02 December 2003

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Single currency would benefit tourism and industry, economist says

By Kurt Sansone
Government’s haste to replace the Maltese Lira with the euro "as soon as possible" after EU membership may be in part fuelled by the positive impact the move will have on how credit rating agencies value the Island’s economy.
This was the view expressed by Adrian Said, economist and director at EMCS (Economic and Management Consultancy Services Ltd), when asked to comment on the finance minister’s euro-adoption policy statement during the budget speech.
Mr Said told The Malta Financial and Business Times that adopting the euro would help to increase competitivity because it eliminated the risk associated with currency exchange.
On the down side, the Maltese central bank will lose its sovereignty on monetary policy. "The Central Bank of Malta will not be able to use the interest rate as a tool to control inflation and curtail expenditure because that would be determined by the European Central Bank," the economist said.
Mr Said added: "Joining the euro would complete Malta’s integration with the EU and it makes sense because given that we will already be part of an open market it would eliminate the only remaining obstacle, currency."
Looking at the issue from the point of view of Malta’s clients, tourists and companies, Mr Said remarked that the euro would benefit the tourism and export industries because expenses related to currency exchange will disappear. "When investors cast an eye on a country to see whether it is feasible to invest one of the attributes they look at is the currency they are going to trade in. With the euro the exchange risk is eliminated," Mr Said insisted.
During the budget speech Minister Dalli announced that Malta would be applying to join the Exchange Rate Mechanism, ERM II, by January 2005.
This means that for two years the Maltese Lira would be hooked to the euro. It is only after the two years have elapsed and the country satisfies the Maastricht criteria that it will be able to adopt the single currency.
As yet Malta does not satisfy two criteria; the deficit and debt as a percentage of GDP.
In order for Malta to be able to join the euro, the deficit has to be below three per cent and during his Budget speech for 2004 Minister Dalli projected a deficit of below three per cent by 2006.

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Editor: Saviour Balzan
The Malta Financial & Business Times, Newsworks Ltd, Vjal ir-Rihan, San Gwann
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