400 shop owners apply to join FAIR

Some 400 shop owners have already applied to join FAIR, the commitment to fairly display prices in Maltese lira and the euro, Parliamentary Secretary Tonio Fenech told Parliament yesterday.

He was speaking in Parliament at the opening of a debate on a Bill to update the Central Bank of Malta Act in view of euro adoption.

The main clause of the Bill provides that the Central Bank of Malta shall form an integral part of the European System of Central Banks.

The Bill also includes transitional provisions enabling the Central Bank to call in Maltese currency to replace it with euros.

The Bill is being piloted by Parliamentary Secretary Tonio Fenech who explained that the primary objective of the Central Bank would remain the maintenance of price stability, but without prejudice to this objective, the bank shall also support the general economic policies of the EU.

The tasks of the bank would be to:

Implement monetary policy, hold and manage reserve assets, ensure the stability of the financial system; promote a sound and efficient payment system; provide for the circulation of euro banknotes and coins; advise the government on financial and economic matters and compile and publish statistics as may be necessary.

Reference in any law to the bank's discount and, or official interest rates shall be a reference to the key interest rates of the European Central Bank.

Mr Fenech underscored the importance for Malta of adopting the second most important currency in the world.

He said euro adoption would not be the solution to economic problems which Malta may have, but it would be a useful tool to bring about economic growth and greater trade exchanges. Euro adoption would mean stability and hence make Malta even more attractive as an investment destination.

Mr Fenech said that although many people feared that euro adoption would raise inflation, the purpose of the currency was price stability and over the past seven years inflation in the eurozone had actually slowed down.

It was true that upon euro adoption Malta would lose its independent monetary policy. No Maltese government would be able to devalue the currency and the Central Bank would not be able to act independently to adjust interest rates. But, effectively, Malta never really had an independent monetary policy because interest rates here were adjusted whenever the ECB adjusted its own rates, and devaluation had also been a reaction to overseas developments.

Upon euro adoption, however, the Governor of the Central Bank of Malta would participate in the decision-making process of the European Central Bank.

Mr Fenech referred to the Convergence Assessment issued yesterday by the European Commission and the European Central Bank (see separate report), pointed out that the assessment was based on statistics compiled only by Eurostat and it ignored forecasts issued by the European Commission itself. The report might give the impression that Malta was not converging, but, of course, convergence was targeted to happen next year when Malta would request an assessment in order to be admitted to the euro zone.

The report rightly pointed out that up to October inflation was higher than the EU reference value of 2.8 per cent, with Malta's 12-month moving average being 3.1 per cent. But the ECB and the Commission agreed that by early 2007 Malta should achieve its inflation targets. Indeed, forecasts by the commission itself showed that inflation was on a sustainable downward trend and would slip below the reference value next year.

As for the deficit, the report only referred to the position in 2005 because 2006 had not closed yet. However, the government estimated that the deficit would be below the threshold of 3.0 per cent of GDP by the end of this year and this would be sustained in the following years.

On the national debt, the report showed how in 2005 a downward trend had been started and, Mr Fenech said, this had continued in 2006.

Malta already met the criteria on interest rates and there was no pressure on the exchange rate, which had remained stable. This meant, therefore, that there was no reason to expect any change in the exchange rate when the euro was eventually adopted.

Still the report showed that Malta was on the right track for convergence, making it highly probable that Malta would be able to adopt the euro on January 1. 2008.

Concluding, Mr Fenech referred to the actual euro changeover and said the government was acting to counter the possibility of inflation. He said the FAIR agreement reached between the government with the GRTU as the representative of retailers was important, its basis being to protect consumers from price abuse. It also addressed concerns which retailers might have had about changeover costs. Any such costs, such as the cost of price-guns, would be borne by the government. Retailers would not need to buy cash registers, and no one would be able to claim that he had to raise prices because of changeover costs.

Mr Fenech said 70 euro observers were training shopkeepers and would keep a lookout for price movements. Once the legal notice on dual pricing was issued and abuse was detected those involved would initially be warned and then fined for any repeat offences. He said he would be meeting consumers' associations to explain how the system would work.

Mr Fenech said it was encouraging to note that some 400 shop owners had already applied to the National Euro Changeover Committee (NECC) to participate in FAIR (Fair-pricing Agreements in Retailing), thus promising to display prices in Maltese lira and euro in the proper manner.

The Parliamentary Secretary said talks were continuing with the banks for charges on euro conversions to be waived earlier than July 1, 2007, especially for participants in FAIR.

Charles Mangion, Opposition spokesman for finance, welcomed the fact that the primary objective of the Central Bank would remain price stability.

He referred to the EU's Convergence Report and observed that so far Malta had only achieved the criteria on interest rates. He augured, however, that the commission and the ECB would issue a favourable report in due time because Malta was now geared for euro adoption.

It was true that when Malta joined ERM II in May 2005 the opposition had argued that the euro adoption target date should be put off, especially as the economy was stagnant, he said. The opposition was not apologising for its views, given the circumstances at the time.

The opposition had argued, rightly, that the Maltese economy should be growing in a sustainable manner and thus converging with the performance of eurozone countries so that the impact of transition would be as smooth as possible.

A lot of water had since passed under the bridge. Malta had joined ERM II and its suitability for euro adoption was being closely watched abroad, Dr Mangion said.

The opposition had therefore responsibly decided that once the government had picked a euro adoption date and in view of the perception of Malta abroad it would be important for Malta to achieve its euro adoption timetable as planned.

To argue that failure would be politically useful (for the opposition) would betray a narrow partisan position which ignored the national interest and the need for a favourable climate for foreign investment.

Nonetheless, Dr Mangion said, the opposition remained concerned over inflation, more so as it was the most important components, such as food, medicines and energy which were seeing the steepest price increases.

Families were feeling the burden of higher costs and the purchasing power had slipped.

The government was not being effective in curbing prices. It had promised that medicine prices would not go up after November 1, but this was not the case. Was there any reason for the price hikes in medicines to continue? It was high time that the government intervened.

In the light of all this, it was inevitable for the consumer to be concerned that the euro changeover would boost inflation.

Dr Mangion referred to the FAIR agreement and the risk that prices would be rounded up to the detriment of consumers. He insisted that law enforcement needed to be effective and seen to be effective. The people needed to feel that they were being protected.

It was for this reason that the opposition was arguing that consumers needed a stronger voice in the NECC, Dr Mangion said.