Euro adoption, a means, not an end - Gonzi

The Prime Minister told Parliament yesterday that euro adoption was a point of departure not a point of arrival for Malta.

The European Commission's recommendation last week for Malta to join the eurozone meant that Mata had made another major step forward in its socio-economic development.

"But what is even more important is that euro adoption means that we are giving the country an important tool with which it can better tackle the challenges of the future," Dr Gonzi said in a statement to the House.

He said that last Wednesday's publication by the European Commission of the Convergence Report and the recommendation that Malta adopt the euro from January 1, 2008 was the best confirmation of the credibility and sustainability of Malta's economy and financial system.

It was a result that was achieved thanks to the vision of the government and the work of the administration and the government over the past three years.

Dr Gonzi recalled that placing public finances on a sound footing had been one of the main aims set out by the government three years ago and some sections of society had voiced scepticism at the time. Yet the challenges had been overcome, thanks to the people's confidence in their abilities. The government had also drawn criticism when it announced, two years ago, that Malta would join the Exchange Rate Mechanism (ERM II) with a view to adopting the euro as soon as possible.

The government always argued that investment would only come to Malta if investors had confidence in the country and viewed it as an investment destination that was politically stable with an open economy and a sound financial system.

All those ingredients had now been confirmed.

Dr Gonzi said the process over the past two years had not been without its difficulties, both domestic and those caused by international factors.

Domestically, there were those who tried to sow doubts and discourage the people, and the government's plans were also buffeted by the way oil prices had soared.

Yet Malta had weathered those storms and the European Commission had certified that Malta met all the criteria for euro adoption in a manner that was "credible and sustainable."

Such a positive result had been achieved in the context of an economy that was growing at an annual rate of three per cent, record foreign investment, record spending on education and the environment, one of the highest levels of gainfully occupied persons, and a succession of budgets where no new taxes were introduced and last year taxes were actually reduced and social benefits were increased.

Inflation had not only been reduced comfortably below the EU reference value, but it was expected to retain such a level in the future. The public deficit too was comfortably below the EU threshold and a balanced budget was expected to be achieved in 2009, without any one off sources of revenue. The public debt was also on a downward course and would fall below the EU threshold of 60 per cent of GDP by 2009.

The EU had also confirmed the stability of Malta's exchange rate and the long term interest rates.

Dr Gonzi listed the advantages of euro adoption, noting that 75 per cent of Malta's international trade was made in euros and in this case exchange rate risks would be eliminated.

Euro adoption would also mean price transparency, easier access to the financial markets, lower borrowing costs and better control over inflation, something which was one of the main aims of the European Central Bank.

Dr Gonzi thanked all those who had helped Malta reach this stage of euro adoption.

In subsequent questions, Opposition finance spokesman Charles Mangion and MP Leo Brincat said that while the opposition had expressed reservations over early euro adoption, the MLP had declared it would continue to follow the euro adoption timetable if it was returned to power before the changeover was completed.

They, however, asked what the government was doing to prevent the euro adoption process from fuelling inflation. Was the government satisfied with the take-up for the Fair scheme. Was the government satisfied that this much trumpeted economic growth was actually translating into better living standards? What would be the impact of euro adoption on tourism?

Dr Mangion observed that the ECB in its report had noted that much of the improvement in the government's financial position was a result of higher tax revenue rather than economic growth. Indeed, Malta's competitiveness was still low, as gauged in various surveys.

Other questions were also asked by Nationalist MPs Mario Galea, Jeffrey Pullicino Orlando, David Agius and Frederick Azzopardi.

Replying, Parliamentary Secretary Tonio Fenech said that while the MLP was saying that if would stick to the adoption timetable, it would do so grudgingly. Clearly, the MLP was still not convinced about the benefits of euro adoption and as recently as last Sunday Dr Sant had said it was being introduced too quickly. When the target date for euro adoption was announced, the opposition had said such an early date would prejudice economic growth. Time had proved that the opposite was true. Economic growth had gained momentum and investment was at record levels. So how was Malta not being competitive?

The opposition had not done anything to help the country achieve such a positive assessment. Indeed, one only needed to recall the opposition's attack on the National Statistics Office which was such a key player in this whole process. Yet the NSO's data had now been confirmed by the EU, the ECB and the ratings agencies.

Turning to the questions on consumer affairs, Mr Fenech said the government was being careful to ensure that the benefits of euro adoption would not be undermined by problems in the adoption of the currency. In quite a number of countries, euro adoption had not brought about inflation, perceived or otherwise. Nowhere was this better exemplified than in Austria, yet Malta was doing even better than Austria. For example, while that country had applied dual pricing only to large businesses, in Malta dual pricing applied for all businesses.

The take-up to the Fair initiative by retail outlets had been very good, and there had not even been any requests for exemptions from dual pricing allowed under the regulations. Examples of abuses were exceptions and the NECC was reacting very quickly whenever complaints were made - the complainant was given an official reply within three days. He was, however, very pleased with the way the commercial sector was reacting and any abuses were first being tackled by the GRTU, before firmer action was taken by officials when abuse persisted. Furthermore, the government was leading by example and none of its fees, tariffs or penalties would rise when euro conversion took place. Rounding would be in favour of the consumers.

Mr Fenech said he wanted to urge those few establishments which had not applied to join Fair to do so quickly because a campaign would soon be launched urging people to use the service of those businesses, which were in the scheme.

The authorities, notably the NECC, were also holding talks with various sectors, such as doctors, to ensure that no one tried to use euro adoption to raise fees.

Mr Fenech said euro adoption would be beneficial for tourism because of easier price transparency and elimination of currency exchange costs in the case of visitors from the continent. There would be no change in the case of UK tourists since the Maltese lira was already linked to the value of the euro.

On the people's quality of life, Mr Fenech said that could be gauged through various means such as employment, better educational facilities and a new hospital, which was about to open. But the government acknowledged that there were people who needed assistance and now that the economy was getting stronger the government could address such issues better.

With reference to the ECB report, Mr Fenech said that the increase in tax revenue resulted from more effective tax collection. And the European Commission itself had noted that Malta would achieve a balanced budget in 2009 without any one-offs.

Concluding, he said Malta had demonstrated exchange rate stability through thick and thin over the past two years and he therefore saw no reason for the exchange rate to be changed when the irrevocable exchange rate was decided in July.