■ Keith Micallef

The House of Representatives on Wednesday evening started debating Malta’s participation in the European Stability Mechanism (ESM), which is set to enter into force next month in response to the ongoing eurozone crisis.

In his introductory speech, the Finance Minister said that this law caters for Malta’s participation in this mechanism. The ESM should deal with emergency situations like those that arose in Greece and Ireland and most recently in Spain’s financial sector. Mr Fenech said that if no such mechanism is in place, problems may precipitate and endanger the EU’s future.

He remarked that following the Greek experience in 2010, no ad hoc approach would be sufficient anymore, thus resulting in the European Financial Stability Facility (EFSF) which was a temporary measure. Following this development, the ESM was created as a more permanent response and a decision was taken to advance its implementation from 2013 to next month. The EFSF meant that Malta had offered up to €700 million in guarantees.

Mr Fenech explained that recent events in Spain led to the decision last December to anticipate the entry in force of the ESM by a year. Meanwhile, the first two main tranches in the ESM will be paid in July and October with a further two in 2013 and the last one in 2014. The ESM will fund the aid package for the Spanish banks rescue.

He explained that the EFSF resulted in up to €700 million as guarantee which was being listed as debt, while Malta’s contribution in the ESM would be up to €512 million in guarantees.

This mechanism will be administered by a board of governors made up of finance ministers from member states. Aid will be only granted if there is unanimous approval. During the first 12 years, Malta’s contribution will be less per capita than under the EFSF as Malta qualified as a country whose GDP is still below 75% of the EU average. This results in a reduction of €14 million in Malta’s instalment contribution.

The Finance Minister said that these instruments are no insurance against irresponsible governance. Tonio Fenech said that the ESM is just one of a three-pronged strategy which is also based on sustainable public finances to avoid contagion and boost competitiveness.

Labour MP Charles Mangion remarked that the EU took several steps to prevent contagion but was unsuccessful so far. He added that the financial markets at the moment lack confidence and this is fuelling further instability. Dr Mangion stated that the ESM meant also a financial burden for the country, which burden could increase in the future. The Labour MP warned that the ESM might also mean that Malta will cede some of its sovereignty to Brussels such as the fiscal veto. He suggested the government to commission a report on the implications of such mechanisms on the country’s sovereignty. Dr Mangion emphasised that the people should have been informed better on this mechanism to have a better picture of the situation.

The Labour MP listed the series of measures adopted by the EU since the emergence of the crises in 2010 with some member states resorting to a bailout. Dr Mangion remarked that his biggest concern is that in spite of the financial burdens dictated by the ESM on the country’s finances, the financial markets will still be very volatile. He added that from the initial €58.5 million, Malta’s contribution may rise further if the situation degenerates. At the same time, he cast his doubts whether the €74 million which Malta has lent to Greece will be ever paid back.

The Labour MP questioned whether this mechanism meant that Malta could be refused any aid (however insignificant it might be in the EU’s overall finances) if the need arises in future since this is granted only on condition of unanimous approval. He added that the interest of small countries is not being defended, claiming that technically the four largest member states have 66% of the votes. He reiterated that the commitments being undertaken by the country are considerable, when taking into account also EFSF and the International Monetary Fund obligations. These may add up to over €1 billion or 25% of Malta’s GDP.

The Labour MP referred also to Herman Von Rompuy’s report which states that the strengthening of the monetary and economic union can only be achieved through four building blocks. Among them is an integrated financial framework which is practically a banking union. The others are integrated frameworks for budgetary, economic and democratic measures. He described these blocks as a possible threat to the country’s sovereignty which are tantamount to EU interference in internal matters. Dr Mangion suggested the formation of a committee of experts to evaluate the impact of such measures till next October when countries will present their feedback. He urged Cabinet members to declare their position in EU fora on those points on which there is broad consensus locally that are against Malta’s interest.

Former Labour leader Alfred Sant reminded the House that prior to the euro introduction in 2008, the government had justified its decision saying that this would strengthen our currency. He remarked that he is baffled with the argument that the euro had saved the country from the brunt of the international crisis. Dr Sant claimed that the euro was drafted haphazardly and recent events proof this point. He backed his argument saying that the bilateral agreement to lend money to Greece led to the creation of the EFSF which was intended to be temporary. However, this led to the setting up, on a permanent basis, of the ESM with nobody knowing exactly where it might be heading. He warned that there are already signs that the situation is out of control. Though he indicated his approval for the ESM, he warned that it would be wrong to approve such a measure lightly. He echoed Dr Mangion’s calls for detailed scrutiny as this involved Malta’s currency branding these measures nothing more than a knee-jerk reaction to the events. According to Dr Sant, the EU’s response is not sufficient warning that any future crisis is bound to have global repercussions rather than isolated. He described the EU’s response as applying elastoplasts to the wounds. Dr Sant branded the EFSF as a form of “creative accounting” with the parameters continually evolving. In his speech, he expressed his doubts about the approach being adopted by the EU to tackle the financial crisis. He branded the way in which the ESM is being managed as one lacking transparency and accountability. He asked who will be forking out the bill for these shortcomings.

At the end of question time, Labour MP Leo Brincat drew the Speaker’s attention that government MPs were systematically refusing to divulge information which he had requested some time ago. In particular, he referred to a parliamentary question which he tabled on 6 June when he requested the Prime Minister to provide detailed information about the salary and allowances being paid to the outgoing ambassador to the EU, Richard Cachia Caruana. He added that such reluctance on the government’s side to provide the requested information raises certain questions.

The House is adjourned for next Monday at 6pm.