It was wise of the Prime Minister to make a statement to Parliament yesterday morning, the earliest opportunity after the EU Council meeting, and explain his government’s views on the issue, and it was equally wise of Dr Joseph Muscat to respond as he did to the PM’s statement.
However, this early morning discussion does not in any way exhaust all that one can say about Malta’s position after the events in Brussels.
Obviously, there is much that can be said over and above the immediate consequences of what happened on Thursday.
To my mind, there is one immediate consequence of the events that saw the UK move to the margins of the EU, almost on its way out. Malta, the minnow, was hiding behind the UK’s big bulk, in resisting pressures and threats to detract from its competitive advantages.
One opt-out enjoyed by the UK is no VAT on food and other items. This used to be a red line for Britain and even for Malta until some time ago, but at a conference I attended in Malta some weeks ago, someone from the European Commission said this will be eased out and he explained how there are benefits in this that can easily be absorbed, were the government to give increased salaries to the people. Or maybe I dimly remember what he said.
There are then the issues regarding the financial transactions tax which the EU – or at least – “Merkozy” want to bring in in order to to get some kind of finance to help stricken countries. It would be the first pan-EU tax directly taken and directed to the EU coffers – and it was the final straw that broke Cameron’s back.
Over the last few months, the European Commission and representatives of the member states that are paying for the profligacy of other member states have put pressure on countries such as Ireland to do away with its very low corporation tax. Ireland objects because this is, it says, its competitive edge.
It is an undoubted fact that a good part of Malta’s attractiveness to foreign direct investment is due to its tax regime. Another point of attraction is Malta’s location and its highly skilled and very flexible workforce, but both sides of the House said yesterday that this is a battle yet to be engaged.
With the UK gone, as the elephant behind which we sheltered, we are now right out in the open.
There are other countries in the same situation, such as Ireland – as already mentioned. – but while the UK is not merely able to impose a veto but can also rest on the strength of Sterling we, on the contrary, are now in the eurozone and even if we were minded to make the same protest as the UK, we are even more members of the club and, whatever happens, we cannot really move out, unless we want to default – which we surely cannot afford to do.
In the coming months, as negotiations leading to the fiscal union are ramped up, we will find ourselves under more pressure to remove our tax breaks and competitive edge as the eurozone moves to have one single currency, one fiscal union, one tax regime, one single market in very real terms. We cannot leave; we will be forced to obey whatever will be decided by Qualified Majority and our ability to veto anything is practically nil.
The people to whom I have talked about this predicament over the past few days did not seem unduly troubled, but maybe that says volumes about them rather than about the situation. One senior official told me that we just need to keep to below the three per cent deficit benchmark to keep below the parapet and escape notice.
Others said the EU is still ready to be flexible with us for we are no Greece or Italy.
Others, of course, rue the day we joined the EU and even more that we rushed to join the euro.
Taking a very wide view, we are now more than ever in the past 300 years, distant and unprotected by the UK. Historically, Malta might have come under UK rule voluntarily to rid itself of Napoleon’s troops in 1800, but there is really nothing in the Maltese DNA (or at least there was nothing until then) in common between Malta and the UK. Malta is more a southern European country, a bulwark of Christianity facing the Muslim south, a country based on the very un-British Catholic tradition and Italian legal practice – and speaking a form of Arabic.
However, now that the UK has moved its great bulk elsewhere, we feel cold and unprotected. We passed through the same phase when we were becoming an independent nation and we had all those Cassandras telling us we would not survive on our own. They told us this even more vociferously when we joined the EU, a hugely speculative step at the time that was quite a demanding task, for it expected us to come out of our by then inbred isolation and island mentality and joining a huge bloc just a few short years after we had joyfully changed our status as a colonial state.
Still, we made it.
As I explained last Sunday, over the past decades our economy and the foremost of our sectors have moved into areas where we had never been before, from financial services to ship registration, to aircraft registration, to online gaming, etc. At each and every turn, we had big sneering countries shooting us down.
Today, if I remember correctly, is the anniversary of the Erika shipwreck. We had just been accepted by another EU Council to re-ignite our accession process to the EU. And the next day, a ship flying the Maltese flag was shipwrecked on the Breton coast, ruining the ecology of entire beaches.
The French press was livid. The ship was a rusty tub that had broken up under the pounding of the waves. The French portrayed Malta as providing a flag of convenience, a rogue country that took the registration money but then did not supervise the ships on its register.
We lived through that. Later on, we cleaned up our act, reorganised our shipping register, put in stricter controls and did much more. Gradually, no more was heard about the Erika and accidents involving Malta-flagged ships became more and more rare.
It was the same with our (then) offshore financial services legislation. Again, many times we were called a rogue country with the same venom that France or Italy speak about Monaco as the place for tax skivers or refugees, the place where the rich and the famous go to live when they do not want to pay their country’s fair taxes. Under an inspired leadership, we changed from an offshore financial services centre to an onshore one, we made it to the OECD white list of countries with proper controls. Today, Luxembourg probably has far more brass plate companies registered than we proportionately have. (Switzerland is a different case: it has a long tradition, it fiercely and jealously guards its independence and, even so, its banks have been made to deliver the names of tax refugees.)
Ditto when we came to IT: whatever many may say, we attracted so many online gaming companies not just because of our tax regime but also – and primarily – because of the level of service we give and the quality of our connectivity.
I am not saying – not even remotely – that the future for us is “high and dry”. It is anything but. However, if – at least on this – we remain as united as the two sides were yesterday in the House, and if we keep our heads down, we may continue to thrive when bigger countries flounder.
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