Opposition leader Joseph Muscat warned in Parliament this evening that while the Opposition backed the commitments made by the government so far for the Greek bailout and the enlargement of the European Financial Stability Facility, no further commitments which might affect a future Maltese government, should be made without discussion with the Opposition.
Dr Muscat was speaking during the debate on resolutions moved by Finance Minister Tonio Fenech to approve a €24m loan to Greece and Malta's participation in the European Financial Stability Facility, with total guarantees of up to €700m.
The Opposition leader said that while the Opposition wanted the eurozone to succeed and it was all in favour of solidarity, the possibility of future commitments had to be open to negotiation according to economic circumstances prevailing at the time. Taxpayers had suffered enough as a result of the government's economic management. They had been prejudiced enough. Malta could not be extravagant in loans or guarantees to other countries.
Dr Muscat said that in backing the government, the Opposition was showing that it acted in the national interest and viewed the eurozone's success as vital.
However he feared that the plans and proposals made so far would not achieve the desired results, especially as they were not measures which would achieve economic growth. Indeed, what appeared to be needed was greater use of financial instruments.
Dr Muscat also insisted that it was important that Malta's red lines were know. How much could Malta loan and guarantee?
One could not deny that the euro was in a crisis. The fact that countries such as Italy had been downgraded because they were in the eurozone was indicative enough.
The government's lack of information meant either a lack of transparency, or a lack of position. This was evident in the government's confused statements over the past few weeks on the request for collateral, ridiculing the country. Was this political posturing and a case where the government could not stick to its position?
OPPOSITION TO FINANCIAL TRANSACTIONS TAX
What was the government's position on the proposed financial transactions tax? The opposition was totally against it unless it was universally introduced, since an uneven playing field in the financial sector would result. Would Malta hold out even if Barroso sought its introduction only in the eurozone countries?
Had the government calculated the impact of such a tax on the economy?
What was the position on the warnings and the discussion reportedly held in the Cabinet on the national debt position? Did the Maltese government receive correspondence in this sense?
Dr Muscat observed that Slovenia was arguing that newcomers to the eurozone, which included Malta, should not be made to pay as much as the old members, under which this malaise had grown. What was the government's view on this?
Unfortunately, he said, the plans produced so far did not lead to economic growth. The opposition would back the resolutions moved by the minister, but he seriously doubted that the desired success would be achieved. The only reason the Opposition would not vote against the EFSF was because it did not wish to portray an image of bickering on such an important issue. The Opposition did not want the eurozone to fail, but its decision was being made without prejudice because it felt that Malta could not make any further financial commitments for the future.
Dr Muscat said there was lack of transparency in other aspects of the government's administration. For example, the City Gate/Parliament project was being financed through a loan taken from a private bank, and the taxpayers were therefore being made to pay, interest and all and this would impact on government finance. This was very different from the fund which was promised initially.
Earlier, Finance Minister Tonio Fenech said the eurozone was going through extraordinary times. Failure to successfully emerge from this period would also have extraordinary consequences. Failure would be more costly than the measures which were currently being taken. One only needed to remember the collapse of several banks in 2008 which had brought on an economic collapse, leading to thousands of job losses.
€80 billion had been loaned to Greece in the first bailout by the eurozone countries, including Malta, under a series of bilateral agreements, but further assistance was being given through the EFSF guaranteed by the eurozone countries.
Disbursement took place after progress assessments by a troika led by the European Central Bank to ensure that Greece followed the agreed programmes.
Malta's disbursements totalled €19m last year and €20m this year. A disbursement of a further €5m due this month has been postponed pending the progress report. There appeared to be some slippage in deficit reduction by Greece and economic reforms were taking longer to be implemented than planned.
Mr Fenech said that following a demand for guarantees made by Finland, should a second bailout be agreed with Greece, Malta and five other countries had also sought guarantees. However the formula that was agreed was far too expensive for guarantees to be given and Malta therefore decided to drop its request.
The guarantee did not exceed 20% of what was being loaned or guaranteed. Furthermore, whereas the disbursements were to be made over a period of years, the countries given the guarantees would have to make their payments in one go. And should the guarantees be called, the payment could well end up being made 25 or 30 years later. Clearly, the message was that it was not worth seeking a guarantee, Mr Fenech said.
Mr Fenech stressed that in terms of the EFSF, which may come into force next year or in 2013, Malta would contribute €58 million in paid up share capital which would not be calculated for the purposes of the national debt since the EFSF was considered as being a financial institution.
Replying later, Mr Fenech said the talk on collateral was about a possible second bailout to Greece, which has not been agreed yet. It was evident from the outset that Greece could not give collateral on all its borrowing. Had that been the case, it would have been able to borrow from the banks. However when Finland started seeking some form of collateral, Malta and other countries insisted that conditions should apply for everyone. However to be given Greek stocks as collateral when Malta was lending to Greece did not make sense.
Reacting to call for greater use of financial instruments, Mr Fenech said that while there could be some advantages for Malta, there would also be disadvantages, since all participating countries would shoulder joint and several liability and therefore liabilities could be far higher than the guarantees being given now. Nor could such actions be suitable for the current crisis. The EU was however working on the setting up of a European Stability Mechanism, which would be akin to a European IMF with more flexibility able to intervene in the financial markets without imposing greater burdens on the member countries.
MALTA'S EXPOSURE
Mr Fenech said the current exposure to Greece was €4 5million which could rise to €74 million. For Portugal, Malta's exposure was €6 million which could rise to €8 million while for Ireland it was €3.6m which could rise to €5m so that total exposure was of €54 million which could rise to €87 million.
On the financial transactions tax, Mr Fenech said a formal proposal had not been made yet. Malta felt such a tax would only succeed if it was universally applied. It would fail if funds were channelled out of the eurozone as a result
It was worth pointing out, however, that the UK already had a financial transactions tax.
Mr Fenech noted that Dr Muscat had spoken about the need for economic growth, without saying how in Malta's context.