It has been rather disappointing, and in a number of instances petty, that the national debate on the introduction of the euro has to date focused almost exclusively on what the currency will look like and how its name should be spelt. The introduction of the euro will probably be the single most important economic development since independence. In many ways it will impact our country more than accession to the European Union itself two years ago. Certainly the effect it will have on our daily lives and on our economic welfare will be more tangible and immediate than the effects of membership itself. It is therefore important to analyse and manage the risks that may result from this landmark political and economic development.

The major risk when introducing the euro is the effect this may have on the cost of living. For the first 12 countries that adopted the euro as their currency, the risk of inflation was a major factor before and after E-Day (1 January 2002). There was much focus on the media, particularly in Italy, of the effect the introduction the euro

had on consumer prices. Unfortunately though, this debate served as an

opportunistic exercise in

political scaremongering by Berlusconi’s government, which attempted to shift the blame for the depressed Italian economy on the decision taken by the previous Romano Prodi government on the exchange rate to convert the Italian lira. Like many economic issues, inflation can also be perceived rather than real. Perception, certainly in this Italian context, proved to be nine-tenths of economic reality. The general public’s perception of inflation was, unfairly I may add, benchmarked to the conversion of the price of an espresso at the local bar from 1,000 Italian lire (27 Malta cents) to €1 (some 44 cents). Indeed the price of an espresso did increase, very sharply. However, the assessment of the cost of living is a trifle more complex than that. In Malta, for example, it is calculated on a basket of some 3,000 items. Some items do increase while others decrease. The perception of inflation often arises because when the price of a product or service increases the consumer calls it “inflation”, and when a price is reduced the consumer considers it “a bargain”, not deflation. Collective consumer perception concluded that Italy’s cost of living was the worst impacted by the introduction of the euro. In reality though, the effect of the euro on consumer prices in Italy was the least in the Eurozone, some 0.2 per cent! The “espresso phenomenon” leads me to believe that government should consider, in some depth, the effect the euro will have on the price of the Maltese hobza (loaf of bread). It might be the most effective preparation for combating the perception of inflation.

Despite the fact that the introduction of the euro on consumer prices in the 12 countries that adopted the euro in 2002 was very marginal, our government should take nothing for granted. While there are a number of measures the government can take to contain the risk of inflation, there are clear limitations to what it can do. Nobody should expect the government to take direct action to control prices. Any politician promising, even in the subtlest of manners, to do so is irresponsible and unrealistic. Recently resurrected ideas like price controls or price orders will simply not work. Malta’s dire experience with such should have thought us that lesson.

In order to ensure that the effect the euro will have on prices is minimal, if not negligible, the government needs to work on a number of fronts. It must arm the consumer with as much information as possible on the euro in general and on the changeover process in particular.

No expense or effort must be spared to ensure that consumers are fully aware of what to expect, as well as what their rights and obligations are.

Secondly, consultation on the changeover process must be as wide and as deep as possible. This exercise should be very similar to that carried out with MEUSAC prior to EU accession. Nobody must be left out; nobody must feel ignored or bypassed. With the right approach and goodwill of all stakeholders, the National Euro Changeover Committee (NECC) can be the success MEUSAC was. Malta deserves and demands no less. What the government must ensure is that the competitive forces in the market work adequately; this is the only long-term guarantee to ensure that abusers and opportunists fail in their endeavours. If there is adequate competition in the marketplace, the euro changeover process will not present itself as an opportunity for price speculation. It is in the area of competition, particularly that of services, in which I believe Malta is most vulnerable. The role of the Office of Fair Competition in this regard is primary. This institution must be strengthened and developed further; its ability to identify and deal with existing and potential market weaknesses is perhaps the best safeguard to ensure that the adoption of the euro contributes to a concrete and immediate economic benefit to all.

Finally, it is imperative that while the three political parties argue the strategy and tactics of changeover, the euro does not become a political weapon to be exploited at election time. The commitment of the Greens to such is complete.

Edward Fenech is spokesperson on Finance, the Economy and Tourism of Alternattiva Demokratika – The Green Party