EU deems Malta to be on the right track, says PM

Prime Minister Lawrence Gonzi told Parliament yesterday that, having analysed the impact of the water and electricity tariffs on industry, the EU had come to the conclusion that Malta was on the right track. The whole Maltese package this year amounted to 1.5 per cent of GDP as a stimulus to the economy. This compared to the fact that the EU had placed a total of three per cent of its GDP to stimulate its member states' economies, with positive results already being seen.

Dr Gonzi was answering opposition questions following a statement on his attendance at the EU Heads of State meeting last Sunday in Brussels. This focused on measures that the EU needed to take to stabilise the financial sector, to improve the economy in all states and to tackle unemployment.

For nearly two hours the House heard how Malta was faring in the present global financial and industrial turmoil, with Dr Gonzi warning that the House should not take things for granted.

He said there was a particular initiative which he hoped would have been finalised by the EU summit this month, with €5 billion earmarked as a stimulus for economic regeneration. This would include Malta's project for joining the European grid.

This was just an example of projects aimed at alleviating social burdens, which included the European Social Fund, which Malta utilised heavily, and the Globalisation Fund which was used for retraining in redundancies.

After the March summit, a seminar specialised on job creation would be held in April. Malta would participate with interest and commitment.

The European recovery programme was an exercise to coordinate all member states' initiatives to address their respective economic situations.

Substantial contributions would be made to alleviate the situation in Malta, with €124 million going for the reconstruction of roads, factories, schools and other projects. It was the government's onus to incentivise projects. In this year's budget it had allocated €58 million specifically for human resources training and development, €47 million for help to enterprises and €61 million for environmental projects.

Dr Gonzi warned that the House would be wrong to take things for granted. Over the last three budgets the government had left €46 million in people's pockets through income tax reductions, energy benefits, incentives for women to return to work and other measures. The whole package this year amounted to 1.5 per cent of GDP as a stimulus to the economy.

The EC had made a positive analysis of the situation and come to the conclusion that Malta could increase its deficit so long as employment continued to be safeguarded and investment incentivated.

Interjecting, Carmelo Abela (PL) asked if the new utility tariffs had been taken into account in the EC's analysis.

Continuing, Dr Gonzi said that in Malta's case the use of electricity amounted to more than 26 per cent of its output, even because Malta used electricity for the production of water. Having analysed the impact of the tariffs on industry, the EU had come to the conclusion that Malta was on the right road. This compared to the fact that the EU had placed a total of three per cent of its GDP to stimulate its member states' economies, with positive results already being seen.

Malta was absolutely in favour of opening markets to developing and poor countries. Dr Gonzi said this should be tied in with the problem of illegal immigration, the true solution to which lay in long-term measures to address poverty, health, economic growth and political stability.

There was a long list of benefits that Malta enjoyed from its membership of the EU, and which it was making full use of. The correct information was now public in The Times, and the opposition should verify its information before making certain statements.

Opposition Leader Joseph Muscat said all figures mentioned in his speeches had been taken from the financial estimates. Dr Gonzi retorted that Dr Muscat should verify the facts and own up to his mistakes, to which Dr Muscat said Labour was verifying.

On the reduction of Vat on labour-intensive services, Dr Gonzi said discussions on this issue were still ongoing and no decision had yet been taken. Malta was strongly defending its positions in terms of the discussions, safeguarding its interests.

On the motor vehicle registration tax, Malta had a position that it had explained to the Commission. The government would have expected the opposition to side with it, as had happened in Holland.

The Prime Minister said foreign banks in the EU were not giving credit. In the UK Gordon Brown had considered measures to intervene with billions of pounds so that the banks could start lending money again. This, and the situation in many other countries, was in stark contrast to the banking situation in Malta, even thanks to the banks' caution and the euro.

There had been no specific talk at the summit on the single European market. The summit had been called specifically on job creation and protection.

Unfortunately, speculation was rife in the media, seemingly with the notion that bad news made news and good news did not. Local media sometimes made the mistake of putting all Eastern countries on the same scales. It was important not to do this, even though those Eastern countries were part of the same EU bloc. While world economies usually went in five-year cycles, last year the economic cycle had been restricted to 12 months, with the price of oil going from one extreme to the other in the same period. The first six months of 2008 had been very good for economic growth, but had then given way to great economic unrest. He had foretold this unrest a year ago, during the electoral campaign.

