Coming in from the cold

Until recently, Iceland was a rich country that could afford to stay out of the EU and the eurozone.

That was before the financial crisis swept this country off its feet and left it out in the cold. Iceland is now facing total economic collapse.

Its financial markets are said to have lost 90 per cent of their value, whereas its currency - the money in people's pockets - fell by some 80 per cent. Interest rates shot up, inflation soared and unemployment is set to rise significantly.

People's bank deposits are frozen, pensions lost their value and even foreign depositors have been affected.

It is a scary predicament and I hope that this country, with a population less than ours, can find all the support it needs. Indeed, it has already turned to the International Monetary Fund (IMF) for a $2 billion loan, becoming the first Western country to do so since the UK in the mid 1970s.

It has also turned to the EU, which is gearing itself up to provide some support. Little wonder then that opinion polls now show that some 70 per cent want Iceland to join the EU and even more want Iceland to adopt the euro.

Iceland has been the worst hit and it is paying the price of staying out on its own. But it is not alone.

Denmark is a member of the EU but following a referendum in 2000 it chose to stay out of the eurozone and stick to its krona. Yet, as the financial tsunami hit home, the krona stumbled and the Danish authorities were forced to spend a lot of their foreign reserves to prop it up.

And as the European Central Bank cut interest rates in the eurozone to 3.25 per cent, the Danes were increasing theirs to 5.5 per cent to defend their currency.

In other words, they were forced to increase interest rates at a time when all the rest of us were decreasing them, as we should, to help stimulate the economy.

Now that's a huge price to pay to keep their own currency. The Danes are finding this out at their own expense. Small wonder then that their Prime Minister wants another euro referendum before his mandate runs out in 2011. Support for adoption of the euro has surged in recent weeks in both Denmark and Sweden.

Now look at Hungary, which joined the EU with us in 2004. But unlike us, it did not put switching to the euro among its top priorities and therefore failed to fulfil the criteria for adopting the euro. Meeting the euro criteria is no mean feat. We know because we have been there. It takes serious reform and tough decisions, not least on taxes, which do not win you votes.

But reality hit home and even short-term political gain comes at a price. Hungary's currency fell under pressure from the financial crisis and it found itself turning to the EU for help.

This is the first time that the EU will use this kind of financial instrument, which will enable it to provide a €6.5 billion loan to one of its own, Hungary.

Now look back at Malta. We have a small but open economy which is highly susceptible to the ups and downs of the world out there. Yet, the financial crisis has found us in the shelter of the euro currency and of the EU bloc and we have emerged largely unscathed.

True, the recession around us will still hit us, as can be seen from the lay-offs and reduced working weeks in some of our manufacturing plants. And, yes, adjusting to the real price of energy will not be easy as the trade unions told us in their unprecedented show of unity last Friday. After all, we are not an exception to the world.

But this is a far, far, cry from what is happening out there in countries that have made different political choices. We are not in their mess.

Far from it. And there is little doubt that our political choices have helped us through.

Thankfully, we are not paying the price of staying out of Europe or out of the euro. Because we are in.

So while we strive, as we should, to fight on for our competitiveness and our livelihood, difficult as that may be, a look out there around us would not be amiss. If only for a proper sense of perspective.

It's cold out there. And we could have been there.

That we are not is no mere coincidence.

Readers who would like to ask questions to be answered in this column can send an e-mail, identifying themselves, to contact@simonbusuttil.eu or through www.simonbusuttil.eu

Dr Busuttil is a Nationalist member of the European Parliament.