06 July 2005

The Web

Fixed Euro peg is “worst” economic advice Government could have had - Scicluna

Kurt Sansone

Government heeded the “worst” economic advice possible when it opted for a fixed peg to the Euro upon joining ERMII in April according to economics professor Edward Scicluna.
The former MCESD chairman, interviewed today in The Malta Financial and Business Times, says that a fixed peg does not allow the country to cushion international shocks to the economy.
Scicluna says that Government rejected the proverbial ‘parachute’ offered by the European Central Bank in the form of a 15 per cent fluctuation band, instead opting for a hard peg.
“Economic historians, 10 to 20 years from now will consider this as the worst economic advice Government could have had,” Scicluna says.
A fixed peg means that any shock coming from outside will directly have an impact on the economy. “Shocks are coming all the time such as the unstable oil prices, fluctuating exports, money flowing in and out. The 15 per cent band could have acted as a shock absorber, a parachute. But we decided to drive the car without shock absorbers,” Scicluna says.
The decision, however, also means that Government has lost control of monetary policy as one of the instruments to better manage the economy.

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Editor: Kurt Sansone
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