19 May 2004

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Government changes tack on Euro adoption

By Kurt Sansone

Statements made in Parliament on Monday seem to point towards a change in government policy on when the Euro will be adopted as legal tender, with Parliamentary Secretary Tonio Fenech saying that Malta need not be among the first of the new EU member states to join the single currency.
This contrasts with government policy as spelt out in former Finance Minister John Dalli’s budget speech for 2004 in which he argued for the “early adoption of the Euro.”
Although government’s ‘new’ policy states that Malta should adopt the Euro “sooner rather than later,” Fenech insisted that the adoption date would depend on local conditions. He told Parliament that government would not rush to Euro adoption if the country could not absorb certain decisions that had to be taken to curb the burgeoning deficit.

With the deficit standing at around nine per cent of GDP, Malta has a long way to go before reaching the maximum target of three per cent stipulated by the Maastricht criteria for Euro adoption.
This contrasts with the strategy championed by Dalli last year. “A strategy that would prolong the process (Euro adoption) has its inherent dangers, in particular that Malta might lag behind other acceding countries both in terms of convergence and the catching-up process,” Dalli warned in the budget speech.
Responding to parliamentary questions from Labour MPs Leo Brincat, Noel Farrugia, Joseph Abela and Nationalist MPs Mario Galea and Robert Arrigo, Parliamentary Secretary Tonio Fenech said one of the first decisions that needed to be taken was over when Malta would join the ERM II.
Even this statement can be interpreted as a change in policy from the definite date specified by John Dalli during last year’s budget speech. The former Finance Minister said it was appropriate to take the first step for Euro adoption by “applying soon after membership” to participate in ERM II “by early 2005.”
Before adopting the Euro a country has to form part of the exchange rate mechanism for at least two years prior to the changeover.
Fenech also said that a strategy for adopting the Euro was currently being discussed between government and the Central Bank and will be presented to the EU at the end of next month.
This seemingly change in government policy may be prompted by the difficulty of controlling the deficit within a short period, even if Fenech stated government remained committed to bringing down the deficit to three per cent of GDP by 2006 independently of Euro adoption.
Only last week Labour leader Alfred Sant said early adoption of the Euro would create social and economic upheaval given the high government deficit. “The Labour Party is against the country joining the eurozone in the next two or three years,” Sant told The Malta Financial and Business Times. He insisted that reducing the deficit to three per cent in two years would create many problems.

kurt@newsworksltd.com



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