The annual address by the Governor of the Central Bank at the annual dinner of the Institute of Financial Services is always widely expected, as it is the only formal speech the Governor makes in the whole year.

This year, Michael C. Bonello’s address was awaited with more anticipation than usual, not just because this is Mr Bonello’s last speech as his third term of office runs out next year, but also because in this pre-electoral period the Governor’s words are expected to shed light and clarity on an area where there is much hype and little reasoning.

One must do what one can to enhance the authority of the high office of the Governor of the Central Bank and not drag him down to partisan wrangling, which substitutes political dialectic here. Mr Bonello himself, to his credit, did not shy away from using clear arguments in 2002, on the eve of the EU referendum, on the merits of joining the EU as against staying out, and Malta is still in his debt.

Once again now, he has expressed himself clearly enough for those who want to hear clear reasoning and who baulk at party cant.

Mr Bonello posed the experience of two countries: Portugal and Ireland. Before joining the euro area, real per capita income was not very different from each other. Since then, however, Ireland’s has roughly doubled to 131 per cent of the euro area average while Portugal’s only improved slightly to 68 per cent.

Why?

It all derives from the widely divergent economic policies followed by the two countries.

Portugal pursued a pro-cyclical fiscal policy that reinforced domestic demand. Ireland, on the contrary, adopted a more disciplined fiscal stance.

The result: unit labour costs and inflation rose fast in Portugal whereas cost and price pressures were more contained in Ireland.

Thus, competitiveness declined in Portugal and the current account deficit increased, while Ireland remained competitive and enjoyed a roughly balanced current account.

In the years 1999-2006, real output growth in Ireland continued at a 6.5 per cent growth average and the fiscal balance was in slight surplus, while Portugal saw a dim 1.7 per cent growth rate, continued weak competitiveness and a substantial current account deficit. Labour productivity growth in Ireland averaged three per cent every year while it amounted to less than one per cent in Portugal.

Enough about these two countries, though there’s more in Mr Bonello’s speech.

There is much that has been done in this country over the past few years: government expenditure has been brought down from its peak of 48 per cent of GDP in 2003 to 42 per cent this year; the fiscal deficit has been brought down from eight per cent of GDP in 1999 to today’s two per cent; the public debt/GDP ratio has gone from a peak of 73 per cent in 2004 to today’s 63 per cent.

The share of the public sector in total employment has shed five percentage points to 30 per cent. The contribution of service providers to total employment has risen from 65 per cent in 2000 to 70 per cent today. A leaner but more capital-intensive manufacturing sector now employs 17 per cent of all working persons, down from 23 per cent in 2000.

There is much to congratulate ourselves for, but we must not let complacency take over for much more remains to be done. This is precisely the issue now, far more important than who rules from Castille.

As Mr Bonello put it, ever since Budget day all we have been hearing is “Give me more” cries, more handouts, increasing higher consumption etc. Not a word has been heard about improving Malta’s international competitiveness. Nor that the current levels of combined private and public consumption, which amount to 87 per cent of GDP are grossly inappropriate, as are the very low levels, barely 20 per cent of GDP, of gross fixed capital formation.

It would be a pity if such clear ideas were not noticed, or discussed by opinion leaders or experts in the field. It is a pity that there did not seem to be any presence of the Opposition at Friday’s do. It is also a pity that, responding to Mr Bonello, Parliamentary Secretary Tonio Fenech spent his time outlining what his government did in the past rather than focusing on what his government intends to do in the future, which is precisely what the issue is all about and about which Mr Bonello had been speaking.

If we want Malta to be a tiger in the Ireland mould, there are specific policy structures we should follow. And if we want to emulate Portugal’s little gain, much pain scenario, all we need to do is to engage in a Gadarene rush to give as many Christmas gifts as people can carry.