The situation in the international financial markets, although still displaying signs of uncertainty, seems to be settling down. Governments in the major economies, US, UK, Germany, France and Italy, no longer seem to be chasing fairies (or bad witches!), but appear to have got ahead of the situation.

The money markets (which were a major issue) are getting unblocked and as such even interbank lending rates are going down. However, this does not mean that the world has solved all its economic problems. We have simply gone back to the situation of a few months ago, when there was already fear of an international economic slowdown resulting from the increases in the price of oil and the consequent rise in inflation.

The recapitalisation of financial institutions by different governments, the partial or full re-nationalisation of such institutions and the continued provision of liquidity by governments to the financial system have restored a level of confidence that at last allows the system to function, even if not at an optimum, at least to an acceptable level.

This was the first part of the job. We still have the original job to sort out and that is the economic slowdown. This was already on the cards; the chaos (and this is a euphemism!) in the financial markets only made it worse. Thus, as the financial markets (even with their volatility) start to settle down, we need to face head on the threat of the international recession.

This is confirmed by statement after statement made by industry leaders of the major economies during last weekend. Order books are shrinking across the board, consumer spending is falling, blue chip companies are having to report results worse than predicted, property markets are reporting that families are moving into negative equity (the amount of money they owe is greater than the value of their assets, which in most cases means their homes) - need we go any further? Next year is expected to be one of recession with the International Labour Organisation predicting an increase in unemployment in the coming months in a number of countries.

This is precisely why we need to settle down. Knee jerk reactions to the situation we have today will do no one any good. Admittedly the market needs to be allowed to operate freely, even if under stricter regulations, but we cannot afford to have big cultural divides as to the extent governments should or can intervene in the economy. Today governments need to intervene once more in a decisive manner to stop the recession from cutting deeper. Demand needs to be stimulated and financial institutions need to go back to their traditional role (that of supporting productive activities), away from trading in hedge funds which seemed more like operating in a casino. The only way we can do this correctly is by having an open mind on the role of the state. Facts have shown than the EU model is far more superior than any other model so far.

It will be very easy to react emotionally to the situation that we have today. After all it is a situation that is the making not of many people but of a few greedy ones. It is a situation where many people around the world have already lost significant parts of what they have managed to save over the years. The last thing they need is to lose also their income. So we require a rational, even if creative approach to the problem. The recession in the international economy will come, but it does not need to be deep or prolonged. The appropriate fiscal policies, while maintaining a watchful eye on inflation and eliminating waste in public spending, would make sure that the international economy would bounce back within a relatively short time.

In Malta we require the same approach. Any dogmatic approach one way or another, will only cause unnecessary hardship, if we go to one extreme, or mismanagement, if we go to the other extreme. This is not the time to look back at electoral promises, but it is the time to ensure that we safeguard jobs, the social system that we have created, the investment that we have made in education, and the economic growth that we have generated in the past years. We are not living in normal times and so we have to accept that we require policies to handle such abnormal times.

Let us not take for granted the fact that the impact of the international financial crisis on Malta was very much contained. This was because we joined the euro, we are members of the EU, we have a regulatory framework that has passed the test of time, and the type of financial institutions that we attracted to Malta were of very good repute. None of these happened by chance; they happened thanks to the far sighted policies of the Fenech-Adami and Gonzi governments.

This is why even we need to settle down and look at all our options carefully on how to tackle the international economic slowdown. We need to think and act rationally, and take those decisions that are in the country's best interests. Now is not the season to score political brownie points.