Time for brave decisions
This week has been once again an eventful week with a number of issues overlapping each other. They all point to one direction: There is still a lack of courage to tackle the economic and financial crisis in a number of European Union member states head on.
The United Kingdom is still engulfed in the interest rate rigging scandal which has already forced the resignation of the chief executive officer of Barclays Bank.
This is proof yet again of the speculative activities of a number of financial institutions that continually look for loopholes in the system in order to manipulate it.
There has been the usual outcry that banks need to be controlled better and regulation needs to become stronger. Yet it is not certain that governments will have the courage to implement the sort of banking reform that was asked for when the financial crisis first hit in 2008.
Ireland, which already had to ask for bailout funds from the EU, is starting to experience the impact of the international recession. Unemployment is still at around 15 per cent with no signs of it coming down. Gross government debt is over 100 per cent of the gross domestic product and the economic growth rate is well under one per cent. Exports are dropping and the economic recovery is faltering.
Ireland requires the implementation of the decision taken at the last EU Council that would enable it to offload part of its bank-related debt on to Europe. This implementation is being halted by the opposition from countries like Finland and Austria.
France has had to prepare a supplementary budget to meet its deficit target of 4.5 per cent. The main measures are an increase in wealth taxes and surcharges on banks and energy companies.
There is now a big fear in France that the business sector will continue to lose its competitiveness, thereby creating the possibility of higher unemployment. The socialist government seems afraid to implement reforms that would make the business sector competitive and that would reduce public expenditure.
Given the size of the French economy, this fear is bound to have its impact on the financial markets.
Cyprus is experiencing its own problems, mainly related to their banks’ exposure to the Greek debt and the wrong decisions taken by their communist government.
This week the chief executive of the biggest bank in Cyprus resigned after eight years at the helm.
The communist government has demonised the banks for their investment in Greek government bonds in 2010, hammering their share values to record lows and turning them to junk stocks.
It also embarked on a crusade to blame all the country’s ills on the Central Bank of Cyprus, ignoring its own incompetence in keeping public spending in check.
The government is now trying to sell one of the major banks in the country to Chinese or Russian investors in order to obtain cash to support the public sector which it has been afraid to reform.
In order to revive the stalling EU economy, the European Central Bank cut its interest rate to 0.75 per cent and the rate it pays on overnight deposits to zero per cent.
There is little room for manoeuvre left for the ECB. In any case, monetary policy cannot bring about a long-term change in the main economic fundamentals, namely GDP growth and employment.
It is really now up to the EU governments to act decisively to generate economic growth.
Malta has also been in the thick of things over the fact that it stood alone in disagreeing with the recommendations made by the European Commission aimed at pushing member states in implementing major economic and financial reforms.
As a country we did agree with the proposals to reduce further debt and deficit levels, to reduce the level of early school-leavers, to reduce further the dependence on oil for energy production and to strengthen the banking sector. These are all areas that we have already been working.
On the other hand, we did not agree with the recommendation that Malta should increase the effective retirement age (in spite of the fact that it has already been raised to 65) and the recommendation to restructure the yearly cost of living adjustment − this adjustment is the result of an agreement between all social partners and goes back nearly 20 years.
There needs to be an adjustment in the COLA mechanism which should reflect better labour productivity and should not take into account the prices of imports. Both recommendations are unacceptable to us as they are flawed in their reasoning.
It is understandable that given the international scenario and given the position we have taken in relation to the two recommendations I have just referred to, an element of scepticism about the EU starts to creep in.
However, we should not forget the other benefits that we have reaped as a country from EU membership and membership of the eurozone. This only means that as a country we cannot afford to throw away our expertise in handling EU matters because of petty mindedness.
Just as the economy as a whole benefited from EU membership, the economy as a whole will suffer if wrong decisions are taken now.
This is why we need courage, consistency and clarity in our decision-making and why sitting on the fence is not an option.