Around this time last year I devoted no fewer than four pieces (All Is Well Now Or Is It?, July 19; Premature Cries Of Pleasure, August 16; Looking With Eyes Wide Shut, August 30 and Watch The Wheels, September 27, 2010) to suggest that it was far too early for Finance Minister Tonio Fenech to get too smug about our economic prospects. I was reacting to what the minister had said in Parliament in the first half of July 2010. In fact, even less wisely, the Prime Minister had preceded him by a full four months.
My main point was that the global recovery was proceeding too slowly in many advanced economies. This mattered to us, I argued, because we export most of our goods and services to and get most of our tourists from these very economies. Moreover, there was no guarantee of global economic stability.
I had quoted the IMF’s World Economic Outlook (WEO) of April 2010: “The outlook for activity remains unusually uncertain and downside risks stemming from fiscal fragilities have come to the fore. Moreover, sovereign risks in advanced economies could undermine financial stability gains and extend the crisis. The rapid increase in public debt and deterioration of fiscal balance sheets could be transmitted back to banking systems or across borders.”
I also quoted the July 7 (2010 not 2011) update of the WEO warning that “downside risks have risen sharply amid renewed financial turbulence. In this context, the new forecasts hinge on implementation of policies to rebuild confidence and stability, particularly in the euro area”.
Finally, I argued – quoting our own Central Bank – that our key trading partners were bound to attempt to pull themselves out of the mud through “radical adjustments of their domestic cost structures”. Our bid to safeguard our external competitiveness, therefore, was not about to become any easier.
One year after – actually almost 17 months if we begin to count from Lawrence Gonzi’s complacent reassurances of March 2010 – and one is tempted to say: I told you so. The debt crisis in Europe and the real danger of a contracting US economy should not come as a surprise. If you are surprised, then go back to the top and read again.
The US economy today is still not bigger than it was in 2007. The recently published revised data show that the recession has been deeper – and the recovery much weaker – than has been so far admitted. Thirty years have gone by since the US suffered two recessions in quick succession. Although today this has again become a very real possibility, this time last year the signs were already there for all to see. Only those that did not wish to see them, did not.
Last week’s warning by Bank of England’s Governor Mervyn King that “headwinds are growing stronger by the day” and the announcement that the Bank has clipped its 2011 growth forecast for the UK from 1.8 per cent to around 1.5 per cent, does not encourage much optimism. Recent news regarding Italy, Spain and France should make us sweat. The countries I mentioned above are our major markets for both industry and tourism. They get a cold, we get pneumonia.
A reader blinded by political passion may well remark that it’s not the fault of either Dr Gonzi or Mr Fenech that global economic conditions have not stabilised since the shock of 2007 and that the recovery may well fizzle out and be followed by a second dip. Who’s blaming the Prime Minister or the Minister of Finance for what is happening in Europe and the US? What the Prime Minister and the Minister of Finance can be praised or blamed for is what they are responsible for, that is, what they can do something about.
We tend to refer to global international conditions to deflect the blame for bad economic performance from the government. We also do it to justify higher taxes, higher utility costs and higher government-induced costs generally. Finally, we also often point to international economic conditions to tell employees why they should not ask for wages and salaries high enough to make ends meet. This is where Dr Gonzi and Mr Fenech come into the picture.
None of us, politics apart, can be happy about the economic news we are getting from the US and Europe. The Prime Minister and the Minister of Finance have, however, specifically political reasons for not being too happy about the way things are unfolding in the world around us. In Approaching A Greece Too Far (this column, July 4, 2011), I wrote that in “EU countries, such as Malta, where the only solution to their governments’ problems is, finally, an election, it will mean that the incumbents will not be able to spend their way to re-election”.
A ruling party – and it social networks – that, come the elections, will have monopolised power for almost uninterruptedly a quarter of a century, will not go gently into that good night. It will do whatever it can to hold on for a while longer. Not a cent of public money will be spared if it can lengthen its hold for that while longer. With stronger headwinds ahead this becomes more difficult.
Dr Vella blogs at http://watersbroken.wordpress.com