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Kurt Sansone
The road to adopting the Euro as our currency starts tomorrow when the Maltese Lira will be pegged 100 per cent to the Euro at a fixed exchange rate of Lm0.429300 to one Euro.
But don’t expect any sudden changes. The cost of living will not go up or down because of this measure, the Lira will still remain legal tender and for the time being our wallets can retain their smallish size.
Do expect in the near future an information campaign on the Euro including dual pricing of goods in shops to start getting used to the Euro change over, which will not happen before 1 January 2008 at the earliest.
The fixed rate allays fears of devaluation but has raised eyebrows in certain quarters because of the relatively high central parity rate chosen.
The decision to join ERM II, the mandatory two-year period during which a country has to peg its currency to the Euro prior to adopting the single currency, was taken in dead secrecy on Friday night. Addressing a press conference yesterday Prime Minister Lawrence Gonzi explained that secrecy was imposed by the Euro working group (the group of countries that have the Euro as legal tender) to avoid any currency speculation.
Joining ERM II as of tomorrow means Malta can adopt the Euro at the earliest on 1 January 2008, which is election year. Unfazed by the political implications of adopting the single currency prior to an election, Gonzi yesterday said that if the national interest required adopting the Euro at the earliest possible date he would not allow political considerations to cloud his judgement.
Flanked by finance parliamentary secretary Tonio Fenech and the governor of the Central Bank, Michael Bonello, Gonzi said a technical analysis of the economy’s preparedness and the adequacy of the Lira’s exchange rate had indicated that Malta could join ERM II this year.
The Central Bank’s recommendation all along was in favour of early adoption of the Euro. Describing the decision to join ERM II as the next logical step for Malta to fully benefit from the single market, the Governor yesterday said the Central Bank would guarantee a fixed exchange rate for the next two years shooting down all speculation that the currency will have to be devalued before joining the Euro.
“The Bank’s commitment to maintain a stable exchange rate and its positive recommendation to Government are underpinned by Government’s own commitment to adhere to the convergence plan, which outlines fiscal and structural reforms,” Bonello said.
To be able to adopt the Euro in 2008 Malta will have to reach the Maastricht criteria, which include a condition that the country’s deficit should not be more than three per cent. According to the convergence plan submitted to the EU last year, Malta is expected to go below the three per cent deficit target by 2007.
Given the recent decision by the Central Bank to raise interest rates to curb the outflow of foreign reserves because of Malta’s trade imbalance, it is imperative for structural reforms to continue to ensure industry is competitive. To avoid a bigger outflow of foreign reserves Malta has to boost its exports.
Asked by MaltaToday whether Government was preparing a package of other measures to boost competitiveness rather than simply sticking to the public holidays measure, Gonzi said the 2005 budget was an exercise in boosting competitiveness.
“The public holidays measure was just one decision taken in the budget among many others to boost competitiveness. We didn’t reach an agreement on the social pact, and I don’t know why. But decisions have to continue being taken,” the Prime Minister replied. It seems that measures discussed in the social pact to lower productivity costs are unlikely to be implemented. But Gonzi did refer to impending reforms in the pension system, the health sector and the ports as crucial decisions that will help boost the country’s competitiveness.
When asked about the Opposition’s lukewarm approach to Euro adoption, Gonzi said he had no official reaction yet from the Opposition. “All I know about the Labour Party’s position I know through media reports of what Alfred Sant said during a political conference two Sundays ago. But the decision to join ERM II was accepted by the governors of the Central Banks forming part of the Euro working group, after a careful analysis of Malta’s economy by the Commission and after a study carried out by the Maltese Central Bank. I believe that all these people together carry more weight than Alfred Sant’s opinion,” Gonzi said.
The Central Bank had forwarded its confidential report to the Opposition a couple of weeks ago. Although not revealing the contents of the report Alfred Sant had said that from the explanation given by the Central Bank he was not convinced of the urgency to join the Euro at the earliest possible date.
kurt@newsworksltd.com
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