The result of the divorce referendum has crystallized the island’s mood into a muted sense of common sense prevailing after seeing the No camp bring in the bulwarks of best lawyers telling the soulless inhabitants that the introduction of divorce will bring fire and brimstone. Still, upon reflection we note that the captains of the No campaign enjoyed the services of both the chairman of the Stock Exchange and the general manager of the MFSA who dedicated so much of their professional time to protect the souls of us Christians from the eternal damnation of divorce legislation. Naturally, the No campaign aided and abetted by poignant sermons and pastoral letters from the Catholic hierarchy achieved a massive 47 per cent following. This is no mean feat and it looks like the subject of divisiveness will keep coming up in the coming two years till the next election.
As always, the insularity of the island makes it doubly important to focus more on the bigger picture of our economic survival now that the divorce issue has been resolved. A week after the historical result may not be enough to make us forget the deluge of messages, TV coverage and endless commentaries of the opposing camp, all trying to persuade us that it does not matter if Malta is the only EU country that has annulments and separations but no divorce in our secular state. Alas, this weekend gives us the first chance to think a bit about the longer-term outlook. By long term I mean 2013 when hell will break loose again and the political parties will entertain us with another life-threatening choice − this means a vote for another five years of political governance. Does this matter to the plebs who have no seat on the gravy train so jealously guarded by the political appointees who enjoyed the ride over the past 22 years? Not really... but it is no comfort for the barons of power who have ruled this fair land for so many years and lined their pockets with chairman of the Stock Exchange. For these and their dependents, 2013 may turn out to be apocalypse. Most of us will grin and bear the political slogans and promises starting shortly and continue for the next two years leading to the election. No, we are not amused at being taken for a ride. Still, taking a positive view and mindful that the next two years will be harvest time... meaning our politicians will bend backwards to please us mere mortals and hand out juicy morsels from the rich man’s banquet table. Does this mean squandering more money and totting up the national debt mountain to pay for the unearned pleasures... yes it does. But a reality check is not amiss at this juncture and most of us can be forgiven for feeling a bit ground down by the relentlessly gloomy economic news: high debts, slow growth, falling real incomes, higher energy costs and broken roads. Most commentators predict that by 2013 a global recovery will start taking place. However, we don’t seem to be seeing much of it and for our party apologists to say that it is worse in Greece is small comfort. True that if and when the Libyan crisis is resolved there will be untold opportunities for our enterprises to rebuild the country and win back jobs. Reconstruction in Tripoli and Misurata is something that will be a priority for the regime and perhaps Malta can join the number of countries which will be tendering for this lucrative market.
Again, this will take some time and perhaps by 2013 things will start improving and oil prices will revert back to the $70- $80 range. Is it too much to expect of our political masters to find a solution so that our economy will start registering a decent surplus. Of course reforms are painful and with only two years to election time the electorate is not gearing itself for more belt tightening. But reforms are a poisoned chalice that we cannot avoid if we need to meet our targets. Only thus can the island enjoy sustainable employment with more people getting jobs in the private sector than are being made to feel underemployed in a job for life in the public sector. So is 2013 a turning point with a growth phase that will last around seven years before another recession comes along. Nobody is privy to a crystal ball to foretell the future but history has shown us that cycles of seven-year growth are quite common after a recession. One hopes that the Arab spring revolution will meet its targets with a redistribution of wealth among some of its poorer nations while better living standards and wider democratic rights are enjoyed. That was part of the theme of the G-8 summit in France – that once growth in Middle East is secure, attention could switch to creating a more democratic society. The G-8 promised an aid package of €28 billion to help assure the followers of the Arab spring revolution a peaceful changeover to more democratic rights. Change in 2013 can be exciting with a new president in America and a change of guard in Paris and Berlin.
By 2013 there will be a number of big things happening in global economic governance. In Europe, one hopes that a new permanent European Stability Mechanism will be in place. This may act as a safety net if Greece falters. The question then is how great the pain will be and how it will be shared. Can the euro survive unless fiscal harmonisation is introduced to buttress the more profligate members? But then taxation is a sovereign right of each member state and is not easily yielded. Will taxpayers in Germany and France shoulder most of the burden, or will part be transferred to the banks? If the banks lose money then they will have to raise yet more capital, and the cost of credit will rise further. On a global level, will Japan ‘economy recover from its earthquake and tsunami disaster and will China succeed in harnessing its runaway inflation malady.
If 2013 is likely to be an unsettling year – this seems to be the current consensus in financial circles – you then ask how financial markets will react ahead of these. What economists find most interesting is the theory that growth is never a straight line and there are a number of reasons to expect a pause – not a double dip – before growth is secure again. There are global reasons, of course, to cloud our predictions and our open economy with its banks heavily loaded with property loans (some non performing) and there will be more “sorting out” to be done by the political incumbents following the 2013 elections. There is the structural deficit, about which so much has been written and said. But there is also inflation. Our inflation has been consistently higher than that in the eurozone but inflation everywhere has been heading up. That has to be brought down in Europe because if the European Central Bank does not take action the markets will. Now look around the world and ponder if by 2013 the euro currency will have resolved its unhappy trajectory. Collectively, Brussels has to resolve the position of the countries in intensive care and prevent other eurozone members going the same way. There is a lot of concern about Spain at the moment that has yet to surface fully once the Irish decide whether they can meet their debt obligations or settle for another bailout. Ideally, China has to find a way of attaining a more balanced growth without scooping up all the world’s energy and raw material resources as it does so.
To conclude one looks to the future with a smile and hopes that the prognosis for 2013 as a turnaround year will prove to be right. If this materialises then we shall really deserve the title of a Mediterranean island of milk and honey.
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Mr Mangion is a partner in PKF, an audit and business advisory firm.