The speech by the Governor of the Central Bank at Thursday’s business breakfast (see page 7) was, true to form, sotto voce, and too gentle for its message to be properly understood.
The public at large understands much better when voices are raised, when suggestions seem to work instantly, and, better, when painless solutions are proposed. That is why politicians of all hues get a better audience.
Apart from personal qualifications, Michael C. Bonello now sits, thanks to our membership of the euro, on the Governing Council of the European Central Bank, which provides him with a perspective that simply cannot be had in Malta.
He is in the control room, we can say, of a continent’s powerhouse engaged in the world’s worst economic crisis in decades. At that level, and at similar levels across the world, the debates, which have been going on as to what began as a housing problem became a huge banking problem leading to a systemic failure of the world’s financial system, have gone back to the basics of economics. Even as vast unimaginable sums of money are thrown to rebuild trust and confidence, huge international companies teeter on the brink of bankruptcy, countries themselves risk collapse and what yesterday appeared to be a solution has now suddenly become obsolete.
From that, trying to focus on the main issues of this tiny country takes some forceful redimensioning of one’s faculties; not that Malta does not merit thought and concern, nor that Malta will not be impacted by the world’s crisis. But also because some of Malta’s problems are self-inflicted and date back to before the onset of the crisis. And also because some of the suggestions that are being made are clearly unsound at this time and in these circumstances, while other suggestions that have long been made seem to fall on deaf ears where the government is concerned.
Yes, some of Malta’s problems are self-inflicted and predate the crisis. Take inflation, for instance, where Malta consistently has higher inflation rates than the rest of Europe, and this inflation is mostly home-produced.
On the one hand it is true that the problems in the tourism sector relate mostly to what is going on in our core markets and also to what is now being offered by our competition. Even here, there must surely be much more that we can be doing.
In contrast, however, the crisis in the construction industry, though obviously affected by the recession, is mostly a case of huge supply and diminishing demand, which can never hope to fill all the newly-constructed dwellings.
Mr Bonello spoke of a lag as regards unemployment, and this is all true. However, official figures do not factor in the black economy, and the first victims of a downturn are precisely those in the black economy whose employment can be terminated at whim. It is the black economy that fuels goodwill and the feel good factor and it is this that is being most affected at present. In the not too distant future, the real employment’s turn may come, and full-time jobs will start being shed.
Calls have been made for the government to seed the economy as other governments are doing. We are still in disagreement locally whether consumers of fuel products should pay prices that reflect their real cost, and the overaweing influence of nanny State is still visible here. But Mr Bonello made the point that anyway there is precious little money to seed with given our deficit situation, and any outlays to be made must be compensated by savings made elsewhere. To this, those who propose government seeding and those who defend the government’s actions turn a deaf ear, which is why Mr Bonello must keep harping at it in public and in private.
For years, in his very crucial role, Mr Bonello has been telling us that we are living beyond our means. For years his words have been consistently ignored. And while those on the government side promised more and more, those on the Opposition benches tried to promise even more and then some more. Just when we thought the public deficit was being reined in, we allowed them to go haywire last year blaming the dockyard’s retirement scheme and the fuel subsidy. Isn’t it just wonderful to find somebody to blame? And what about current policy changes, such as the rent reform – has anyone thought of informing the public what if any impact this would have on the national economy?
Mr Bonello’s carefully nuanced and sotto tono speech focused on two important areas which impact on the recurrent expenditure patterns of the public sector: the health system and education. Over the past years, and at great cost, we have built a state-of-the-art hospital which, we now find, does not have energy-saving devices, can only be manned with the employment of so many more nurses and doctors, and, for all that, the emergency service is a shambles and a shame, and the old practices have all safely migrated from old St Luke’s. Instead of telling the country: You cannot have it both ways, you either have a new hospital or you have a top class health service but you can’t have them both together, the government tried to do the impossible, and is failing daily.
Ditto in education. True, some schools needed modernizing; true the students need to be encouraged to continue studying. But instead of the government telling the students you can’t have it both ways, it created the unique stipends system (which is wonderful but costly) and built five-star schools. Even so, there still are huge numbers of young people with little literacy and skills.
There are other needs the country is facing or will face: cleaning up the environment, for starters, then putting in place good and functioning roads, implementing the various EU directives; all this costs money. The message Mr Bonello drummed in was that the government will get less and less revenue as the recession impacts and, while most of the government’s expenditure is fixed, it may go up as more people go on the dole. And the public service collective agreement was back-loaded in that the major benefits will come precisely when the country is at the deepest point of the recession.
So far, so public, but the situation in the private sector is even more precarious, and ultimately, more crucial for the government, as it cannot pull Malta out of the recession by itself, but foreign direct investment and exports can. It is not just a question of supporting this or that industry. Management by crisis is not the right way to do it.
The country waits to see whether the government or the private sector have anything more substantial to propose. The time for hard choices is already here.