Malta’s guarantee share in the bailout of the Irish economy by the eurozone and IMF will probably be in the region of €50 to €60 million, Finance Minister Tonio Fenech told The Times Business.
“If the final bailout figure for Ireland is about €80 to €90 billion Malta’s guarantee share will be in the region of €50 to €60 million. Unlike the Greek bailout, however, where we gave a loan, Malta will be providing a guarantee,” Mr Fenech said in an interview.
“After the Greek crisis every country in the eurozone pledged a level of guarantees amounting to a total €440 billion and Malta’s guarantee share is approximately €400 million. Once a country requests a bailout, for every €2 pledged by the eurozone the IMF will supplement this with €1, which is why the package amounts to €750 billion, and there is also another €60 billion coming from the EU’s balance of payments fund,” he said.
Mr Fenech said that the European Financial Stability Facility mechanism, established after the Greek crisis, will be used to support the Irish government.
“A large proportion of the bailout will go to sustain Ireland’s sovereign situation, i.e. the needs of the Irish government, not the banks. There’s a misconception that this package is just targeted at the banks which is not the case. Three quarters of the package will go to the Irish state so that it will be able to finance its needs over the next two years, at reasonable rates. There is a portion, a contingency, in case the banks need to be supported by the Irish government.”
Asked if he thought the EU-IMF bailout for Ireland will stop the financial crisis spreading to other parts of the eurozone, Mr Fenech replied: “That’s a very difficult question to answer. The international markets are already looking at Portugal and Spain because they perceive they might be encountering similar problems.
“We have set up this mechanism to give certainly to the markets which will be used in Ireland’s case and we hope the markets will be re-stabilised as a result.
“If not, the mechanism is open to any member state which might need support when the market becomes too agitated.”
Mr Fenech said that any financial instability is always a threat to the eurozone, in whatever member state it originates in, but he disagreed with those who say the solution is the dismantling of the euro.
“I think we need to find a way to give permanent stability to the currency, something it has enjoyed for many years, and which has benefitted the economies of the eurozone. The discussions held at a European level on improving the stability of the euro always took note of past mistakes and learning from these mistakes, as well as the lack of mechanisms available in times of crisis.
“Unfortunately, we are building these mechanisms during a crisis, but if the euro can withstand this crisis then it will be an even stronger currency,” he added.
Regarding what would happen if a large country such as Spain had to require a bailout Mr Fenech said that would depend on the level of bailout needed for Spain.
“However, the EFSF in itself is sufficiently large to manage bailout requests from both Spain and Portugal,” he said.
Mr Fenech said Malta had the advantage of sourcing its financial needs completely from the local population, so should the eurozone crisis spread to other southern EU member states, it did not mean Malta would be in the same situation as these countries.
“We have never gone into the international markets and we have always had sufficient amounts of liquidity available in the local economy to sustain the government’s borrowing needs. So I don’t think we will be brought into the equation but clearly the possible impact on our economy by what is going on in other countries is a cause for concern.”
Mr Fenech said that only time would tell if the EU’s new rules for enforcing the Maastricht criteria are enough to prevent future crises from erupting.
“It was thought that the Maastricht criteria framework was sufficient to ensure financial discipline, but this was not the case as some countries were clearly not following the rules. The new rules, however, are more stringent and if debt reduction takes place in the eurozone then Eurpoe will become stronger,” he said.