On March 3 this paper's sister, The Times, carried a report of what Transport Minister Austin Gatt had said in the House of Representatives during the debate on an opposition motion to revoke the increased utility tariffs which came into effect at the start of the year. Among other things the report said the minister had warned that throughout the (current) year, international prices of refined fuel oil were expected to rise by 43 per cent, and those of gas oil by 57 per cent.

Gatt was also reported to have said that instead of increasing tariffs, other countries (like Greece, Spain and Portugal) had decreased salaries and wages. The report was titled 'Further energy price hikes envisaged'.

On the morrow of the report (Thursday) The Times carried a clarification issued by the Finance Ministry, which has now taken over from Gatt responsibility for Enemalta and the Water Services Corporation, possibly to the minister's lack of amusement.

The clarification was titled, 'Utility rates won't change this year'.

The ministry explained that Enemalta had locked in the price of oil and the dollar exchange rate for 2010. (Consequently) there will be no further change in tariffs this year. The clarification was intended to rub off speculation post the Gatt speech that the new tariffs might be revised upwards during the year despite a government promise they were not going to change so as to give industry and families 'price stability'.

The ministry spokesman pointed out that Gatt had read reports from leading international financial institutions Goldman Sachs and Barclays as well as oil company Shell showing that an upward trend in the price of oil was expected this year.

The clarification was apt and timely. The massive tariffs hike is controversial enough without fuel being added to the raging fire unnecessarily. It did not correct The Times report, but simply amplified upon it. Ministers include communication experts among their ample staff. It is right and proper that they should trawl the media to ensure that their masters are reported, in essence, correctly.

The Times parliamentary reports have a tradition for correctness and are extensively followed by those of us who wish to keep up-to-date with what is said by our representatives in the House. It is noteworthy that no clarification or correction was issued concerning the report of the rest of the minister's speech.

It may be safely assumed, therefore, that he did say, in synthesis, that instead of increasing tariffs, other countries (like Greece, Spain and Portugal) had decreased salaries and wages. (Probably he did not also include Ireland through a speaking oversight.)

The implication of this assertion by Gatt is that decreasing wages and salaries is a government policy option to increasing utility tariffs. Such an implication holds no water. In most countries, utilities are supplied by the private sector. Their price moves according to market forces, though under the supervision of regulators who tend to be somewhat more focused and hawk-eyed than their counterpart in Malta.

The austerity measures introduced by the countries referred to by the minister, therefore, had nothing to do with utility tariffs. To the extent that the causes of such measures are broadly similar, though by no means that much similar in magnitude, the measures were necessitated by budgetary deficits much higher than the three per cent of GDP set under the EU's growth and stability pact.

They were necessitated because of fear of punitive action by the EU, certainly. But in addition, they were brought about by grave concern about the creditworthiness of each country. Again to different magnitudes, these countries have a high public debt (relative to GDP and also absolutely) and a continuing high borrowing requirement.

In raising loans to finance that requirement each country tends to rely to considerable extent upon borrowing from abroad. Lenders, whether from the domestic economy or from the international capital market, take credit ratings into account before they commit their funds.

Such ratings are based on economic performance and economic indicators, like the ratio of the budget deficit and of the public debt to GDP. Countries that lose lenders' confidence because of weak economic performance run the risk of not being able to borrow enough to refinance maturing loans and to meet fresh borrowing requirements brought about by their budget deficits.

They run the grim risk of defaulting on their obligations and of leaving deficits uncovered. At best, they have to offer comparatively high interest rates to entice lenders.

The markets - plus the International Monetary Fund when called, and the EU towards its member countries - demand early and effective action. That usually starts with massive cuts to government spending. Such cuts include slashing wages, salaries and pensions.

The starkest current example of this scenario is Greece, which is threatened with financial ruin to add to the classical ruins of its history.

I have no doubt that nothing in the above is new to Gatt. He chose his juxtaposition of tariffs and austerity measures purely to try to create a metaphor of alternatives worse that higher tariffs. It was a sad attempt. It could not work, and so failed miserably.