Dr Gonzi said Malta could not solve everybody's problems, but its small size was an advantage in that any important development could be known the same day. The best strategy was not to resort to any blanket solution, but one that would be tailor-made for each situation. If contacts were kept up with the main economic sectors, every cent of financial aid could be maximised. But there would be no help for waste.

It would have been impossible to face the current situation without the euro. The Prime Minister said that, with no disrespect, protecting the Maltese lira would have meant higher interest rates, with dire consequences on job creation.

The euro's importance was so great that non-members of the eurozone now wanted to join. The summit had considered if conditions for membership of the eurozone should be relaxed, such as by reducing the mandatory two years in the ERM II mechanism. The summit's answer had been a clear no, tempered with readiness to help all those countries that needed help.

Dr Gonzi suggested that all MPs make a careful analysis of the Jacques de Larosière report on what had happened in the international economic scenario and why. The report even considered why securities rated as AAA had gone bankrupt. It also considered regulatory authorities, even though Malta had some reservations on the roles of the MFSA and the Central Bank.

Developments at STMicroelectronics were still being monitored daily, and everything necessary in the circumstances was being done. Malta should be marketed by showing off whatever made it strong.

The European internal market was very integrated. If the German economy was doing well, even other European manufacturers selling cars in Germany would do well. Malta and its car-part manufacturers would begin to benefit as soon as current stocks of cars started running out.

Dr Gonzi said that even when revising the utility tariffs he had met representatives of industry and come to an agreement on ways of relieving the impending burden on hotels and other industries. This was one of the reasons why the deficit would be bigger, because of aid to industries to the tune of millions of euros. The new utility tariffs should finally help the drive towards alternative energy, after three years of surcharge had not led to such investment.

The government was working to address the problem of bureaucracy, removing needless regulations and simplifying others. There was a lot that could yet be done. The MFSA had reduced its annual fees to help small businesses, as well as taking measures to simplify their accounts documentation. As a case in point, a tender document had been reduced from 5,000 to 100 pages.

The EU was focusing all its energy on economic stimulus resulting in job creation. Coordination among member states on the internal market could stimulate economic activity, so there should be no protectionism. The EU was taking initiatives to address the crisis. A very important meeting would be held in Prague with new US President Barack Obama in April.

Dr Gonzi said there was no need to make a mini-budget, but the government would make adjustments from day to day on the strength of a task force focused on daily happenings on the ground. Little Malta had the advantage of being able to go micro, with aid being channelled where it was really needed. What was needed most was job protection and job creation to compensate for lost jobs.

The spring summit meeting of the EC would address decisions needing to be taken to address current problems.

Concluding, Dr Gonzi said these were times requiring full commitment to national interests, foremost among them jobs and regular salaries.

Dr Gonzi had earlier informed the House that the themes discussed at the meeting were important for Malta at a time of global recession, even because there were Maltese factories manufacturing car products which depended on European markets. The tourism sector also depended on the economic situation in Europe.

Heads of state had agreed to coordinate their actions within the internal market and the monetary union to be able to overcome the crisis. The EU strength depended on an internal open market of 500 million consumers and against any protectionist measures. Malta remained in favour of an open market and against any protection because these were the key needed to face current challenges.

He said the aims of the meeting were to promote financial stability and to extend credit to make fiscal stimuli effective. This was important for Malta because extension of credit to clients of local factories meant safeguarding local jobs.

The meeting also agreed on regulating impaired banking assets, with Ecofin bound to monitor the situation and take concrete action to ensure the long-term sustainability of public finances.

Dr Gonzi said that the second aim was to make a commitment so that the real economy would recover. This was of crucial importance to thousands of workers and their families especially in the local car-part manufacturing sector. Agreement was also reached on measures to combat the negative effect on jobs.

The third aim of the meeting was to coordinate action on a global level, he said, adding that the Doha Development Agenda was a step in the right direction.

The Prime Minister declared that Malta agreed with the EU leaders' renewed commitment to respect regulation of a unified market and to avoid protectionism. Malta stood to benefit from all this.

He concluded that within the regulated framework the government was ready to take all possible action to safeguard local economic operators and to increase employment.

The government was committed to making the necessary reforms so that Malta retained its competitiveness and attracted new investment.

Opposition Leader Joseph Muscat asked Dr Gonzi whether the government intended to inject a new stimulus into the economy in view of decisions taken at the EU summit. Other questions were put by Labour MPs Anġlu Farrugia, Charles Mangion, Leo Brincat, Gavin Gulia, Carmelo Abela and Owen Bonnici.