Alfred Sant | Malta in Europe: The record

If we are going to face the next 15 years of EU membership with the right mindset to achieve the right results, we need to have a clear-eyed view of what has been delivered

The accepted narrative about Malta’s experience as a full EU member emphasizes that it has been an undiluted success. The ongoing wave of economic growth of the past five years or so seems to have confirmed this in the popular mind. A big majority of the Maltese people endorses this narrative. However, even if only to prepare for how developments in the EU during the next five years can affect our prospects, one needs to evaluate more critically the record of Malta in Europe.

In economic terms, EU membership for Malta was justified by the point that as part of the European single market, Malta’s attractiveness as a location for new investment would be greatly enhanced. EU rules would help improve competitiveness among local operators. Transition periods were to be allowed to enable Maltese enterprises to achieve EU standards without pain. All this would be to the advantage of the Maltese consumer, who would get better quality at cheaper prices for what he/she needed to buy.

Moreover, Malta would have long-term access to significant EU funds. These would serve to finance needed infrastructural investments and help contain during the initial years, the tough consequences resulting from the adaptations that industrial firms and smes would need to undergo.

Two phases

In assessing whether these expectations were met over the years, it is best to consider the intervening period as being divided into two phases. One runs for practically ten years, during which economic growth rates remained low, close to those of the pre-accession period. During the second phase, covering the following five years or so, growth really took off.

Over such a cut, however, stretches Malta’s entry into the eurozone. That happened half way through the first phase. Malta was obligated to adopt the euro once it became a member of the EU. But we could choose our moment for doing so. The Gonzi administration insisted to join as of 2008, just as the huge financial crisis of that year broke. Membership of the eurozone entailed a stricter adherence to EU rules, as well as full participation in the emergency measures – ultimately successful – that were undertaken by the zone to stave off collapse.

During phase 1 of the membership experience, the promised EU funds did arrive, even if sometimes with lags that disrupted or delayed project performance. EU funds played a main role chiefly with respect to the government budget. They fuelled public infrastructural projects, and temporary support programmes for traditional economic sectors like agriculture.

Even so, the government’s budgetary performance for those years constantly ran the danger of breaching EU rules that govern public debt and that define markers for the financial deficits of member states. Arguably, this became more pronounced when eventually EU funds were limited to project allocations, that is they were no longer received as grants-in-aid. Instead, they needed to be specifically designed to part finance projects agreed to between the Malta government and the EU. This created scope for greater delays as projects needed to be identified and worked out. In such a context, the fact that meanwhile too, Malta was paying into the EU budget its own membership dues in line with Treaty obligations is rarely taken into account. Yet the envelope of payments due increased progressively over the years.
An economic surge

However, the real problem to consider was that in the meantime, the expected surge in private investment hardly materialised. This was one reason why growth remained sluggish to slow for the duration of phase 1. Industry and agriculture declined. For an initial three years or so, financial services which were already a leading sector by 2003, had a dull performance. Similarly tourism: it only began a slow recovery after low cost airlines were allowed to enter the Maltese market, triggering the deep stall of Air Malta from which that airline still needs to recover.

By contrast in phase 2, post 2013, economic activity surged to growth rates that still prevail and that have been unprecedented since Independence both by their magnitude and duration. Yet Malta’s relationship with the EU remained within the same parameters as in previous years, though the eurozone had started its slow drift towards economic recovery. The shift to high gear was effected because Maltese economic policy stopped only emphasizing the need to satisfy the EU’s budgetary strictures and went beyond them to stimulate foreign investment, especially in services. There was indeed a frank acknowledgement that the Maltese economy had become mostly reliant on services and they were boosted.

This is where we stand now. Tourism – financial, maritime and freeport services – construction – e-gaming – and more recently blockchain have become the name of the game. Interpolating the extensive growth in these sectors during the past six years or so gives the impression of a long-term progression that started since the day Malta joined the EU. This then feeds into the narrative of how joining the EU was a predestined success story, as all economic claims that were made for membership have turned out to be fully justified.

That is not the case but there is little point in trying to make out who was right or who was wrong on this question. However, if we are going to face the next fifteen years of EU membership with the right mindset to achieve the right results, we need to have a clear-eyed view of what has been delivered during the first fifteen years, and why, when and how.