Last weekend, governors, finance ministers and key financial players from more than 180 countries met in Washington DC at the International Monetary Fund/World Bank annual meetings. Obviously, the main focus of the meeting was the financial meltdown. This annual meeting of the Breton institutions could not have been held at a more appropriate time.
A few months ago, these two institutions (IMF/WB) were becoming relatively irrelevant since funds available for borrowing were easily available in the global finance markets without conditions or bilaterally from countries with huge reserves (mainly derived from oil or exports such as Russia and China).
The financial crisis has negatively affected countries, some of which are the least susceptible ones. Faith and trust, a key principle in the world of banking, quickly evaporated. Banks were bailed out or simply nationalised. A good number of previously reputable banks are quickly disappearing from the banking world, and are being bought by others. Even in the US, the leader of the capitalist world, the government ended up buying up shares in strategic banks.
One of the remarkable victims of the financial meltdown is Iceland. Within a matter of weeks the reserves of this country have been wiped out. Iceland, which up to a few weeks ago was considered one of the richest countries in the world, became bankrupt overnight. Iceland’s economy was based on fishing, tourism and banking. The banking industry contributed considerably to Iceland’s GDP. Banking expanded globally, stock market expanded and climaxed, and Iceland’s GDP shot up. The Icelandic population started to spend uncontrollably. They snatched up assets overseas (mainly in the UK), lived the high life and indebted themselves in the process.
During the EU referendum campaign five years ago, Iceland was one of the examples quoted repeatedly by the anti-EU lobby as an example of survival outside the EU and ‘go it alone’ politics. What if Malta opted to stay out of the EU, as Iceland chose over and over again? Iceland had all the credentials to join the EU, but for various reasons they constantly opted to stay out. I remember clear the anti-EU lobby, spearheaded by the Labour Party, repeatedly quoting Iceland as the prime success story of a country outside the EU.
The situation is completely different today. Iceland is currently desperate for liquid funds. They might obtain the funds from the global institutions, such as the IMF, or one of the state wealth funds, possibly Russia, on a bilateral basis.
Iceland always insisted on “they do not need the EU”, and “can go it alone” concepts. I wonder what Malta’s fate would have been in the current global financial meltdown, without the protection of the EU, and without a strong currency like the euro? The Icelandic Kroner lost 80 per cent of its value since a few weeks ago. Individuals now need permission from the central bank in order to spend money abroad or for a simple transaction with the credit card in a foreign currency.
The country is trying to preserve the vanishing foreign reserves. Supermarkets in Iceland and other food importers might not be able to raise the foreign currency necessary to import basic foodstuffs and other necessary items.
This is a good time to pause and reflect on where would Malta stand today, if we did not join the EU in 2004. Opponents of the EU, chief among them the current MLP leader who was at the forefront of the anti-EU lobby, told us that Malta as a small country, should go it alone and should not be absorbed by a large institution like the EU.
If Iceland, with a previously much higher GDP than Malta, did not survive the current financial meltdown, what would have happened to Malta, if the MLP and Joseph Muscat had their way? What does that say about the judgment of the current MLP leader? It seems that he, together with the MLP, was willing to put Malta’s future at risk, and a high risk at that, for the sake of a capricious pique with the Maltese people.
The Maltese took a wise decision five years ago, and today we are bearing the fruit of that decision. The current financial crisis took the whole world by surprise, but it also taught us a few lessons. Chief among them is that today no country can stand it alone. Global economies are incredibly interlinked.
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Karl Chircop
This week we had the bad news of the passing away of Labour MP and colleague Karl Chircop. I take the opportunity to express my sorrow and give my condolences to his wife Adriana and family. Tomorrow we will be paying our last respects to a gentleman. May you rest in peace!
David Agius is the government whip