INTERVIEW | Wednesday, 28 November 2007
We are practically one month away from the introduction of the euro. What is the general state of preparedness of the country for the adoption of the euro? Is the country on target with the deadlines set in this respect?
Last Tuesday, the European Commission unveiled its sixth report on the practical preparations towards the adoption of the euro, analysing and commenting on Malta’s preparations so far. Malta’s state of preparations has been once again commended. Indeed, during the past few months, our technical and communications teams have been very active to ensure a high level of preparedness among consumers and the business community.
The Eurobarometer Survey published also by the European Commission also points out to a general high level of perceived self-knowledge amount the Maltese population and the Business Survey published by the NECC a few weeks ago also demonstrates that businesses in Malta are largely well on track in terms of their practical preparations.
Naturally, as € days draws closer, one is more prone to become more aware of the imminence of the transition and as such requests for more information and assistance are expected.
Why was the National Euro Changeover Committee (NECC) set up and what are its terms of reference?
As early as 13 June 2005, Government established the National Euro Changeover Committee (NECC) as the coordinator of euro changeover implementation project. The NECC co-ordinates all the stakeholder efforts necessary for the successful implementation of the euro changeover process. The executive arm of the NECC manages all communications related to the euro as well as masters all the technical preparations in conjunction with the relevant stakeholders. Since its establishment, the NECC has been able to provide leadership to all the stakeholders. The fact that it is a dedicated structure at arms length from government has been a critical success factor.
How have the different stakeholders in the adoption of the euro been effectively consulted by the NECC during the whole adoption process? Is this process still going on?
The NECC is made up of seven sectoral committees and seven task forces each of which represents the interests of all the stakeholders chief amongst which are businesses, consumers, financial institutions, education and legal sectors, ICT and tourism, public sector and corporate human resources.
The Chairman of each Sectoral Committee and Task Force sits on the NECC which meets regularly, mostly once every fortnight, chaired by Joseph F X Zahra. Fifty meetings have been held so far, during which proposals by the Executive are discussed while each Chairman is regularly asked for a status update of the work of the Task Force or Sectoral Committee.
The responsibility for the meetings of the relevant Sectoral Committees and Task Forces falls on relative Chairperson, while the Executive provides a Relationship Manager to each Sectoral Committee or Task Force in order to keep an open and immediate two-way channel of communications. It is therefore incumbent on the relative sector to make the best use of the NECC to further their interests.
We believe this is a rather solid form of stakeholder representation and consultation. One must bear in mind that interests are at times are totally divergent and although it has not always been plain sailing, results have been achieved through consensus.
How is the NECC reaching out to the different sectors of the population in order to ensure that there is maximum awareness about the practicalities of adopting the single currency?
Besides the general mass media and communications campaign, the NECC has six very focused and independent information programmes. These target businesses and retailers, consumers, the elderly, vulnerable groups, women working at home and children. Each sector has its own Information Officer which manages the information and communications campaign for the relative target group. This approach has seen the level of perceived self-knowledge jump from 33 per cent in April 2006 to 74 per cent in September 2007. There is however, no room for complacency.
Since September we have intensified our efforts by going local and soon we will be opening up an information office in each and every town and village in Malta and Gozo to attend to the needs and requirements during these critical straddling weeks.
The NECC has adopted a “big-bang” scenario – where the introduction of the notes and coins is taking place concurrently with the date of joining the eurozone – in the introduction of the euro in Malta rather than a more gradual approach. Why?
The big bang scenario is necessary to minimise costs for businesses and to make the changeover as smooth and efficient as possible. As opposed to the situation in 1999, when the euro was introduced as book money, today, the euro is already in circulation and possesses legal tender as a foreign currency. Once a currency changeover is taking place, it is in the interest of business and consumers alike to facilitate the transition is the quickest manner possible to reduce uncertainty, minimise risk and keep costs to a minimum.
One of the most controversial measures adopted by the NECC was the signing of fifteen price stability agreements with importers, distributors and manufacturers. Can you explain a bit more how these price stabilisation agreements work out? What led the NECC to propose these agreements?
We have not reinvented the wheel! Price Stability Agreements were signed in France in 2001 and they delivered what they were meant for. We have discussed at length with the French authorities and with the French Chamber of Commerce the concept and spirit of the Price Stability Agreements and facts prove the that the inflation level in France over the changeover period was one of the lowest. There was also no significant impact on inflation following the termination period of the Price Stability Agreements.
It must be stressed that these Agreements are not motivated by economic considerations. This is not the NECC’s role and we steer away from it. They are primarily motivated by the need for consumers to establish a new set of reference values in euro. They are a psychological tool inasmuch as dual display of prices assists in the correct establishment of euro counter-values for the Maltese lira. In a sense these two elements are intertwined. Price Stability Agreements coupled with dual display of prices assists consumers to establish equivalence – a crucial requirements for a successful, fair and smooth changeover.
