23 May 2007

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Good news but work lies ahead

Last week’s much trumpeted announcement that Malta has been given the go-ahead by the European Commission to join the Euro zone next year is indeed good news for all, but especially for the business community. Although this piece of news had been common knowledge for a few weeks, particularly due to the fact that Business Today had long broken the story, that element of certainty is always necessary to put one’s mind at rest.
One must however observe that there was rather too much back slapping and self congratulatory overtones going on last Wednesday as the Prime Minister himself used rather simplistic language to describe the Commission’s decision by stating that Malta had ‘passed five difficult exams’. This primary school style talk is only fit for those who understand everything in political terms or who are completely blinkered in their handling of financial matters which is certainly not the case in Malta today.
Moreover, if one has to analyse the convergence report published by the Commission, one immediately realizes that all is not as well as might have been portrayed. In at least one of the criteria, that of government debt, Malta was given the go ahead even though it has not yet reached the 60 per cent benchmark. And most of the statements accompanying inflation, deficit and general economic performance are qualified, indicating that much needed structural reforms are still required, indicating that we still have a long way to go if we are to make the single currency a success.
But this means that although a considerable amount of sacrifices have been made, there is still much that needs to be done to make Malta competitive. Lots of measures still need to be taken to bring our productivity up to scratch and something definitely needs to be done on an ever too bloated public service. Granted, we have travelled a long way in the right direction but further pruning is required to keep up progress.
No to mention the rather simple yet worrying fact that a rise in the price of oil in the coming months could again put the surcharge under pressure, with a rise that could once again begin affecting our inflation rate. A couple of not so strong hurricanes in the US damaging oil refineries in the Gulf of Mexico would do catastrophic damage to what we have already achieved in the past year or so.
But without sounding overtly pessimistic, the Euro currency is certainly a good thing for businesses. With our current low interest rates, the scenario for cheap borrowing of money remains an enticing prospect and membership of the Euro area should enhance these rates although some rises in the future are to be expected by the European Central bank. The issue of price stability is also important and the single currency should bring further consolidation in this regard. Other benefits which should happen over time are job creation, reduced costs for travellers, lower costs for businesses, increased trade and membership of a strong and attractive international currency. The recipe for success is there, so it is really up to us to make most of it.

Mortgage warnings
In an interview carried in Business Today, APS bank Chairman Lino Delia fires a warning shot over those persons who in the past few years have taken out rather larger than usual mortgages taking advantage over longer spreads of time and attractively low interest rates. He has warned that interest rates might rise again in the future increasing the pressure on loan repayments for families who are already living beyond their means. And when the bark really begins to bite, the whole pyramid will come crashing down like an express train if we are not going to take the right steps to alleviate such a situation which could have disastrous effects on our economic performance. With all the large mega construction projects coming on stream in the months and years ahead, loan books can only rise accordingly and if something goes wrong, the effects will not be too nice. Prudence, diligence and common sense should be the factors where property purchases are concerned as if it goes wrong, there will be many tears at the end. Apart from foreclosures all over the place.

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