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Charles Mangion, Labour shadow finance minister: “The decision to join ERM II is a hasty one, premature and not in the national interest. We have to ask ourselves whether joining ERM II now is the best decision. It is a decision we have to take for ourselves and the fact that the EU accepted us does not mean the time is opportune. Because of our small economy, our problems will have little impact on the countries forming part of the Eurozone.
The basic criteria we have to consider are those based on economic growth and fiscal consolidation. Even if Government seems to have abided by the deficit projections for 2004 the result was achieved by playing around with numbers and including one off incomes from privatisation. Public debt, which according to the Maastricht criteria has to be in the region of 60 per cent of GDP, has now reached 75 per cent much higher than projected by Government in its convergence report.
Inflation has manifested an upward tendency, in part because of Government induced costs such as the VAT increase and the introduction of a surcharge on utilities.
Premature ERM II membership will not boost our competitiveness or make us more attractive to investors. Last year around EUR14 billion went to the EU’s new entrants and few of that money made it to Malta. Poland was the country that benefited most from foreign investment and it has not joined ERM II. Attaining competitiveness is totally up to us.
Government failed to discuss the issue with the social partners and the technical report advanced to the Opposition did not seriously evaluate real convergence.”
Edward Fenech, Green Party finance spokesperson: “I am surprised that Government unilaterally decided on 2 May as the day to enter ERM II when we were led to believe there was going to be more consultation. In principle, AD is in favour of adopting the Euro sooner rather than later. Once the decision has been taken Government now has to endeavour to educate and inform the public on the day-to-day implications of this far reaching measure to avoid the difficulties experienced in other countries and thus ensure a smooth transition to the Euro.”
Lino Spiteri, former finance minister: “In the circumstances as they developed a decision had to be taken but it seems to have been based on too hard a central parity. The Central Bank’s unilateral commitment not to allow fluctuations has to be weighed for its implications.”
Jesmond Mizzi, financial consultant: “By and large the decision was expected since there was a lot of build up to it. The decision was probably taken to stop speculation of impending devaluation, which was worrying the Central Bank over recent weeks. On a daily basis we were faced with questions from our clients about devaluation.
From an economic perspective the fact that Government did not take the decision on its own could signify that the EU is seeing a turnaround in the economy. Joining ERM II creates stability and we have to see if the rate is sustainable or whether Malta will utilise the 15 per cent band fluctuation permitted by the mechanism even if the Central Bank has given an indication it wants to stick to the chosen parity rate.
From an investment point of view, it is always desirable for investors to diversify their portfolio and tap opportunities abroad because there are bigger possibilities but if over recent weeks there were people who invested in Euro accounts and funds simply out of fear that devaluation was round the corner, can now invest in Maltese Government bonds because interest rates are more attractive and the exchange risk has been eliminated.”
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