Any other interpretation given to Price Stability Agreements departs from the raison d’etre which guides the NECC.
How will the NECC effectively ensure that at the end of the price stability agreements at the end of March next year, there will not be a big-bang rise in prices, as medicines importer Reginald Fava suggested recently while speaking during “Reporter”? Is this just a cosmetic measure aimed at merely postponing the inevitable price hikes?
We prefer to look at past experience and facts. Speculating the future, as you well know, is mere conjecture.
In France, there was no increase in the inflation rate in April following the end of the price stability period. On the contrary, inflation levels in France were lower than the eurozone average and much lower than that of countries like Germany and Spain, where no price stability agreements ever existed.
We also firmly believe that it is not in the commercial interests of importers, distributors or manufacturers to hike their prices in a big-bang manner following the termination of the price stability period. Competition in the fast moving consumer goods sector is stiff and healthy and no level headed importer would want to drive his business into a wall by becoming uncompetitive. I think this was also the point made by a much larger medicines importer and signatory to the price stability agreement in reaction to Reginald Fava’s surmise.
The Euro Observatory, set up earlier this year, has been monitoring prices since April and will keep doing so at least till the end of the dual display period, that is, July 2008. From the analysis done so far, it does not transpire that there have been abuses or unjustified price hikes in the fast-moving consumer goods business. If the past is anything to go by, then the future bodes well!
Labour leader Alfred Sant recently proposed that these price stability agreements should be extended by another two months till the end of May. Does the NECC agree with this proposal or not? Can you explain why?
The brief of the NECC is to remain apolitical in its communications. We do not enter the realm of political discourse and refrain from commenting on political statements unless they are factually incorrect.
There have been accusations in the media that these price stability agreements are a throwback to the Mintoffian times of price controls. Former Finance Minister John Dalli told BusinessToday: “I do not agree with the introduction of price controls in Malta because they do not work. There are thousands of stratagems that can be used by traders to go around controls.” What is the NECC’s reaction to these claims?
Price Stability Agreements have no semblance to price controls. The NECC does not agree with price controls and that is why price stability agreements are voluntary and respect free market fundamentals. Importers and distributors see in price stability agreements an excellent platform for them to guarantee fairness and stability over the changeover period for both consumers and retailers across the supply chain.
The practical issues of a currency changeover are not best served through economic debate. A cash changeover needs to focus on the management of the psychological impact of the changeover. Opinions about the wisdom of price stability agreements within the context of a practical currency changeover need to more away from economics into the unchartered land of social psychology.
Isn’t the March cut-off date too close to the general election to claim credibility and veer away from accusations of political expediency?
The March cut-off date was chosen by the NECC without any discussion with government. It is therefore totally unlinked from any political consideration as such. The French agreement also spanned for six months, three months prior and three months following the changeover.
Apart from the price stability agreements, what other measures has the NECC effectively taken to ensure that there are no abuses in prices as a result of the adoption of the euro? Have any people been charged in Court or elsewhere as a result of NECC action on price abuses? If yes, how many and what was the outcome of the cases?
As early as January 2007, the NECC published its Consumer Protection Framework in its Third Update of the Master-plan for the euro adoption in Malta. This consumer protection framework has all been implemented and is, in our opinion, the most stringent and tight that has ever existed in the thirteen eurozone member states. It consists of: the legal framework protecting against price abuse through the law and regulations on dual display, euro pricing and smoothing; the FAIR initiative which has seen close to 7,000 subscriptions, the Euro Observatory as the key enforcement and monitoring arm, regular price monitoring through the Price Watch and the Mystery Shopping initiative and the information campaign itself which sensitises consumers to price movements and lastly the Price Stability Agreements themselves.
These are all the result of the lessons learnt from the previous changeovers and the European Union has recognised this by publicly claiming that Malta has implemented all known best-practices. It is interesting as well to note that the Maltese are the least pessimistic of all the New Member States when it comes to their fears about possible price rises related to the euro introduction.
In terms of enforcement, I believe that we are working hard to eradicate abuse. Since January, our Euro Assistants have performed over 38,000 visits to shops and retail outlets an average of 104 visits per day. Of a total of 328 reports about incorrect dual display, 116 outlets were served with a First Direction, and only in 19 cases did we issue a Second Direction. This means that only those who persisted in doing wrong were handed down an administrative fine, and this only occurred in three instances.
The law provides for administrative fines. This means that there is no need to take anyone to Court. But we do have a three stage warning process following which an administrative fine is imposed.
