In past weeks, Malta has been showered with outside reviews, critiques and ratings regarding its economic performance. With others, I have strongly criticised the conduct of economic policy in this country. However, one cannot but feel uneasy at what’s going on. For the outside inputs about Malta’s economy are hardly distinguishable from directives telling the government what to do.
... we are locked in a game where economic decisions are designed to carry forward past political dogmas and decisions- Alfred Sant
One was, in fact, exactly that: the European Commission disagreed with the government’s projections for this year and ordered it to cut spending. The Finance Minister duly reduced by €40 million expenditure commitments, which he had passed through Parliament. The reduction was announced in a press release that got eclipsed by a botched Cabinet reshuffle.
Certainly, the move was part of procedures to which, over the past two years, Malta, as part of the eurozone, has agreed. Given the crisis caused by spiralling national debts and the absence of a unified economic policy within the eurozone, its members accepted to let the Commission oversee their budgetary operations.
There are six regulations or directives under which national budgets will be vetted by the EU Commission to ensure that euro governments keep to rules such as that their annual deficit remains less than three per cent of gross domestic product. The Commission now has power to make governments change their decisions, unless they want to face eventual sanctions.
The rules are being tightened further under the fiscal stability pact, which has been rammed through by Germany and France. The pact will require the introduction of some constitutional diktat, ensuring that budgets are always practically in surplus. It will give other euro states the right to seek sanctions from the European Court of Justice against other states if they fail to follow the rules.
Now it is clear that any government anywhere should follow prudent budgetary policies. Also, since the euro is Malta’s national currency, there is little we can do to avoid following rules intended to shore up its ongoing failures and restore it to credibility.
However, it is difficult not to feel deep disquiet. Five years ago, the Maltese were promised that by adopting the euro, their national currency would be guaranteed stability. Instead, we got caught in turmoil over which we have no control.
As of now, our commitment to bolster the euro and underwrite the national debt of others stands at between €1 and €1.2 billion in loans to Greece, guarantees actual and promised, plus monies pledged to eurozone funds and to the IMF. The amount is piddling by the standards of big countries, enormous by ours. Yet, there has been minimal debate about these developments.
More: we are increasingly surrendering control over the management of our public finances. Technocrats in Brussels and Frankfurt will pass judgement over what Malta’s Finance Minister projects and what Parliament decides. Diplomatic verbiage cannot hide the reality: their verdict and what to do about it will be binding on Parliament and the government. There is no appeal.
Some have said that this could be a good thing. It will prevent politicians, present and future, from pandering to constituents and play loose with public finance to truck in votes. There is that side to it, if you like. But virtue imposed from outside or “above” works best in kindergartens. Such imposed virtue contradicts claims that a state, large or small, is sovereign and democratic. In this context, notions that proclaim “shared sovereignty” or “interdependence” clearly amount to fudge.
Others discount these considerations, labelling them “eurosceptic”. By the same token, their counter claims could be equally classed as “euro fanatic”. Coincidentally, most of those who fall in this category do quite well out of the euro connection by way of pay, contracts, consultancies and sinecures.
Beyond these labels, though, the real question is: To whom are we surrendering our sovereignty? Evidently, Maltese political leaders and managers are not top of the world. Will European technocrats based in Brussels and Frankfurt do any better for Malta?
Today, all agree that the euro project was a totally political one. That its economic foundations were shaky and would buckle under pressure was admitted right from the start by none other than Jacques Delors, its conceptual founder and former president of the European Commission. Meanwhile, the euro is being retained in its present format also for political reasons.
From the start, the intention had been to bring as many EU member states on board as soon as possible. That attitude ran across the EU Commission and other bureaucracies, which oversaw the euro system. I well remember how, in the middle of the last decade, EU Commissioner Joaquin Almunia brusquely countered arguments that Malta needed more time before it joined the euro. He emphasised how it made sense for all those willing to join, to do so soonest. Presumably, that viewpoint was applied to other candidates.
Today, it is fashionable to decry the “fraudulent” irresponsibility of Greek authorities in publishing incorrect data about their public finance by which they “duped” other euro governments. But, surely, it takes two to tango. European bureaucrats, central bankers, commissioners and finance ministers accepted the Greek submissions at face value. Could they have been that naïve?
None have been held accountable. Many remain in charge of the system. Are they, or their successors, going to be any better? On the evidence, not. They will follow the prevailing political wind and ride it for all it is worth, blanking out all dissent.
Austerity has become the order of the day across Europe. Is it working? Unless there is economic growth, even if radical spending cuts are implemented, it will be hard to eliminate budget deficits as a percentage of (shrinking) GDPs.
Sometimes though, the penny drops. So as at the most recent “informal” European Council, proposals for “new” growth measures were trumpeted as a breakthrough. Their central plank featured the need to strengthen the European single market. Is this what is really needed?
Beyond the achievement of free trade in goods, as the single European market was being further extended, economic growth in EU member states and within the EU as a whole lagged behind that of their major trading partners, barring Japan.
Italian Prime Minister Monti is among those pushing for growth strategies in tandem with the austerity policies prevailing in the eurozone. He too has been proclaiming that further “deepening” of the European Single Market would help do the trick. Echoing this idea (or should I say dogma?), EU Commission president Josè Manuel Barroso has argued that if further development of the Single Market encouraged all European SMEs to hire just one additional worker, the huge unemployment problem that now afflicts Europe would be solved.
Two years ago, Prof. Monti was asked by Mr Barroso’s Commission to prepare a report on measures to further strengthen the European Single Market. In the report, one reads that 20 million EU medium, small and micro enterprises constitute the backbone of the European economy. However, only eight per cent of SMEs engage in cross border trade and only five per cent have set up subsidiaries or joint ventures “abroad”. Given this reality, it is difficult to understand how deepening the European Single Market will compensate for today’s austerity and generate an employment boom in the short to medium term.
Or consider another measure aimed to counteract austerity, namely the faster and earlier release of EU structural and other funds to projects in EU member states. What seems to have been overlooked is that the EU itself has a serious cash flow problem. Expenditures from last year are being carried forward to this year’s budget for payment, presumably curtailing commitments for the current year.
The truth is that we are locked in a game where economic decisions are designed to carry forward past political dogmas and decisions. Meanwhile, measurements of economic and financial performance still relate to benchmarks set out in the late 1990s on the basis of the data available when the first Stability and Growth Pact was drawn up.
These benchmarks are one-size-fits-all, like the three per cent of GDP rule for annual budget deficits, and have become fetishes that all must honour. And the system is being overseen from a distance, by very well paid bureaucrats who, while loaded with the mistakes of the past, are strengthened by the power of being unelected and unaccountable. Their track record has been dismal. Yet, we are surrendering to them effective control over the country’s budgetary policy.
There’s more than enough reason to consider these developments with disquiet.