'Malta must learn lessons from debt-ridden Greece'

Prime Minister Lawrence Gonzi said yesterday that Malta must learn its own lessons from the Greek debt saga and acknowledge that it was better to take unpopular decisions today before needing to take harsher ones later.

Winding up the debate in second reading on the Government Borrowing and Granting of Loans to the Hellenic Republic Bill, he said what Malta and the rest of Europe were doing was not giving charity but showing a true value of solidarity in the urgent interests of Malta and Europe for stabilisation.

Dr Gonzi said Malta had lived extraordinary moments. Both Parliament and the people could now better understand that the storms of 18 months ago were still around and only partly due to the financial crisis. There had been a real danger of collapse of the financial sector, with governments intervening to save their financial institutions through the injection of huge funds.

The economic crisis had hit large financial markets, leading to the launching of stimulus packages costing billions of euros. The situation had started calming down, but the growth of five years ago was still not back and would not be in the near future. There was now a new phenomenon on the scene: some particular countries were starting to come out of their financial problems after not having consolidated financially in the past and were now finding that they were not strong enough to face the storm. This included not only the strongest financial countries in Europe but also the euro itself.

Particular countries had had to take very courageous moves to stay afloat. The first had been Ireland, which hopefully would solve its problems without help from any other country. The tough and badly-felt problems had been reflected in hard-hitting budgets to reduce public spending and lower the deficit to acceptable levels.

Dr Gonzi said the impact had also been felt in other countries, including Greece which was a friend of Malta like other Mediterranean countries with which Malta shared important markets. These included Italy and France, which not only had Mediterranean values but also acted as anchors to other European economies.

The Bill could not fully be understood if one did not think that all Malta's markets and investments depended on several other countries, including Greece. Helping Greece also meant helping the eurozone and the Europe-wide economy.

The situation was such that it called for solid interventions not only from Malta but also from other European countries. Even US President Barack Obama had personally intervened with German Chancellor Angela Merkel for quick and strong intervention not only for Greece but also for the eurozone. It was well understood that the sanity of European financial markets was also very imporant to the US.

Dr Gonzi said each eurozone member state must help Greece as it could afford. The question was not simply to help, but also for each country to help itself. Although all of Europe wanted Greece to start on the road back to stability, it was a fact that Malta and other countries had told Greece that before tying themselves down they wanted to know what Greece was committed to doing for itself.

The decision had been taken only after knowing Greece's own austerity measures to bring the situation back to previous sustainable levels. Malta must learn its own lessons and recognise that it was better to take unpopular decisions today before needing to take more much later.

When the government had taken unpopular decisions it had done so for Malta to weather the storm, and this had involved not only water and electricity. If it had left the situation as if nothing was happening it would have brought Malta to its knees.

Over the past five years it had also been hard to work on the Maastricht criteria to achieve membership of the eurozone, but the country was now seeing the fruit of those efforts. In contrast, Greece had had to raise VAT from 19 to 21 per cent and now to 23.

Greece had also had to raise excise duty on petrol by 10 percentage points, raise income tax on companies, introduce new property and green taxes, reduce all government salaries and bonuses and freeze them up to 2014, reduce entitlement to pensions, do away with early retirement schemes and substantially raise the pensionable age, as well as terminate thousands of definite contracts with the government to reduce expenses and raise revenue.

Dr Gonzi said his sentiments were with the Greek Prime Minister not only in terms of solidarity but also encouragement. Thanks too were due to the Greek government for these tough decisions, for understanding the difficulties of the Greek people and for striving to get back to financial consolidation in a few years, not only for the country itself but also for the European economy.

What Malta and the rest of Europe were doing was not giving charity but showing a true value of solidarity in the urgent interests of Malta and Europe for stabilisation.

The Prime Minister said Greece was a lesson for all. Last Friday he had attended an urgent summit of eurozone leaders, who had confirmed their Finance Ministers' agreement to bail Greece out, but they had also understood that the situation was precipitating. In the early hours of Saturday they had known that in the absence of meaningful intervention the financial markets would have faced grave difficulties when they opened on Monday.

Effectively the summit had dragged on up to the early hours of Monday, when over €700 billion had been earmarked as an instrument for the competent authorities to intervene.

The decision had helped to stabilise the markets, although they were not yet out of the roller-coasting.

Dr Gonzi confirmed that the loan to Greece would not prejudice Malta's own financial situation and would not affect government programmes.

Malta would be borrowing on credit ratings allowed to trusted countries, so it could borrow to lend Greece. Indeed, Malta would be making a small profit on the transaction.

The calculation of how much to lend was based on an established formula that started from a benchmark. Per head Malta would be lending €180 per person - the least of all, as was only right in view of the country's size.

The European Commission itself had drawn lessons on the required sense of responsibility, countries' interdependence on one another, coherence and preparation to contribute so that Greece's deficit would go below three per cent. In the meantime, Malta itself would continue with its strategy to get the same deficit results over a reasonable timeframe. This, concluded Dr Gonzi, was the only way to keep up a strong, good quality of life.