One year after its creation the National Euro-Changeover Committee has stepped up a gear as the timeline for adopting the Euro increasingly shortens. The day Malta will officially adopt the Euro, 1 January 2008 is still a distant appointment for many consumers. Not so for businesses, who have to adapt to the change well before E-day.
It is this dual role of educating consumers and enabling businesses to make as smooth a switch as possible that forms the basis of the work undertaken by the NECC.
The committee’s chairman JOSEPH F.X. ZAHRA is upbeat about the challenge he faces. Acknowledging that the battle against the perception that the Euro will be a major contributor to increased inflation is hard to be won, he insists that wrong impressions can only be countered by information.
For him, ideally, the Maltese would be making the mental switch to the Euro at least a year before E-day. And the NECC will be trying hard to achieve that psychological switch. The road is difficult. Given the poor number of people who attended the lectures delivered by the NECC at the Trade Fair, the next course of action will see the organisation reaching out.
“It is not a question of the people coming to us but us going to the people wherever they are,” Zahra says.
An important tool to enable people make the psychological switch is dual pricing. Interviewed just days before the NECC issues guidelines on dual pricing, Zahra says that mandatory dual display in Euro and Lm will only be possible as of 1 July 2007 when the irrevocable exchange rate would have been determined. Prior to that date, however, businesses will be encouraged to adopt the NECC guidelines on dual display voluntarily and receive the Best Practice mark for doing so.
What is the level of preparedness among small businesses and retailers for the Euro changeover?
The National Euro-Changeover Committee has to make sure that the private sector is well geared for this change. The private sector is more complex in terms of size and types of businesses than the public sector and this is why we have been focussing on the preparedness of the private sector.
The private sector needs to prepare itself as early as possible for this change and the structure of the NECC also includes representatives of the private sector headed by Prof. Edward Scicluna. Over the last year we have met the executive councils of the constituted bodies but we have also made it clear that we want to reach the members of the various organisations.
The larger companies on the island and their suppliers are generally well-prepared and well-equipped for the changeover. It is the smaller companies that we have to make sure get to grips with the changeover process.
Important catalysts in this change are accountants. This is why we are having an ongoing positive relationship with the Malta Institute of Accountants with whom we have been discussing the major elements of the changeover.
The NECC has also had various meetings with software and IT companies to make sure they are delivering the correct message to their clients.
We are after simplicity and want to keep costs as minimal as possible. The NECC wants to go for a no-cost approach by not imposing any changes in equipment, unless the company really needs to change its software or hardware because it is outdated.
Has an assessment been made of what the changeover will cost the country and individual businesses?
On a national level there is no one single sum of money we could quote. When you are dealing with the private sector it is so vast but this is not a Y2K situation. For a large number of businesses, particularly for the smaller ones we want to put in place a no-cost change.
I have to point out some misconceptions that have been mentioned. There is definitely no need for businesses to change their cash registers because of the Euro. And those shop owners who have cash registers that can’t handle dual pricing during the mandatory period, will not be obliged to upgrade their software but will only do so on a voluntary basis. It will probably be market forces that will encourage these particular businesses to make that adjustment, which will cost around Lm20.
The NECC will be providing for free, conversion tables and other visual aides to shops, as well as free training to shop owners and business personnel. We encourage businesspersons to take advantage of the free training programmes and come forward.
We also want to see introduced a Best Practice Euro mark that will be attributed to those shops that voluntarily adhere to a list of guidelines issued by the NECC. The Best Practice mark will require shops to follow guidelines on conversion such as rounding up or down, and also have their staff trained for the changeover.
These initiatives may be free for business but they are a cost on public coffers. Has that been quantified?
The cost on public coffers has not been indicated because we are looking at this on a year to year basis. But we must not forget that there is a hefty contribution from the European Union. At a later stage we will be better placed to quantify the cost after making an assessment of the changeover.
The NECC can primarily speak of the cost of the communications strategy to be adopted but there will also be other costs such as those borne by the Central Bank to mint the new coins.
When I interviewed you last year, the battle of perceptions about the Euro and its impact on inflation was high on your list of priorities. Is the battle being won?
Combating the perception of higher inflation is still high on my agenda but it is a battle that can never be won in its entirety. All we can do is mitigate this perception by continuously pointing out that in other countries that have adopted the Euro the impact on inflation has not been substantial. We can learn from these countries.
But perceptions can only be countered by providing correct information. And this we are doing and intend to continue doing. It is also important to have consumer groups that are vigilant on prices during the changeover period to reduce the temptation some might have to abuse.
What are the main concerns the NECC receives on its 154 helpline?
A lot of people who are phoning are concerned about what happens to their deposits in Maltese Lira when the switch happens. They are somehow misinformed believing that the banks will be charging for the change into Euro. This is absolutely incorrect since banks will not be able to charge any fees whatsoever.
People are also concerned with what happens to interest rates, particularly those who have home loans or overdrafts, given the European Central Bank’s current interest rates are lower than those in Malta. Eventually, our interest rates would have to converge to those in the Euro-zone, making it beneficial for those who have loans.
