Brussels has given in to the Maltese government’s resistance to changing the cost-of-living indexation mechanism and yesterday watered down its original proposal.
Following objections raised by Malta in meetings with the Commission, Brussels yesterday agreed to change the text of its recommendation made a few days ago, now accepting that Malta should only “review” and not “change” the so-called COLA mechanism.
Finance Minister Tonio Fenech confirmed the development yesterday evening following a meeting of EU Finance Ministers in Luxembourg.
“We have managed to convince the Commission that our COLA mechanism is working well and we should not change it, as they were proposing. Instead we have agreed that Malta will review its current mechanism, even through a study, and if this is found to be working well and responding to the market, as we think it is, there will not be any need for changes to the present system.
“The Commission has finally accepted our arguments,” he told The Times.
Spelling out five important reforms which Malta needs to start delivering by the end of next year as part of a new EU economic governance mechanism, Brussels had said that in consultation with the social partners, Malta needs to “ensure that wage growth better reflects developments in labour productivity and competitiveness”.
According to the Commission, Malta is one of the few EU member states with a generalised wage indexation resulting in wage increases in line with past inflation developments though proportionately higher at the low end of the wage spectrum.
“Adding to the minimum wage, this adjustment may further hamper the competitiveness of the labour-intensive sectors,” the Commission had said while adding that the issue was particularly pertinent in view of the recent increases in energy prices.
Malta immediately objected to this recommendation and implied that the Commission did not understand how the Maltese system worked and was taking a one-size-fits-all approach.
Mr Fenech said the issue has now been resolved. “It is now more acceptable to us that we study the mechanism and not necessarily change it if it is found that our mechanism is delivering the required results.” Social partners in Malta are split over the issue.
While trade unions agree with the government there is no need to change the mechanism, employers and the private sector have been insisting on the need of a total revision as wage increases are not tied to productivity but to inflation which, they argue, dents Malta’s competitiveness.
On the other hand, the Central Bank has underlined the need of a total revamp of the mechanism.
The change in the Commission’s recommendations, as requested by Malta, is now expected to be reflected in the conclusions of an EU summit to be held in Brussels later this wee.