By James Debono
Counteracting fears of an Italian style price hike once Malta adopts the euro, Parliamentary Secretary in the Ministry of Finance Tonio Fenech has announced that the government is considering obliging all retailers to price and mark their products in both the euro and Maltese liri in the year preceding and the year following the currency changeover.
The move will ensure that consumers do not receive any surprises on the day after Malta’s adoption of the euro. Understandably, one of the main concerns of the Maltese people is a repetition of what took place in Italy in January 2002. Three years later, Italians still complain that the cost of living has soared since their country joined Eurozone.
Fenech made the declaration during the filming of yesterday's edition the Int X'Tahseb? TV programme in what was the first debate between Malta’s three political parties on the issue.
Tonio Fenech also announced that he is willing to share reports and information, including a report prepared by the Central Bank of Malta, on the adoption of the euro with the opposition Labour party. He also announced that if Malta were to join the ERM II now, it would not necessarily mean that Malta would adopt the euro in 2008. Malta would still be able to postpone the adoption of the euro to a later date.
The declaration is politically significant, especially when considering that the earliest date for the adoption of the euro coincides with the 2008 general elections.
While fears of an increase of the cost of living seem to be the public’s major concern, other major issues were also raised during the programme. Dr Charles Mangion, while taking a soft line on the issue, raised the MLP’s concern on the impact Malta’s euro adoption would have STMicroelectronics, Malta's leading employer and exporter. Mangion said the adoption could have a negative impact on the company since it depends on the US dollar for its exports.
Tonio Fenech admitted that the adoption of the euro could have a slightly negative impact on the company, but argued that any such impact would be offset by a reduction in interest rates, which would benefit companies operating in Malta.
On the other hand AD spokesperson for finances Edward Fenech, while welcoming a reduction in interest rates, warned a cut could result in an explosion of property prices and called on the government to address this issue of spiralling property prices immediately. Although according the Green Party spokesperson the adoption of the euro will have a greater impact on the public than EU membership itself, the discussion on the euro at least till now seems to be characterised by a degree of consensus between the three parties. Charles Mangion insisted that there is no room for political football on this "non-ideological" issue”. The main divergence between the parties seems to be on the timing of adopting the euro, with both the MLP and AD adopting a more cautious than the government. As regards timing, Tonio Fenech cited a meeting during which the world leading credit rating agency, Standard and Poor’s, told him it would consider a postponement of the decision to enter ERM II negatively. On the other hand, Fenech insisted that the decision to join ERM II would not be an arbitrary government decision, but that it would also depend on a positive assessment by the European Central Bank and the European Commission.
One major fear of the Maltese business community is that the decision to join the euro would be accompanied by a devaluation or depreciation of the Maltese lira. Tonio Fenech was clear on this issue. “It is not the intention of the government to depreciate or devalue the Maltese lira.” Tonio Fenech explained that this would be the second time in which the balance between the component parts of the Maltese currency basket will be changed. Tonio Fenech was referring to a change in the currency basket in 2002 through which the weight of the euro in the currency basket was increased to 70 per cent. “On that occasion no devaluation took place.” Tonio Fenech also added that the any decision relating to the value of the Maltese lira would also be subject to the assessment of the European Central bank.
While the government is willing to share information and reports with the opposition on the adoption of the euro, the government is very wary of a no holds barred national debate on the issue.
“This is a sensitive process. Even when we talk about the rate on which we will be pegging the Maltese lira to the euro, we should be wary of creating negative reactions.” Fenech also warned stockbrokers to refrain from giving misleading advice. “Certain words can result in people being hurt.”
Fenech’s note of caution contrasted with a declaration made by former finance minister Lino Spiteri in an article published recently in the local media. In the article Spiteri asked, “Why should the government take us there without proper widespread discussion, particularly to become clearer about the rate at which we should lock in with the euro? Joining ERM II will not finally decide that rate. But, if the step is taken unnecessarily early there could be a very heavy economic and social price to pay.”
During the programme Charles Mangion and Edward Fenech, while recognising the technical nature of this decision, agreed with Spiteri’s call for a more widespread debate. But if the discussion remains on the same civilised level as yesterday’s debate on Smash TV, it seems there is little to fear from a national debate on the heated issue.