The world economy is going through an upheaval, and there seems to be no end in sight. Today the world’s economy is interlinked and nobody is insulated from the crisis. Countries with huge reserves are also feeling the pinch. Although the dissemination of news in China and Russia are restricted, economists have estimated the loss of millions of dollars. People are losing their jobs on a daily basis; large enterprises are failing in the US. Even some Chinese factories are shedding off workers, or reducing the workers’ salaries.

The banking sector

The banking sector landscape is changing at a fast rate. Most banks are still sitting on millions of toxic assets. The coming weeks would be really interesting. Most banks have started or will start to publish their 2008 financial statements and disclose their true financial positions. Depending on the accounting principles in the countries where they operate, they have to publish their financial assets. These banks must account for their unrealised losses on these toxic assets or most probably write them down or write them off completely from their books.

Prudence seems to be rewarded nowadays. Traditional and conservative banks are not feeling the pinch. Maltese banks and, so far, certain traditional banks in the continent, are not feeling the pinch. For instance, the Italian banking sector was known for its fragmentation and its laid back approach. However, all these banks are in a better position than the more aggressive and speculative banks.

In a few years, once the turmoil is over, the banking and the financial sector will be completely changed. Big names have already disappeared, while a few others might be reshaped and restructured.

Recovering from the crisis

Most governments are pumping funds in the economy to maintain liquidity. Other countries are encouraging spending. On the other hand, certain countries are resorting to protectionism. Trade barriers have been removed gradually until recently. There are still a few contentious trade barriers that divide the US, the EU and other trading blocs, but the trend was to dismantle most trade barriers. The whole exercise might end up in jeopardy if one of the major global economies resorts to protectionism. In the US, politicians, including the newly elected President, are uttering these words indirectly more often. This might be done to boost their ratings and instill patriotism.

Most countries are taking their own measures. This is the time for the world leaders to work together to steer the world economies out of this mess. Separate initiatives and “populist” measures are surely not a measure in this regard.

The US Congress has recently approved the spending of $800 billion in a stimulus package. The amount is in itself incredible. This will be on top of the $700 billion approved a few months ago which was used to rescue the banking sector. The stimulus bill is highly controversial since its opponents claim that it is a spending bill rather than a stimulus bill. The spending will range from infrastructure, social welfare, capital projects, maintenance of schools, and one off tax cuts.

Malta is not immune

Malta is not immune to the crisis. It has been declared that ST will decrease production in Malta and a number of people will lose their jobs. It is extremely irresponsible for the Labour Party to instill the perception in their electorate that Malta is sort of “shielded off” from the global economy and that we are so privileged, that we are above it all. According to the Labour Party, Malta lives in a vacuum, is immune from

fluctuations in prices of food and oil, and is immune from the current crisis. No matter how many leaders change in the Maltese Socialist Party, the old mentality prevails. Mintoff instilled the concept in the Labour mindset that the world owes us a living, and the “other” countries need to give us grants, since hey owe it to us. Owe it to us for what? We need to work hard for our own living and if we put the interest of our country before that of our party we will be able to overcome and recover from any economic crisis.

David Agius is the government whip