Multiple euro tests
It is in the interest of one and all that Malta passes the euro test and says goodbye to the Malta lira on December 31.
Read the road sign well: It says "Caution". And well it ought to. It points to the selected direction. But the destination is still quite a way off. Applying formally to join the eurozone is one thing. Being accepted is something else again.
The government is confident that Malta can make it. Otherwise, it would not have applied now. It interprets the relevant economic indicators to be saying that convergence has not only been achieved up to the required level, but also that it is sustainable.
That is what the EU authorities and the assessment officials of the European Central Bank will be attempting to determine over the coming weeks.
They are likely to frown slightly regarding the public debt-to-GDP ratio. It is still uncomfortably high, and is unlikely to be brought down in the foreseeable future through budget surpluses. The assessors, therefore, will focus on the growth potential of the Maltese economy over the medium and longer term.
They will also take into account the budget forecasts over that period. Particularly, they will take into account the relatively short term, and will try to anticipate answers to questions framed within political considerations.
What sort of budget proposals will the present government make for 2008? That being - most probably - the election year, will the government undertake to raise expenditure and cut taxes, hoping that buoyant growth will create fiscal space for both set of measures?
The EU authorities will peer beyond "hope" and try to work out careful estimates. They will not be sceptical regarding the figures supplied to them from the Malta end, but their analysis may be expected to be very critical.
I would be surprised if EU economists were as sanguine as the Maltese ministers regarding the inflow of foreign direct investment. The figures endlessly bandied about by the Prime Minister do show that the aggregate has risen very strongly.
The economists will disaggregate the total to see to what extent it is influenced by trade credits, by retained bank profits due to foreign shareholders, and by capital paid-up by foreign financial institutions.
They will try to work out how much of the FDI aggregate will remain in Malta and be channelled into the creation of export-oriented job opportunities. They will also be much less impressed by the impetus given to growth by government and private consumption. They will also try to assess how a potential change of government in 2008, a few months after the possible adoption of the euro by Malta, would impact on the budget outturn. Would a Labour government start by revising the budget so as to reduce the tax burden, and increase spending on welfare, so as to redeem some of the promises implied by its criticism targeting the two areas?
The conclusions reached by the EU assessors will be detached from the way we see things in Malta. The assessor will also try to anticipate the likely trend of domestic consumer prices relative to the three best performers among the EU countries. That particular indicator has turned over the last three months, pretty much as expected by the Maltese authorities.
The important consideration will be sustainability of the incipient trend.
Suggesting that the EU assessors will analyse very critically is not to say that Malta will not pass their review. They too do not include prophetic powers among their resources. The point is that there is much ground to be covered.
Hopefully, it will be covered successfully, and there will not be any slip twixt cup and lip.
Once the direction is set and the timeframe to get on to the euro base has been set, it is imperative that Malta achieves its goals and passes the euro-assessment test. Not to do so would not spell economic disaster, but would unleash uncertainty, particularly about the exchange rate.
That would also affect the real economy, as importers and exporters, already well geared to the adoption of the euro, would find themselves at sixes and sevens.
That is why the euro project does not belong to the government alone, but is of direct interest to all of us. It is a national project. It is in the interest of one and all that Malta passes the euro test and says goodbye to the Maltese lira on December 31.
The fact that there is political agreement that, now that the die is cast, the issue is covered by consensus should be exploited to the full. All eyes and ears, in whichever political angle they may reside, should be watching out for price abuse, which could easily shove up consumer prices without real justification.
The watch should be kept as alert as can be also if Malta adopts the euro as scheduled. That is why, too, politics should be kept out completely from this particular national frame. That is not going to be easy.
If the political class fails this particular euro test, its members will show acute myopia as regards both the national as well as their own interest.
The government is confident that Malta can make it. Otherwise, it would not have applied now. It interprets the relevant economic indicators to be saying that convergence has not only been achieved up to the required level, but also that it is sustainable.
That is what the EU authorities and the assessment officials of the European Central Bank will be attempting to determine over the coming weeks.
They are likely to frown slightly regarding the public debt-to-GDP ratio. It is still uncomfortably high, and is unlikely to be brought down in the foreseeable future through budget surpluses. The assessors, therefore, will focus on the growth potential of the Maltese economy over the medium and longer term.
They will also take into account the budget forecasts over that period. Particularly, they will take into account the relatively short term, and will try to anticipate answers to questions framed within political considerations.
What sort of budget proposals will the present government make for 2008? That being - most probably - the election year, will the government undertake to raise expenditure and cut taxes, hoping that buoyant growth will create fiscal space for both set of measures?
The EU authorities will peer beyond "hope" and try to work out careful estimates. They will not be sceptical regarding the figures supplied to them from the Malta end, but their analysis may be expected to be very critical.
I would be surprised if EU economists were as sanguine as the Maltese ministers regarding the inflow of foreign direct investment. The figures endlessly bandied about by the Prime Minister do show that the aggregate has risen very strongly.
The economists will disaggregate the total to see to what extent it is influenced by trade credits, by retained bank profits due to foreign shareholders, and by capital paid-up by foreign financial institutions.
They will try to work out how much of the FDI aggregate will remain in Malta and be channelled into the creation of export-oriented job opportunities. They will also be much less impressed by the impetus given to growth by government and private consumption. They will also try to assess how a potential change of government in 2008, a few months after the possible adoption of the euro by Malta, would impact on the budget outturn. Would a Labour government start by revising the budget so as to reduce the tax burden, and increase spending on welfare, so as to redeem some of the promises implied by its criticism targeting the two areas?
The conclusions reached by the EU assessors will be detached from the way we see things in Malta. The assessor will also try to anticipate the likely trend of domestic consumer prices relative to the three best performers among the EU countries. That particular indicator has turned over the last three months, pretty much as expected by the Maltese authorities.
The important consideration will be sustainability of the incipient trend.
Suggesting that the EU assessors will analyse very critically is not to say that Malta will not pass their review. They too do not include prophetic powers among their resources. The point is that there is much ground to be covered.
Hopefully, it will be covered successfully, and there will not be any slip twixt cup and lip.
Once the direction is set and the timeframe to get on to the euro base has been set, it is imperative that Malta achieves its goals and passes the euro-assessment test. Not to do so would not spell economic disaster, but would unleash uncertainty, particularly about the exchange rate.
That would also affect the real economy, as importers and exporters, already well geared to the adoption of the euro, would find themselves at sixes and sevens.
That is why the euro project does not belong to the government alone, but is of direct interest to all of us. It is a national project. It is in the interest of one and all that Malta passes the euro test and says goodbye to the Maltese lira on December 31.
The fact that there is political agreement that, now that the die is cast, the issue is covered by consensus should be exploited to the full. All eyes and ears, in whichever political angle they may reside, should be watching out for price abuse, which could easily shove up consumer prices without real justification.
The watch should be kept as alert as can be also if Malta adopts the euro as scheduled. That is why, too, politics should be kept out completely from this particular national frame. That is not going to be easy.
If the political class fails this particular euro test, its members will show acute myopia as regards both the national as well as their own interest.