The common good

All the key decisions regarding Malta's adopting the euro have already been made by the government. Why now, Tonio Fenech, Parliamentary Secretary at the Ministry of Finance, bothers to write (June 8) about it all being in our common interest puzzles me. But then it was just a talking point, not one for discussion.

Indeed, the government seems to be paralysed by its own rhetoric, unable to move beyond textbook stuff. It consistently moves further away from the people, unable to grasp why "...only 11.3 per cent of the total population are convinced that the government's claims are true" (The Sunday Times, June 11).

How the government decided on the technicalities and timing of the euro are a case in point. One would have expected that there would have been a serious debate about such a critical matter, that all stakeholders would have been consulted, before final decisions are made. Of course, there are pros and cons on most issues involved. Some EU countries, such as Sweden, the UK , the Czech Republic and Hungary are still outside the eurozone (ERM11). Yet, our government talks and jiggles information as if there were no other choices.

How well informed are the people? Adopting the euro is only remotely similar to decimalisation. There are deep economic and social implications. Even if our country meets the Maastricht criteria by the established dates, the challenges for our economy will not be over. The government should be informing the people of the consequences should its plans go wrong, both prior to as well as after Malta joins the euro. What are the obligations involved? Are there any penalties should anything go wrong? Does the government have a contingency plan?

Mr Fenech wrote that "...when a country joins a monetary union its trade with member states is likely to be boosted". Even EU membership with its internal 450 million market and its free trade agreements should have boosted our trade. But rather than asking itself some serious questions, the government keeps looking for all sorts of excuses and scapegoats. Adopting the euro by itself, just like with EU membership, will not lead to higher trade unless we take care of the "supply" side (our enterprises) too.

Stating that "Adopting the euro will also mean lower borrowing costs... implying substantial savings on interest payments for all economic agents" too is a speculative statement. Recently, our Central Bank raised the central intervention rate by 25 basis points, thereby effectively pushing up the interest rates.

Why? Because in the circumstances, the Central Bank believes it needs to control inflation and stop the flight of capital from Malta since real interest rates in the EU have been rising and not declining. So while it is true that under the present scenario interest rates are nominally higher than in the eurozone, once Malta joins we could be facing higher real interest rates due to factors that are largely unrelated to the specific needs of our economy.

Capital flows to where returns, relative to risk, are best. If there has been a flight of capital from Malta it is because the people do not believe that our economy is on the right track. This is no new phenomenon and a few years back the Ministry of Finance deemed it fit to offer another of its infamous amnesties to force the hands of Maltese capital owners who had illegally transferred their money overseas, to repatriate it.

I believe that the whole discussion about adopting the euro should have focused on whether our economic woes are purely temporary or whether they are structural. Mr. Fenech is misguided if he believes that those who would have favoured a later entry date into the euro do so mainly, or purely, because of "exogenous shocks".

What worries me is an economy that, since the new millennium, has practically not grown at all. Abiding by the Maastricht criteria is commendable and should be pursued intelligently. But it cannot become an overriding goal in itself.

For example, a recent editorial in The Times (June 10) stated that, once again, a chairman of Malta Enterprise feels frustrated that the corporation's efforts to get investment is being hindered by the lack of factories. Is this not a case of false economic behaviour? The government should be making it possible for our economy to work. Adopting the euro will not by itself boost local productivity or give us any sort of competitive edge. Indeed, it may oblige our country to shoulder additional burdens for which it is ill-prepared.