A euphoric prime minister claimed last Wednesday that the Commission’s recommendation that Malta accedes to the eurozone comes 1 January means that Malta “has passed an exam it had to study hard and long for”.

Well, yes, and well, no. The real exam is still to come. Or rather, this is only the beginning of a series of exams.

It is true on the one hand that Malta has fulfilled the necessary conditions (the Maastricht criteria) to adopt the euro and that to do so Malta had to make substantial progress in its financial essentials which, only as recently as 2003, saw the government deficit at an all-high 10 per cent (now down to 2.1 per cent), its inflation down to 2.2 per cent, and so on.

This is all true and has been achieved, as Dr Gonzi admitted, at a cost.

But it is also true that adopting the euro is only part of the whole story. It opens the door for Malta to gain considerable advantages, but only as long as Malta succeeds in remaining resilient enough and competitive enough to grasp the advantages that go with euro membership. Otherwise, euro membership can be, will be, dangerous and painful for Malta.

The Commission was crystal clear in its assessment: “To ensure that euro adoption will be a truly successful story, Malta should pursue its efforts towards fiscal consolidation and towards preserving external competitiveness, including through policies fostering productivity growth.”

As Commissioner Joaquin Almunia explained on Wednesday, Malta has an ageing population and more structural reforms are needed. Malta did so much over the past years to redress its public finances, but it now has to move from one-offs, such as the sale of public shareholdings or land, to more sustainable growth.

And on the same day, while recommending the abrogation of the excessive deficit procedure for Malta, the Commission added: “Malta needs to ensure that the period of sustained economic growth it is experiencing is used to reduce further the structural deficit towards its medium-term objective of a balanced budget. Given the high debt level and the projected increase in age-related expenditure, specifically healthcare costs, achieving adequate progress towards the medium-term objective would also improve the long-term sustainability of its public finances.”

The first test of the government’s strong resolve to do something structural about the country’s finances will come in the next months, with the introduction of the euro and with election year.

Over the past years, each and every election year has seen huge government expenditure spirals, whereas the figures the government has given the EU show that there will be less government revenues next year but equally a reduced level of expenditure, ostensibly because work on the new hospital will ease off. That, at least, is the government’s explanation, although it is hard to factor in the spike of the government employees’ wage rises next year, and the expenditure pressures in an election year.

Secondly, whatever the spin from Brussels says, euro adoption has brought about, practically everywhere in Europe, at the very least a perception of increased inflation.

In practically every country that adopted the euro, the central bankers were in denial because the official inflation indexes did not register any significant movement so they concluded that the perceived inflation was in people’s minds. But the fact is that the official inflation index no longer reflects many people’s shopping basket: the index is full of manufactured goods largely produced in Asia while people tend to spend most of their money on services, such as children’s education, healthcare, transport, travel and gastronomy which are all very susceptible to price hikes.

Potter Stewart, a former US Supreme Court justice, once famously remarked that he could not define hardcore pornography, but he knew it when he saw it. You could say the same for inflation. There is no single indicator that fully captures price stability. Yet everybody feels the effects of inflation when it occurs.

The answer is not to switch to denial mode, but for the government to do far more than it is doing. Even though the experience of the other countries that switched to the euro showed the euro-induced inflationary spike is a one-off, this in our case will happen far too near election day for it not to have any consequences.