|
Matthew Vella
Will the exchange rate at which the Maltese Lira was pegged to the Euro last year remain the same when the European Commission and the European Central Bank deliver their assessment by June 2007?
Euro-Changeover chief Joseph FX Zahra believes the current rate of EUR2.32 for every lira is sustainable and will not need to be revised. But for veteran economist Karmenu Farrugia the possibility of a revised rate still hangs ominously on the horizon.
Farrugia raised the spectre of reduced purchasing power if the exchange rate of the Maltese lira to the European single currency will be revised downwards next year.
Speaking at the Vodafone Business Today business breakfast held at Capua Palace on Malta’s changeover to the Euro, Farrugia warned of the risk that Malta’s peg to the single currency would be revised below the current exchange rate when the Commission and ECB deliver their assessment.
Some leading economists warned last year that government’s decision to go for a fixed peg with the Euro upon ERMII entry was risky. Having given up the option to fluctuate the peg at up to 15 per cent, economists had questioned whether the chosen exchange rate was adequate in terms of the island’s international competitiveness.
Next year, Malta will have an irrevocably fixed exchange rate by mid-2007. If the European Central Bank decides to revise this rate downwards, it would effectively mean a reduction in the real value of people’s wealth today.
But National Euro Changeover chairman Joseph FX Zahra has expressed confidence that Malta’s current rate is sustainable. “The convergence report next year will give an indication on the rate we will be adopting. But the experience of this last year and a half shows that our current rate is sustainable and that economic growth has also increased,” Zahra says.
It would seem that since talk of devaluing the Maltese lira last happened back in May 2005, Malta is heading towards a stable currency rate.
If by mid-2007, the exchange rate would be revised downwards, it would mean a Maltese lira would be able to purchase less euros than before.
Inversely, it would make Maltese exports cheaper and more competitive for the island.
But according to Zahra, the Central Bank’s decision not to devalue the lira has sent a message of stability: “It is a move that sends a strong message and that benefits investment decisions.”
mvella@mediatoday.com.mt
|
