Social impact of joining eurozone

I am surprised that Malta is considering joining the eurozone without due regard to the potential social impact of this decision.

Maybe I have missed the relevant government pronouncement but for a nation such as Malta to join the euro region is not the forgone decision frequently reported in the local media. No EU member nation has to automatically join the regime; in fact each nation would be well advised to consider the merits as they apply to its own economic standing and strength relative to its main trading partners. The questionable prestige gained in being a euro denominated nation is easily outweighed by the economic independence lost. For Malta this is a vital factor indeed since, if it were to join the euro regime, the ECB Governing Council would set its eurozone-wide interest rates with very little, if any, reference to the state and strength of the Maltese economy.

With the level of Maltese property prices expressed as a multiple of earnings levels having surpassed the level considered to be "stretched" by any known EU-15 and US economy (think Tokyo in 1990 and you might be better prepared for the future), the level of gearing currently supporting residential prices looks precipitous already. As seen in London three years ago, when interest rates are low by historical standards only a small rise in rates is needed to stall or reverse the market. The social effects of this can be calamitous in an economy such as Malta's which is so heavily dependent on the construction industry.

In this context the decision to permit further large scale construction would make entry to the euro regime an economic accident waiting to happen. Who will fund the welfare for those whose property has been repossessed by the banks who over-lent? Who will buy from the banks these repossessed properties? Who will buy the newly constructed properties that have failed to sell due to overpricing by the developers and/or due to the stalled market? Overseas investors have already started to turn away from Malta for better value for money options elsewhere in the Mediterranean basin. This coupled with overzealous asking prices will lead to a Mexican stand-off in the market.

And if you think the above is fanciful or even unlikely remember that global interest rates are rising; even the eurozone is experiencing rising rates due to the German economy recovering steadily.

I would reason that economies as small and geographically isolated as Malta's would be better off with their own currency. The question then moves onto whether the currency should be floating or tied at present. In the age of globalisation a freely floating currency is used by almost all the roaring economies of the emerging and recently emerged nations. Even the rising dragon of China will soon have to admit this lesson.