A third major concern is the impact of the Euro on prices and it is here that vigilance is required. This is why we need to prepare ourselves well to ensure the convergence is done in the fairest way possible.
The response of the general public to the lectures the NECC gave at the Trade Fair was not satisfactory. How will the NECC be reaching out to the general public?
The Euro pavilion at the Trade Fair was important both in terms of information but also in terms of visibility. Through the lectures we wanted to relay the message that the NECC is there to inform. From my experience during some of these lectures, it is also important for us to listen to the concerns of people.
We knew that people would not sit through the whole one-hour lecture so we structured them in such a way as to allow more time for questions and answers. And we had many people coming with a specific question and leaving after the reply was given.
To be fair, in people’s minds a year and a half is still a long way to go before the changeover becomes a reality for them.
The Trade Fair was the largest event to date for the NECC but we will continue with our information campaign which will reach out to the various towns and villages with the help of local councils.
It is not a question of the people coming to us but us going to the people wherever they are.
Has absolute rigidity in the peg with the Euro over the past year served the economy well?
It did because the Central Bank was able to maintain the established central parity rate without making use of the 15 per cent fluctuation permitted by ERMII and this has been to Malta’s advantage.
There are two major indicators to sustain the argument; economic growth and employment.
Economic growth during the latter months of last year and the first quarter of 2006 was higher than it was in the previous year and the level of employment has registered positive indications.
These are clear signals that the exchange rate is sustainable and in no way did it have an impact on Malta’s competitiveness.
When it comes to the Central Bank’s reserves, after the turbulence they went through during the first quarter and a half until April last year following speculation on what the exchange rate could have been, the reserves grew and later on stabilised.
But the Central Bank has had to resort to two increases in interest rates during this period, partly to sustain the reserves…
Raising interest rates is a measure used to partially sustain reserves, which will no longer be the prerogative of the Central Bank once Malta adopts the Euro. Interest rates are a tool and the Central Bank has correctly used it. But it goes beyond an increase in 0.25 basis points to be able to sustain a currency.
After a year and two months with a fixed central parity rate, once there have been signs of economic stability, the indications are that we will be having a longer period of stability with the fixed exchange rate.
Slovenia was accepted into Euro zone with the same parity rate established during the ERMII phase. Is this an indication of how the European Commission and the European Central Bank will be dealing with the other countries seeking to adopt the Euro?
If during a period when the exchange rate has remained fixed, the economy has shown signs of growth, the reserves could be maintained and other economic indicators are sending positive signals, this is proof that the exchange rate is sustainable.
This positive track record would make it very difficult for both the Commission and the ECB to decide on a different exchange rate when Malta’s eligibility to the Euro is established.
Do economic indicators as of today allay the fears of a last minute devaluation to align the currency with the Euro?
You cannot have devaluation. One of the commitments a country undertakes when it joins ERMII is that no devaluation of the currency will take place. The currency can only fluctuate within the 15 per cent bracket allowed by the ECB and the Central Bank of Malta has managed as yet to do away with that option sticking to a fixed parity rate.
The NECC’s campaign aims to make people aware of the Euro and its implications. Can it have an undesired effect of encouraging more people to invest their Maltese currency into Euro-denominations as of now, in the process depleting the Central Bank’s reserves?
One year and a half since Malta joined ERMII the country’s reserves have maintained a high level and the Maltese economy progressed positively. Commercial banks and financial institutions also took advantage of this change to provide their clients with financial products denominated in Euro. Notwithstanding all this, the reserves did not suffer major hits and deposits in Lm at the two major banks either remained the same or increased.
This shows level-headedness on the part of Maltese investors and is an indication that people are aware that the Euro is still a foreign currency. At this stage, if one has money deposited in Lm, the interest rate margin makes it attractive to retain that investment in Maltese Lira.
Do you favour dual pricing becoming mandatory on 1 January 2007 or at a later date?
I would favour the mental switch on the part of the Maltese consumer into Euro as early as possible. It is not a question of dual pricing or actually buying goods and services in Euro but that the Maltese get used to, as early as possible, converting the value of Lm into Euro. This is the psychological change that is required and is a major element in the switch over.
We are also aware that the earlier dual display starts on a voluntary basis, preferably as of 1 January 2007, the better for the consumer to get acquainted with the value of things in Euro. But we also know that mandatory dual display can only start when the date of the irrevocable exchange rate is determined, somewhere in late June or early July 2007.
As from 1 January 2007 we will be encouraging business to start having dual display of prices preferably adopting the best code of practice we will be issuing.
Has the issue of bank charges, which risked derailing the whole process, been resolved?
The issue has been resolved and as from 1 July 2007 the commercial banks will be committed to waive any charges for those shops, predominantly found in tourist areas that opt to accept payment for goods or services rendered, in Euro. We are not encouraging shops to accept Euro but those that do will have no reason to charge a mark up when quoting in Euro since banks would be waiving any charges as of 1 July.
Joseph F.X. Zahra was interviewed by Kurt Sansone