Some people know you are an admirer of the American Nobel-prize winning economist Joseph Stiglitz at least for his advocacy of the concept of 'global common goods' as a more generally acceptable modification of the Maltese concept of the 'common heritage of humankind'. What do you think of his latest book Freefall - America, Markets and the Sinking of the World Economy?
The book became an instant classic, perhaps because the author minces few words. Its first part is a whodunit account of the current crisis. Stiglitz says that what November 9, 1989, the day the Berlin Wall fell, is to Communism, September 25, 2008, the day on which Lehman Brothers collapsed, is to free market capitalism.
The second part manifests his disappointment with Barack Obama's reaction. He regards it as a conservative follow-up to George W. Bush's policy, unable to prevent even worse recurrences of the debacle.
In the third part, he attacks fellow economists like Larry Summers, now chief economic adviser to Barack Obama, for having reduced economics from a scientific discipline to propaganda for free market capitalism.
Much more directly relevant to us in Malta are the analyses being made of the prospects of the eurozone. The risk was of an entire member state, Greece, and not simply a bank, however big, going bankrupt. Perhaps even more challenging are the questions raised by Spain, as also Ireland and Portugal. Here, the problem did not arise as in Greece because the government was borrowing more than it could repay. In Spain, it was the private sector that caused a huge external balance of payments deficit, largely because of a massive property bubble that burst.
The great significance of this problem is that the eurozone was set up on an idea that has proven to be wrong, namely that it was only public finance that had to be monitored and regulated.
As is well known, the criteria for eurozone membership, apart from a limit on inflation and on long-term interest rates, were that budgetary deficits had to be less than three per cent of GIP and that public debt should not exceed 60 per cent of it. No rule was established to regulate private sector indebtedness, to avoid its ballooning as happened in Greece, while its public finances were still not in breach of eurozone criteria. (Quite differently, the Greek problem had arisen because the government, aided and abetted by the American Commercial Bank Goldman Sachs, successfully disguised public debt from Brussels).
The Maltese government certainly deserves the highest marks for its success in preventing scaremongering or self-fulfilling prophesies of doom destroying confidence in Malta.
I am surprised that the government manages to achieve such results despite the relatively few professional economists in its employment. The crisis has made it all the more imperative that a comprehensive and deeply analytic economic close watch at both the world and the local levels needs to be kept.
Even the University seems to have suffered a sad drop in the number of students taking Economics as their main subject of study. (Presumably, the situation here will markedly improve with the return of Josef Bonnici). The success hitherto achieved should not blind us to this deficiency in relevant skilled manpower at the appropriate level which may be one reason why the Commission for Sustainable Development has not been more fully operative in our country.
Have Stiglitz or others made any concrete proposals about the eurozone's future?
They are all agreed that a unified monetary zone needs a more integrated economic governance if it is to avoid malfunctioning such as has occurred in the case of Greece and is threatening in Spain, Ireland and Portugal.
It should be remembered how the eurozone came into being. Germany, which had low interest rates because of its economic prosperity, had been blocking the setting up of the eurozone desired by the other member states, mainly for them to be able to benefit from the same low interest rates.
It was only to avoid difficulties being raised against the integration of East Germany with the West that greatly increased the German weight in Europe, that Germany agreed to the setting up of the euro-zone, despite the fact that its members were going to be very diverse in their economic strength. As I have already said, the parameters laid down for membership guarded against great disparities in the public sector, but largely ignored the private sector, and that has given rise to the urgent need for more centralised economic governance.
The most frequently suggested measure is harmonisation of fiscal policy. I would, however, not propose that the Maltese government should push for it since, unless complex and subtle modalities of the process were devised, it would certainly not rebound to our national advantage.
The other most frequently suggested measure is that there should be a much larger sized European budget and that the European institutions should have the juridical possibility of borrowing. However, no member state appears to be voicing any such proposal with urgency, although it is clearly demanded by commonsense and the inner logic of the process of European integration.
Apart from the fiscal harmonisation idea, what do you envisage should be Malta's input on the other aspects of the matter?
The Pope's renewed exhortation to us to witness to our values strongly within the European Union should not be taken to refer only or even primarily to bioethics or family matters, as we too often tend to do.
Pope Benedict is the author of an encyclical which, as emphasised by me among all of its more extensive commentators, in some crucial places has a very similar sound to Stiglitz. Notably the French translation of Stiglitz's book is called The Triumph of Greed. We need to change his focus from the American to the European scene.
Fr Peter Serracino Inglott was talking to Miriam Vincenti.