Single currency would benefit
tourism and industry, economist says
By Kurt Sansone
Governments 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 Islands 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 ministers 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 Maltas 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,
Looking at the issue from the point of view of Maltas 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.