Finance Minister Tonio Fenech told Parliament yesterday that Malta had already come out of recession and the first quarter had shown an economic growth of 3.4 per cent, with practically all economic sectors registering progress.
Introducing the Participation and Guarantees under the European Financial Stability Facility Bill, Mr Fenech said that what happened during the last two years in the global economic sector had been unprecedented. Governments had had to intervene directly and the number of unemployed had risen dramatically. Suffice it to say that unemployment in Europe had risen from 16 million to 23 million.
The Bill authorised the participation of Malta within the European Financial Stability Facility and to issue guarantees for the payment of the financial instruments or agreements issued or entered into by the same entity.
The European Financial Stability Facility was a corporate structure in the form of a public limited liability company incorporated in Luxembourg to make loans to members who were in financial difficulties and finance such loans backed up by guarantees issued by the other member states.
The Bill sought House approval for the government to participate in the facility as a shareholder and on its board of directors.
Mr Fenech said that the share capital would be of €30 million while the authorised share capital would be €28,000. This would not be fully issued and Malta’s share would be £16,670. Malta’s member on the board of directors would be Mr Alfred Camilleri, the Permanent Secretary at the Ministry of Finance, the Economy and Investment.
Any financial instrument or arrangement issued or entered into by the European Financial Stability Facility should be guaranteed by the government, provided that the guarantee shall not exceed the aggregate amount of €398.44 million.
Mr Fenech said that if countries had kept to the rules of the stability pact, they would not have found themselves in such hot water. The EU task force was now looking at strengthening this pact so that history would not repeat itself. This was a short-term solution but the EU wanted to look long-term.
Debts had to be given more importance with countries giving fiscal consolidation a new dimension. Such strengthening would also mean financial and economic stability for Malta in its bid to attract foreign investment. The impact on one eurozone member meant this would spread to all 16 members.
Mr Fenech said that the deficit had grown and the European economies shrunk. The average deficit in the eurozone had risen to 6.9 per cent and that of the entire EU to 6.8 per cent. Malta and Estonia were the only two countries in 2009 which did not have a greater deficit than that of 2008. In Malta’s case, not only had the deficit not increase but it had decreased to 4.5 per cent in 2008 and to 3.9 per cent last year.
The average debt of EU member states now stood at 78.7 per cent and that of the eurozone was 74 per cent – a substantial jump which had a great impact on the global economy.
The Finance Minister emphasised that the lesson to be learned was that the country’s sustainability was the responsibility of all the country and not just the government’s. If there was no financial discipline, enormous problems would arise. Structural reforms were therefore necessary.
The first country to find itself in this precarious situation was Greece. If the EU and the IMF had not intervened, Greece would have defaulted.
Mr Fenech said that even before the crisis erupted, ECOFIN had been discussing that there would be a moral hazard if governments intervened in the banks’ operations. But this theory had held ground only until Lehman Brothers went bankrupt. The consequences had been great and now the argument was diametrically opposed: one could not but intervene.
Malta had taken steps so that its deficit remained within the Maastricht standards.
Apart from Greece, problems were also being experienced by Portugal, Spain, Ireland and other countries. The result of such problems would be less financial operators willing to lend to these governments, which in turn would borrow at higher interest rates. This would have a domino effect of increasing the deficit, and debt increases would accelerate.
The EU was not going to give a blank cheque to see these countries through. There was an important principle that these countries had to put their house in order and in a radical way had to control their debts and deficits to re-enter the stability zone.
Concluding, Mr Fenech said the proposed mechanism would give guarantees only for three years. He emphasised the importance of Malta participating in this fund, saying that the reality was that all eurozone member states were duty-bound to guarantee stability of the euro.
Opposition finance spokesman Charles Mangion and Labour MP Alfred Sant also took part in the debate and their contributions will be reported later.
The Bill was unanimously approved in second reading, committee stage and third reading.