When it comes to price increases, so have so far had 357 complaints on euro-induced price increases. In 294 cases, the Euro Observatory concluded that no further action was necessary, as justifiable causes for the increases were immediately obvious especially in the prevailing circumstances of energy and food price increases.
Sixty-three cases were investigated further by asking for written justification for the increase by the retailer or importer. Following their submissions, 38 cases were closed as it was determined that the increase was deemed as justified by economic reasons, for instance, increase cost of labour, raw materials, energy, capital investments, etc.
In 3 cases we concluded that the price increase was not justified and we asked the owner to revert back to the original price against the risk of being fined. In these three cases compliance was achieved and no fine was imposed. We are still investigating 22 cases since these are the most recently reported ones.
Are Maltese businesses generally prepared to adopt the euro or not? Why? Which are those sectors that are better prepared for the adoption of the single currency? Which are those sectors that are still lagging behind?
A survey we carried out amongst 1000 businesses way back in August suggests that the general level of preparedness amongst the business and retail sector is quite high. Indeed, the wholesale and retail is the sector most prepared by the construction sector is the least prepared. This is quite expected due to the different levels of exposure to cash transactions between the different sectors. On the whole, large organisations are also more prepared than smaller organisations or the self-employed.
Since September however, the NECC has rolled out its training strategy which has already seen more than 1,500 businesses being trained by our Euro Assistants on a one-to-one basis.
The general mood of the business sector is very positive. Businesses realise the immediate and tangible benefits which the euro brings them. They are therefore eager to embrace the new currency.
What kind of special arrangements has the NECC made to assist businesses in the changeover to the euro?
We have adopted a different approach than that adopted in the previous changeovers. In the other 13 countries, businesses have had to shoulder all the costs of the currency changeover. In our case, we adopted a cost-minimisation strategy, so as to limit its potential impact on consumer prices. We facilitated the dual display with the provision of price labelling equipment, provided training free of charge and give out training kits to organisations for them to deliver training to their staff. A tax deduction scheme was designed to assist the SME sector in their euro-related expenditure. Sector and industry specific seminars have been held and our technical preparations unit doubles up as a business support unit. Very soon we will also be providing a dual display calculator, courtesy of the European Parliament Office, to each and every retail outlet to facilitate the tendering of change in euro for Lm payments during the dual circulation period.
What is the state of preparedness for the euro changeover of Government departments, authorities and entities? Which are those sectors that are still lagging behind?
There are four aspects of government which are actively being taken care of. Under the general direction of a core team of dedicated professionals at the Management Efficiency Unit, each department’s and entity’s euro Project Manager handles euro-related issues internally. A cross-functional team within MITTS Ltd., and another one within the Attorney General’s Office handle the ICT and legal issues respectively.
The support of the Principal Permanent Secretary has been unwavering. Permanent Secretaries have all been enjoined to take charge and leadership and to ensure that each Ministry is on track with respect to preparations.
There are really no laggards in Government. Preparations are well under way and Government is fully prepared. Testing and simulations have already been carried out, training has now started being cascaded down to all cash handlers and customer care officers and should be ready any time soon. The whole body of law will be converted on January 1 into euro and this is a remarkable achievement. A series of legal notices amending each monetary amount to euro are being prepared and will be published in the last week of December.
A team of people within the Ministry of Finance have also seen to the conversion issues related to Treasury, payroll, accounting and government bond issues. As from January 1st, Government will be working in euro.
Can you describe the latest preparations that the NECC is currently doing in connection with the euro change-over on January 1? What will be the scenario on January 1 next year?
We are in the final phase of our information campaign and technical preparations. In the coming weeks we will publish the final legal notice formally establishing the euro as our national currency from January 1 setting out the legal framework for the cash changeover modalities.
On the communications front, the NECC will be going local through the euro centres as from December 3. From then onwards, the most labour intensive part of the currency changeover will need to be taken over by the financial institutions.
Indeed, the smoothness of the changeover relies heavily on the efficiency of the banking sector in placing the new currency in circulation and withdrawing the old currency. The quicker the process the smoother the changeover will be. We have discussed at length with the banks the importance of leaving no stone unturned and to go out of their way to ensure that no bottlenecks, be it for businesses or consumers are created.
The scenario on January 1 may be predictable in the sense that like most other European citizens, the Maltese will be eager to acquire and use the new currency. The first ten days will see the use of Maltese currency going from a 100 per cent till around 5 per cent obviously being replaced with euro transactions. Banks, businesses and consumers need to co-operate together. There will still be till the end of January for possible payment with the Maltese Lira and till the end of March for any cash exchanges free of charge at any commercial bank.
Consumers and businesses have been empowered to make of the euro changeover a success. It is now up to them, with our renewed assistance, to utilise the tools available to them to facilitate the introduction of the euro in their best interests.
28 November 2007
ISSUE NO. 513