exporter also kept its accounts in dollars.

Discussing the economic situation, Dr Mangion said economic growth in Malta was among the slowest of EU countries with both the manufacturing and tourism sectors being sluggish at best. The problem was that most of the problems were domestic. For example, competing destinations were seeing strong tourism growth.

Better branding and marketing had been the subject of government talk for more than a year, but if this was the key to progress it should have been handled more effectively and produced results by now.

Unfortunately the government and the tourism authority were taking decisions which were ill-advised? MTA offices overseas had been closed and replaced by agencies which could not even answer basic questions about Malta. It was said that embassies should have a stronger commercial role, yet their commercial units were among the most deficient and nothing was being done to change the situation.

In the meantime, unemployment and uncertainty were increasing.

Dr Mangion referred to the Maastricht criteria for euro adoption, notably deficit and inflation control, and insisted that such targets needed not just to be achieved, but to be sustained through real and consistent economic growth. Unfortunately there was no sign of this sustained growth. Or was progress based on increased taxation?

Proceeds from privatisation to plug the financial hole were not the real answer. What would happen when the government ran out of enterprises to sell off?

Keeping the deficit and the national debt low were, objectively, a good target, but one should remember that Nationalist administrations had always resorted to deficit budgeting. This had never been the strategy of Labour administrations, so both sides were now in agreement on the targets.

Dr Mangion complained that Malta's employment rate, at 54 per cent was the worst in the EU 25. And the recently-issued Labour Force Survey actually showed that there had been a deterioration because in February 2005 it was 53.5 per cent. These were the indicators of the real situation in the Maltese economy.

Dr Mangion observed that with euro adoption, the Central Bank would lose its independence to set the central intervention rate according to what best suited the economy here.

The only economic tool that Malta would be left with was to put pressure on the workers' purchasing power, when wage inflation was already lower than price inflation.

Indeed, the inflation rate had reached levels that were much higher than in the rest of the EU, and it was not all imported.

While the government could have done more to cushion the impact of higher oil prices, it made inflation worse by raising taxation. It was these problems that the country was facing and which could only be solved through sustainable economic growth.

It was important for the country to start addressing its structural shortcomings. No changeover to the euro would help attain these economic targets.