The days when we used to worry whether the Maltese lira was overvalued against the major world currencies seem like a distant memory no longer troubles us. But now we are members of the eurozone, we are experiencing new worries that could well make many businessmen and government ministers lose sleep.

The crash of sterling over the past two years could have serious implications for the Maltese economy because of our still strong ties to British businesses. In the past two years, sterling has lost about a quarter of its value against the euro. The predictions for both the short and medium term are generally that sterling is unlikely to recover any significant lost ground over the next few years.

The fall in sterling is attributed to a number of causes. They include the underlying trade deficit of the UK, the greater exposure of Britain to the banking crisis, large budget deficits and a more determined strategy to use quantitative easing to overcome the current economic slump. All these factors have militated against sterling being looked at favourably by international investors.

As the euro is likely to hit parity with sterling over the next few months, what could the implications be for the Maltese economy? Let us look at some figures that give us an idea of the amount of business we do with Britain.

In 2008 about 35 per cent of tourists to Malta us came from the UK; 12.7 per cent of our imports also come from the UK, while 8.22 per cent of our exports go to this country. A majority of Maltese still prefer to spend their holidays in Britain.

Tourism is most likely to be worst hit if sterling continues to be weak. In fact, it is likely that we will be hit by a double-whammy if this weakness persists. Various UK newspapers claim that more Britons are spending their holidays in the UK, partly because of the economic crisis that has reduced their spending power, and also because they get such poor value when they convert their sterling to euro.

Just as bad for us, we are likely to see fewer students from mainland Europe over the next year or two as it becomes increasingly affordable to learn English in the UK. British language schools, as expected, are advertising their services more vigorously in European countries that have traditionally considered Malta as a viable low-cost destination for language learning.

Our manufacturing industries are, of course, facing formidable challenges. But the strength of the euro is not their toughest one. Our exports to the UK are not significant and this sector is unlikely to be too apprehensive about sterling's weakness. Perhaps more worrying for these companies is the weakness of the US dollar, which is still the preferred trade currency of many countries.

Exporters in the eurozone are increasingly worried by the overall strength of the euro against the US dollar and sterling. The euro has reluctantly become a reserve currency even if, as Jean-Claude Trichet, European Central Bank president, remarked, "the euro was not created to be a global reserve currency".

Ironically, the weaknesses of the eurozone economies are bound to be made more pronounced by the strength of the euro. If the euro's strength were to persist, then it could mean that sterling will begin to strengthen again as its sees its share of world trade increase.

It is unlikely that sterling's weakness will see a surge in Maltese imports from the UK. It is surprising how little we are now importing from the UK. Our main trading partners in goods and services (apart form tourism) are in mainland Europe.

What will likely happen is that more and more Maltese will choose Britain as a holiday destination, even if the cost of living in the UK is significantly higher.

When Maltese tourists get more sterling for their euro than they used to get a few years ago, they may well suffer from 'money illusion' until they land in the UK and realise that their additional sterling notes are not getting them more value than before.

Perhaps the most vulnerable victims of the sterling crash are those whose income depends on pensions, interest and dividends from investments denominated in sterling. The issue has been further complicated by the fall in the equity and bond markets of the last year, even if these markets are now recovering steadily.

Our cultural ties with Britain have meant that many Maltese still prefer to invest their money in sterling - not appreciating well enough the exchange risk they take by doing so.

Even if the current exchange rate between sterling and the euro is at its worst, most people who cannot afford to take on an exchange risk should consider moving out of sterling.

One need not be too gloomy about the current situation.

Economic analysts often underestimate the strength of certain dynamic forces in the economy that may seem weak today, but that prove to be very powerful over a longer period of time.

Moreover, the eurozone economies may still suffer more than the British economy in the long run, partly because of the euro's strength. This will revive investors' confidence in sterling and will invariably lift this currency.

The main implication for us is that we need to continue with our economic reforms because there is little we can do about the euro's strength, and because if we undertake structural reforms that have so far remained unaddressed, we are likely to overcome currency-related problems more effectively.