Two years have passed since the last general election and the government has approximately three years to go before it refreshes its mandate through a general election.

The Prime Minister marked the occasion this week by singing his own praises on the great achievements of the last two years while noting the tall order that still awaits delivery in the remaining three years.

While there should be total agreement on the latter, i.e. that there is a tall order to be delivered in the next three years before approaching the electorate for its judgement, the claim of great achievements in the past two years is questionable, to say the least.

Over the past two years we have had a shocking reality wake-up call, at least for those who deluded themselves and refused to read the writing on the wall before the last election and went along with the false claims of our political leaders.

We were assured two years ago that public finances were sound and improving, only to discover soon after that 2003 was the worst fiscal deficit performer since 1998 and that the promised public finance sanitisation programme 1999–2004 had failed. A new medium-term sanitisation programme 2004–2007 had to be launched as part of the convergence programme to gain credentials for accession to the euro.

We were assured two years ago that EU membership would herald a new spring of budding opportunities, which would spur investment and promote economic growth. The reality is now sinking in that the EU can, at best, only help us to discipline ourselves to shape up, and that it is up to us to adopt this discipline in order to grasp the opportunities, which would otherwise pass us by, as competitors take advantage of our lethargic and lead-footed economic restructuring.

Is it an achievement of the last two years to have the slowest economic growth in the whole EU, to place last in the table of competitiveness in terms of the Lisbon agenda, to miss out on the investment flows that are benefiting other new EU member States, and to register continued loss of jobs in the manufacturing sectors as entrepreneurs invest to save costs rather than expand activities?

Attempted re-structuring in loss making publicly owned enterprises over the past two years can optimistically be considered as an expensive and ineffective patch-up. What benefits does the economy draw from paying substantial sums to able-bodied persons to take early retirement? Can we build economic growth by paying people to exit the labour market, or by transferring surplus labour in a publicly owned commercial enterprise to central government where commercial controls are less stringent and certainly far less evident?

Certainly the achievements of the last two years do not augur at all well for our capacity to deliver what is expected of us in the remaining three years. We have had high-level meetings, discussions, seminars, round-tables and what have you and then, rather than produce a rounded and effective social pact to guarantee re-acquisition of international competitiveness, we gave birth to a mouse in the form of a few more working days without additional compensation, which measure, insignificant as it may be, is still the source of industrial friction at micro-level.

Now compare this insignificant measure to what is expected of us to deliver in the next three years if we are to achieve the targets of the euro convergence programme by 2007. In this respect let me quote from the statement made by the Governor of the Central in the 2004 annual report that has just been published:

“If (we are) to succeed, the quest for greater competitiveness should, therefore, be pursued as a collective effort and perceived as being in the mutual interest of all social partners. It must be premised on an acceptance of the need to raise output levels without increasing costs and to invest a larger proportion of available resources.

“In the labour markets there is need for more flexible work practices… unemployment benefit systems should be further reformed so as to transform into effective instrument of employment creation rather than of social dependence.

“In the area of public health and welfare, the extensive range of services and benefits offered should be assessed with a view to ensuring their financial sustainability. Their provision at zero cost to the end user induces excess demand and waste…. It is necessary to move away from universal schemes towards more focused programmes as it is clear that the country can no longer afford to provide such a wide range of goods and services free for all irrespective of incomes levels.”

In layman’s language the Governor of the Central Bank is arguing that to shape up to join the euro in 2008 we have to roll back our standard of living by starting to pay for public health services, which are currently free, work harder and more flexibly without demanding additional compensation and reduce consumption in order to start saving for our supplementary pensions as the State cannot provide pension coverage to guarantee a decent standard of living throughout retirement.

From an economic point of view this makes sense. But given the travails we had to go through to agree, or really impose, the removal of leave in lieu of public holidays that fall on the weekend, can we have reasonable confidence in the government ability to deliver on these hard measures as it enters the more politically sensitive second half term of the legislature?

What makes our Central Bank so confident that the government can deliver on its convergence programme 2004–2007 when it has failed so clearly on the 1999–2004 medium term financial programme? I for one do not share such confidence.

I take this opportunity to salute the memory of Louis Galea who passed away this week at the age of 91. Louis Galea was the de facto dean of local bankers and financial practitioners. I, and many others, owe much of our career to Louis Galea, who was always a model of integrity and commitment and the epitome of calm, clear and objective judgement. So long Mr Galea!

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