‘Malta should have never carried Greek burden’ – Alfred Mifsud

With polls predicting Syriza in Greece could emerge with the greatest number of votes in the coming election, and with further bailout payments suspended by EU leaders awaiting the government’s direction and the country’s coffers expected to run out of cash soon, the chances of Malta to recovering most of the funds lent to Greece look bleak.

European leaders are pointing out that if a new Greek government – run by Syriza – were to ‘tear up’ the Memorandum of Understanding, signed between Greece and the EU, it would mean that Athens also negates the bailout agreement. In that case, Greece could be forced to leave the eurozone by the very course of events it would have triggered. Greece is set to go to the elections on 17 June.

Alexis Tsipras is the leader of Syriza – an alliance of 12 different groups – ranging from communists to socialists (a Radical Left Coalition). Tsipras wants to remain in the euro but would like to renegotiate the bail-out terms and conditions. Observers say that a Member State cannot remain in the euro and renegotiate what has already been negotiated or agreed upon.

The main concern of economist Alfred Mifsud – who this week expressed his concerns over the losses Malta could incur if a new Greek government run by Tsipras was formed and the memorandum regarding the bail-out conditions is ‘torn’, eventually leading to a Greece-euro exit – is that “Malta was carrying the highest load as a proportion to its GDP of its exposure to Greece, directly and indirectly”.  

When contacted by this newspaper, Mifsud said that “the Greeks want to have the cake and eat it. Rather than being thankful that creditors agreed to wipe off €100 billion of their debts, they are threatening to destabilise the euro by their refusal to stick to austerity which is needed to reflate their economy and make it competitive again.

“The losses incurred if Greece leaves the euro will not only be the direct loans to Greece and the indirect loan via the EFSF – which will be defaulted upon as soon as Greece exits the euro – but also apportionment of the losses, which would be incurred by the ECB given its exposure to Greek sovereign debts and to Greek banks.”

In this case, the ECB would have to revert back to the remaining EU Member States and recapitalise. If Greece were to stay in the euro, the situation would still affect Malta, according to the former Labour Party candidate.   

“In the event Greece stayed, more write-offs will be required so the Maltese government, alongside other EU Member State governments, would in turn have to waive or reduce a good part of the direct and EFSF loans,” he said.

The first bail-out package had already been awarded to Greece, while the funds of the second haven’t yet all been paid in full. A second bailout was needed because the Greek economy was still facing difficulties.

According to economist Dr Gordon Cordina, “the renegotiation of the Greek bailout terms, which may be considered as relatively fair in relation to the extent of mismanagement that was prevailing, is, I hope, vain posturing by politicians. There needs to be a clear message that in this day and age, fiscal discipline is imperative.

“On the other hand, for the benefit of the euro area as a whole, it is essential that the Greek economy remains within the euro as a viable partner. It can therefore be contemplated that, while the austerity and fiscal retrenchment measures are effected in Greece to the extent being discussed, investments from abroad aimed at stimulating growth and preserving the social fabric of the country would likewise be necessary. This, I repeat, not merely for the benefit of the Greeks, but of the citizens of the entire euro area.

“As a euro area Member State, Malta must play its proportional role in the benefits and costs involved. Our interests, would, in my opinion, be best served by ensuring that the bailout terms are strictly adhered to, while supporting other measures to assist the recovery, however long and painful, of the Greek economy.”

Meanwhile, earlier this week, Mifsud blogged: “I hate to see Malta, a tiny resource-less island, carrying more burden in pro-rata terms than other countries. My opinion always was that the Greek bailout burden should have been carried by the euro members that had authorised Greece’s entry in the euro and by those that looked the other way when Greece was cooking their books. They are the ones that benefited from Greece fiscal irresponsibility. After all, it was the Greek oligarchs who bought Merc’s and BMWs.

Foreign observers have noted that losses resulting from a Greek exit and default would be spread out among the remaining eurozone member countries, and observers state that losses would generally not exceed a big percentage of GDP in any eurozone country. This would mean that the loss itself is likely to be manageable, although observers recognise that some countries, such as Spain, are already in a fragile state. In any case, even if the direct economic cost is ultimately manageable, there would be important side effects.

First, the exit may create significant contagion effects, as the notion of irrevocable euro adoption is dispelled forever, leading to additional uncertainty for investors.

Second, there may be significant political costs in the form of strong opposition to further bail-out programs resulting from losses being realised, and this could hamper efforts to contain the fallout from a Greek exit.

Tsipras was quoted as saying that the bail-out conditions Memorandum of Understanding could change in parliament through a vote if a new government is formed, leading to a different plan in fiscal adjustment.

Tsipras said that “the memorandum was a political choice, and those who made that political choice [New Democracy and Pasok] no longer have the majority. To vote a different law in parliament is not a unilateral move. A unilateral move would be to renounce commitments we have signed up to via European treaties and conventions, or if we stopped paying our creditors.

He added: “Europeans have to understand that we don’t have any intention of pushing ahead with a unilateral move. We will [only] be forced to act if they act unilaterally and make the first move. If they don’t pay us, if they stop the financing [of loans], then we will not be able to pay our creditors. What I am saying is very simple.”

Back in March, Labour MP and former prime minister Alfred Sant had expressed doubts whether Greece would be able to pay back to eurozone Member States the funds given by them to escape default because Greece’s way of chasing stability without economic growth could not work. Loans to Greece could only go up in smoke.

He had said that the Bill to amend the Government Borrowing and Granting of Loans to the Hellenic Republic Act was simply extending the schedule of the maturity of the loans. He forecast Malta would have to do without its money, as private creditors had done.