The move by Moody’s to downgrade Malta’s credit rating should not be taken as a surprise in the slightest. Before the political hacks jump in and cut and paste and spin this out of all proportion, this newspaper will take the opportunity to say that it has said this would happen all along, since the infamous day when Greece admitted that it had fudged figures. That was two years ago. Since then, both the government and the PL have accused us of being pessimistic. We were not. We were realistic.

The newspaper has also argued that the euro, in its current form, could never work without political union. How can one possibly begin to reconcile, for example, the wages and spending power in Portugal to those in Germany? The European Central Bank has jumped through hoops in trying to keep the eurozone afloat as Greece, Ireland, Portugal and now Spain, Italy and possibly even France are sucked into the mire. Indeed Jean Claude Trichet must be looking forward to the day when he can pass the reins to Mario Draghi, as he has been forced into doing things which he had always said he would avoid doing.

Let us be clear. Malta’s borrowing costs will not rise. It was not that kind of downgrade. In this current financial storm, the primary focus is always going to be set on borrowing costs and spreads – basically, what one can borrow and at what rate. The secondary focus is on bringing down deficits and in turn, sovereign debt.

It might come as a shock for some, but what we are actually doing – the world over – is buying and selling each other’s debt. In 1995, the Maastricht criteria were brought in, a benchmark of 3% of GDP deficit and 60 % of sovereign debt, in order to retain sustainable growth. Now we have seen countries, which have been frozen out of the commercial market because their deficits are hitting record levels, into double figures. But what many do not realise, is that even with a relatively low deficit, one is still pushing up the sovereign debt ratio. So even Malta, which has a relatively low deficit, was still pushing its sovereign debt up. In other words, we were still borrowing more than we owed – that is what a deficit is by nature. Deficits, of course, have to be coupled with economic growth. The news that Malta has registered relatively high growth in Q2 does contradict Moody’s evaluation, but there is another factor to throw into the mix. Exposure. If a country’s bonds and debts are tied into other toxic situations, then it could affect long term outlook. And this is where the country needs to be honest with itself. Yes, the government was completely right to micro-manage the crisis impact on firms domiciled here. It saved a lot of jobs and it saved the country’s economy from collapsing. If one major firm left the island without replacement, what would happen? But in doing so, the government has tentatively admitted that it has gone askew with its deficit and debt reduction targets, which it is set to address in the next budget (joy of joys!).

What we fail to take into account in Malta is that we are only safe because we were in fact prudent. The only reason why other European nationals lived the life of Riley (and are now paying an arm and a leg for), was the credit boom. We did not go down that road and perhaps the best move the government made was to take heed of the IMF report a few years back which said the only way for Malta to move forward was to hold back wage and salary increases. But now, we must come clean. What exactly is going on? We have a good growth rate and our employment rate is also very healthy. But somewhere, there is a hemorraghe – no matter what the government says, something has not quite gone to plan. Evidence of this is the ridiculous tariffs we are still paying for electricity (just wait for the water – our water is made through electricity). The Labour Party says it will reduce them, but the reality is that if it does, it will have to find other revenue streams. Times are tough and we can all brace for more austerity in the coming decade or so. This is not science fiction – it is happening all around us. We are not immune. Malta forms part of the eurozone. The euro, is, at present, one of the most vulnerable currencies in the world. What we need to now do, is put all our cards on the table and prove that we are worth our A1 rating.