Economic growth 'faster than projected'

The economy in the first quarter of this year grew faster than expected and exceeded last year's growth rate of 2.5 per cent, Parliamentary Secretary Tonio Fenech told Parliament yesterday.

He said he could not give figures yet because he was basing himself on indications, but added that growth was being export driven, with export sales having grown by nine per cent over the same period last year.

Mr Fenech was speaking at the end of the second reading debate on the Euro Adoption Bill. Only one opposition speaker, Charles Mangion, spoke in the debate, and the Bill was given a second reading without contest.

In his speech Mr Fenech insisted that all partners needed to work together so that the advantages of euro adoption would not be dampened during the transition process.

The transition needed to be such that uncertainty and abuse were avoided and costs were kept down.

Mr Fenech said he was surprised that Dr Mangion had argued that the economy needed to grow by between three to four per cent before the euro was adopted.

On the contrary, rather than wait for such economic growth, the government viewed the euro as an important tool for economic growth to be achieved.

That view was also shared by ratings agency Moody's, which in a report on May 31 underlined the importance of adoption of the European currency for the Maltese economy. It also warned that derailment of the adoption process could cause the ratings to tumble.

Although Malta should not impose new conditions for euro-adoption, like the opposition was doing, Mr Fenech said that nonetheless economic performance this year could be on the way to achieving the GDP growth rates which the opposition wanted before the euro was taken on board.

First quarter exports by the manufacturing sector in the first quarter this year grew by almost Lm20 million, or nine per cent, from the first quarter last year. Investment was up by Lm4.4 million during the same period and sales of capital and consumable products were also up.

The tourism sector was continuing to face challenges, but it was not the doom and gloom which the opposition painted, with the number of arrivals up 1.1 per cent in the first four months of this year.

The deficit was being trimmed to acceptable and sustainable levels, dropping below the threshold of three per cent of GDP this year and reaching Lm55 million, practically a third of what it had been under the Labour government. This had nothing to do with privatisation revenues, despite what the opposition said. Revenue from that source only went towards deficit reduction.

Mr Fenech said he was also surprised how Dr Mangion had said that this Bill was premature. With euro adoption targeted for January 1, 2008, he could not see how that was the case, given the time that was needed for legislation and for the publication of related directives and legal notices. In any case, this Bill would apply independently of when the euro was adopted.

This, Mr Fenech stressed, was only an enabling law, creating the legislative framework within which subsidiary legislation could be issued. Nonetheless, the Bill had needed to include penalties for violations because, in terms of the Constitution, tariffs and penalties had to be approved by the full House. He would have expected the opposition to have known this in making its criticism. Still, one could not argue that the penalties were high. They were very reasonable, because the government wanted to see the euro introduced by consensus and persuasion, not imposition, but it had it guard against abuse.

Mr Fenech said a revised masterplan for euro adoption would be published in the near future by the National Euro Changeover Committee.

Earlier in the debate, Parliamentary Secretary Edwin Vassallo said he was confident that the vast majority of businesses would not abuse as prices were converted to euros. Although inflation and abuse comparisons were made with Italy, the situation here was different. When prices were converted from the Italian lira to the euro, the figures on price tags went down dramatically. The conversion of the Maltese lira to euro meant bigger numbers on the price tags, making it difficult for shop owners to raise prices. Nonetheless, the government would be vigilant against abuse.

Mr Vassallo spoke on the advantages of euro adoption, notably currency stability.

The sooner the people started seeing the relationship between the Maltese lira and the euro in practical terms, the better, said Mr Vassallo.

He welcomed the fact that in the Bill the government was legislating that any infringement of the law, wilful or accidental, would not be viewed as a criminal offence, although those involved would be brought before the inferior courts. Anyone could tell what was a wilful violation of the law and what was a mistake.

Mr Vassallo appealed to the GRTU to participate in the proceedings of the NECC because the Maltese deserved a transition process that was as smooth as possible.

Parliamentary Secretary Carm Mifsud Bonnici said adoption of the euro would put the national economy on a sounder footing. This currency was important for Europe, having, in the words of Romano Prodi made the EU a stronger commercial bloc on the same level as the US besides making trading easier within the internal market.

The euro would help give Malta economic stability and greater competitiveness.

Some might say that with the changeover to the euro Malta would be losing out on its national independence in monetary matters. Although this might seem true, what the country would be gaining would far outweigh this perceived loss. Since Malta joined ERM2 the Central Bank of Malta had been taking part in a daily teleconference with the European Central Bank to discuss current developments in the foreign exchange markets in all countries involved.

This constant sharing of local experiences with so many foreign counterparts was a great advantage. If this could be called foreign influence, it should be remembered that Malta had always been under such influences; the difference was that now it could conceivably influence others, Dr Mifsud Bonnici said.