Parliament yesterday unanimously approved a government motion ratifying the agreement signed last March for the setting up of the European Stability Mechanism (ESM), which would replace the European Financial Stability Facility (EFSF).
The fact that Malta’s debt was internal meant only that Malta was not indebted towards foreigners
Moving the motion, Finance Minister Tonio Fenech gave a detailed background to the situation rising in the eurozone during the last two years. He dealt with the clarification requested by the opposition that Malta could make use of the mechanism if needed. The debate had arisen because the treaty had been changed to ensure stability, coordination and governance among eurozone members.
Minister Fenech said that since its inception the euro had given financial stability and also attracted third member countries to adopt it as a reserve to their currencies.
It had been also acknowledged that certain countries joined the eurozone when they had not fully adapted to the regulations. Excessive debts in these countries put into question the strength of the euro. This also led to concern in the financial markets.
Minister Fenech said there were significant differences between the EFSF and the ESM. The EFSF was based on guarantees amounting to a total of €500 billion. The ESM was based on a share capital amounting to €700 billion with part of it being paid up. Malta would pay its first tranche amounting to €23 million this month. It would pay two other tranches in 2013 and another one in 2014.
The ESM was more advantageous than the EFSF because under the EFSF, contributions were considered as national debt. On the other hand, contributions to the ESM were considered as capital contributions. Malta would have the same participation in the ESM as it had in the EFSF hence it would be part of the decision making.
Mr Fenech said that the financial assistance granted by the ESM on the condition that the member-state requiring it implemented the necessary financial programme to re-establish its financial stability. This ensured that the funds given to such member-states would be returned to the ESM.
Financial assistance was given to a member-state because if the crisis continued to grow, all the eurozone and the European economy would be adversely affected.
It was agreed that for the ESM to be able to deal directly with financial institutions, there should be a European structure of supervision on financial institutions.
There was an indication in the last summit of heads of states to resort to recapitalisation of banks through the ESM subject to this framework of supervision.
The Maltese government believed that when one dealt with banks that had a national impact, it should be the national regulator that should supervise them, with the coordination of the European Central Bank.
These circumstances required deep thoughts of what road should the EU take to reach its aims thus helping its member-states to progress.
The EU should have the necessary framework so that in times of crisis, one would be able to address the matter with efficiency and adequately.
It was with this issue in mind that member-states debated the future of the EU and of the euro. Everyone recognised that the euro was an important currency thus it was important that Malta kept reducing its deficit to avoid circumstances that other member-states had to face.
Mr Fenech said that the fact that Malta’s debt was internal meant only that Malta was not indebted towards foreigners. However, lending institutions lent money because of the certainty of getting their money back.
It was therefore important for Malta to keep conveying a serious message to ensure it would never require financial assistance from the ESM.
However, if need be, the EU Commission confirmed in writing that Malta would still be able to benefit from the ESM. He urged all stakeholders to keep working to avoid such a situation.
The EU, the FMI and the ECB – the so-called “troika” – was also analysing the financial assistance required by Cyprus.
Concluding, Mr Fenech said that Malta should keep implementing its economic and financial policies, which were aimed at reducing its deficit to a sustainable level so that it would be a safe environment to invest in and to keep attracting financial institutions that provided employment.
Labour MPs Alfred Sant and Karmenu Vella contributed to the debate and will be reported tomorrow.
Earlier, the House approved the first reading of the Youth Work Profession Bill, the Legal Profession and Ancillary Matters Regulation Bill and the Counselling Profession and Ancillary Matters Regulation Bill.
It also unanimously approved a resolution to transfer the former medical school and adjacent car park in Pietà to the Augustinian Province of Malta to be used for education purposes as an extension of St Augustine’s College.