The background to how Malta truly came into being as a financial centre of note bears repeating. It should never be forgotten, being an excellent rare example of bipartisanship in our political arena. Excellent in itself. And all the more so because it bore fruit in the form of a success story that grows stronger with every day that passes.
Malta can walk with its head held high, tranquil in the knowledge that its financial model has been tested, is deliberately conservative and works extremely well
Some 18 years ago, as we came out of a radio studio where we had discussed Value Added Tax, Finance Minister John Dalli asked me, as shadow spokesman on finance, how we should go about the project of preparing a full framework for Malta to become a financial centre.
I told him I would discuss this in the Opposition parliamentary group. I did so. Labour leader Alfred Sant warned against money laundering and excessive expectations, but was in favour. The group agreed.
That enabled Dalli to put forward a packet of draft legislation which passed without division. It was considerably improved in committee, thanks to the interventions of former Labour leader Karmenu Mifsud Bonnici. He was against the package in principle, but once there was such a bi-partisan majority in its favour, he felt the least he could do was improve it.
And he did. The packet attracted the backing of practitioners and work set about promoting Malta, armed with very serious legislation, which provided for a strong regulator and important bi-partisan backing.
Joe Bannister was involved from the outset at the Malta Financial Services Centre. With Dalli’s approval, he kept me informed of all important developments. When I, in turn, became Minister of Finance, I agreed with Bannister that he should regularly brief Dalli, who was now shadow minister.
The bi-partisan procedure continued after Dalli and I left politics. It’s in place to this day, improved over the years. It was a major plank in Malta’s success, since investors are insulated from shock decisions.
The other very major plank was Malta’s accession to the EU in 2004. Since then, the centre has grown rapidly, but not with haste. All applicants – banks, insurance and reinsurance companies, hedge funds – are subjected to rigorous appraisal even beyond due diligence.
The result is there to be enjoyed today. Malta has acquired a reputation second to none. It has a core banking sector which concentrates on the domestic market, with deposits, practically all domestic, approximating double the GDP, well below the European average.
It has another tier of seven banks which have very limited local deposits. The other banks are all funded from abroad.
The seriousness of the MFSA as the regulator, again chaired by Bannister after it had been presided upon by the present Finance Minister, Edward Scicluna, gives comfort to the local authorities, and to all those involved in the financial sector.
The island’s success can be measured both by continuing investment interest, a feather in the cap of the outgoing Nationalist Party Administration, and by recognition in international fora. A recent World Economic Forum Report placed Malta 15th as a financial market (Luxembourg placed 12th, Ireland 108th), 12th for regulation of the stock exchange (Luxembourg fourth, Ireland 76th) and 13th for soundness of banks (Luxemburg 18th, Ireland 144th). External stress tests on the banks confirmed their soundness.
The 2013 report of the European Economic Advisory Group (EEAG) had this to say: “Some member states (Austria, Germany, Malta and Slovakia) have seen far more robust economic momentum in recent years.
“They have benefitted from the relatively solid condition of their public and private finances, as well as their high level of international competitiveness.”
That is why I am not at all troubled by any fear of contagion from the hard solution to the Cyprus banking and wider crisis. Malta could not be more different than our fellow Mediterranean island. The Maltese financial centre is balanced through careful diversification, without over-dependence on any one country source. Though there is fear that may affect confidence in other zone countries, the reaction is not rational.
I am sad for Cyprus, but it had it coming. Its financial centre was massively focused on funds flowing from Russia, some of them legal, some dubious. The Cypriot banks had a high level of lending in Greece and very substantial investment in Greek sovereign bonds. When Greece almost went belly up, it was inevitable that Cyprus would follow suit.
The €10 billion bailout offered by the troika of the European Commission, ECB and IMF was made conditional to a Cypriot bail-in of another €10 billion, and was subject to very tough conditions, including slashing or even cancelling of deposits over €100,000. That was harsh to an extreme. It raised the fear that deposits, after all, were not safe – what happened to Cyprus could happen to other countries in need of assistance.
Maybe so, but probably not. The troika was too draconic. I believe those involved will realise that. They cannot contemplate imposing similar conditions upon other countries that might need assistance.
We can say that Malta does not need that, thank you very much. Loose talk by some Dutch minister or speculative writings by journalists cannot change that fact.
I continue to have full faith in our financial centre, in the careful promotion by Finance Malta and the practitioners, in the tight regulation by the MFSA.
Malta can walk with its head held high, tranquil in the knowledge that its financial model has been tested, is deliberately conservative and works extremely well.