Finance Minister Tonio Fenech yesterday told Parliament that to date Malta had transferred to Greece €39.8 million of its financial aid package of €74.54 million over three years. The yearly financial cost to Malta was €542,000, but Greece had already paid Malta €1.3 million in interest.
The bilateral loan was not paid upfront but in tranches, and only when the European Commission, the European Central Bank and the International Monetary Fund were satisfied that Greece was on the right track in addressing its financial problems.
Opening a one-sitting no-vote debate on the current situation in the eurozone, requested by the opposition, the minister gave a historical rundown of what had happened in world economies, as well as in Malta, since 2008 after the US government had decided not to stand by the giant Lehman Bros bank, whose collapse had sent financial shock waves running through the world.
That had happened because the framework of many advanced economies had not been strong enough to cater for such crises. The situation had been saved, up to a point, by various governments’ tempestuous direct interventions to resuscitate their economies. Malta too had had to take measures to help a number of companies out of difficulty.
The bottom line had been that the whole world, not least the EU, had increased debts to much higher than their usual sustainable levels – 60 per cent in the EU’s case. The eurozone debts as a percentage of GDP had climbed to 70 per cent by 2008, 79.3 per cent in 2009 and 85.1 per cent in 2010. As for the EU27, average debts had been 62 per cent in 2008, 72 per cent in 2009 and 80 per cent in 2010.
Minister Fenech recounted what steps the EU and eurozone had taken to stave off the first market attack on Greece, which had accumulated debts of 142 per cent of its GDP – the highest in Europe. Market attacks meant steep rises in interest rates demanded from countries in crisis before lending them funds. This caused alarm because no country could sustain loans by usury.
Various governments, not just those with high debts, had started taking corrective austerity actions and fiscal discipline to show the EU was indeed addressing its problems. Other countries that had eventually faced problems, for various reasons, had been Portugal, France, Spain and, more recently, Italy.
Six months of discussion, concluded last March, had led to measures to instil greater economic discipline in all countries. Recommendations by a task force headed by EU President Herman von Rompuy had culminated in six directives, known as the sixpack, for all member states, making bad practices more difficult.
Mr Fenech said Malta was not in favour of a qualified majority being enough for discipline mechanisms to fall into place, as the European Parliament wanted, because rigidity would be more difficult for smaller countries.
Not helping Greece would have been catastrophic, even though it accounted for just three per cent of the EU’s GDP, because eurozone membership would have been perceived to mean nothing. Technical discussions would continue throughout the summer with a view to possibly deferring payment to give Greece more time.
He went into details on the various mechanisms set up in Europe, such as the European Financial Stability Fund (EFSF), which saw Malta guaranteeing a maximum of €704 million towards the fund’s €440 billion. There was also the European Stability Mechanism (ESM).
The Financial Times had recently said that one proposal being thought of was that the EFSF mechanism must be more flexible, with its own revenue through a financial package. Malta had objected to this because the proposal would hurt the eurozone.
Minister Fenech said the conclusion was still premature and one must tread with caution. The overall solution must be to keep the eurozone strong and united. Otherwise, consequences could include financial and economic catastrophes in neighbouring countries, so it made sense for Malta to work to prevent this.