The EU doesn’t give ‘certificates’

By Raphael Vassallo

The EU does not give ‘certificates’ of economic health. On the contrary, it merely accepts whatever figures are thrown at it by member States, at face value and without question.


I've just listened to an interview with Lawrence Gonzi on Radio 101.


In a sense, it served to remind his political opponents why they underestimate him only at their own peril. For Gonzi is nothing if not convincing - at least when 'interviewed' on friendly soil.


True, you have to gloss over all the usual empty boasts (I for one can't believe he still cites Libya as one of his own personal achievements, given everything that's happening there at the moment) and you also have to close an eye at the usual hollow line that 'you can't trust Labour'. Given the stench of corruption emanating from Enemalta's smokestacks at the moment, I would have though Gonzi had enough on his plate trying to convince us why we should still trust the PN.


But seeing as most people get on with their lives without thinking much about these matters (I, alas, fall within that category of people who have a professional commitment to pay attention) these considerations are unlikely to sway many opinions before D-Day.


Most people at this stage just want to know how the election result will affect their own livelihoods in a very immediate way - pensions, taxes, children's allowance, stuff like that - and on these issues Gonzi does indeed sound like he's got a whole pack of aces up his sleeve.


I won't bother deconstructing the electoral promises themselves: that's something the electorate will decide for itself soon enough - but there is one annoying little detail that keeps cropping up in all Gonzi's public interventions.


At various points throughout the interview, Gonzi peddled the line - repeated separately by Tonio Fenech, Simon Busuttil, and... well, that's it really (no one else in the PN seems to be talking much these days) - that Malta's finances are 'fis-sod'... and that this has been 'confirmed' by a 'certificate' coming from the EU.


I have heard this line so often now that I am surprised it hasn't been collectively shot down by all Malta's economists in a sudden blast if common sense. But I suppose Malta's economists are too busy deciding which horse to back in this race, to bother with such trivialities as 'the economy'.


But the realty is very simply this: the EU does not give 'certificates' of economic health. On the contrary, it merely accepts whatever figures are thrown at it by member States, at face value and without question. As for the real state of affairs in those contries... that is something we usually discover later, and for all the wrong reasons.


That is when 'certificates' come into the picture. And in most cases they will be certificates of failure.


Ironically, Gonzi himself alludes to such certificates all the time. Remember those countries he keeps warning us about? Greece Italy, Spain, Cyprus? Well, they were all given 'certificates' by the EU, too.


Let's stick to just one example: Greece. Unless I am much mistaken Greece was admitted to the Eurozone alongside Malta - the same 'certificate' that Gonzi still boats about to this day. Well, we now know that it was certainly not because its finances were 'fis-sod'. With hindsight, we can discern two reasons for Greece's eurozone entry... both of which reflect rather poorly on the European Commission's judgment in economic matters.


One: Greece cooked its books, and the European Commission neither noticed nor even bothered to ask for more clarification.


Two: the European Commission was propelled by a political (as opposed to financial/economic) agenda, whereby expansion of the eurozone took precedence over the strength of the currency itself.


In a nutshell, Greece was accepted into the eurozone to serve a political, not an economic purpose. And don't for a second fool yourself into thinking that Malta was in any way different in this respect.


In other respects there are differences, certainly. We may not have an absolutely clear idea of the real state of Malta's finances, but we can be reasonably assured of one thing: we're not in the same boat as Greece, because government does not borrow its money from the World Bank and similar institutions (and therefore does not have to pay interest on its loans, nor face the prospect of an immediate call-in).


But this does mean not we do not borrow at all. In fact we borrow money all the time... from ourselves, and just to maintain our present standard of living. And this represents the mammoth flaw in Gonzi's repeated claims of 'finanzi fis-sod'. A debt-based economy cannot realistically be described as 'on sound footing': especially if government annually gets its own deficit forecasts wrong, with the result that the national debt keeps steadily growing.


To be fair it cannot be described as bankrupt either - at least, not for as long as government keeps its debt levels to manageable proportions. But there are very serious indications that this will not be possible in the near future. And Gonzi is being disingenuous by pretending this problem does not exist... or even worse, that it is not the result of his own government's economic mismanagement over the past 10 years.


And while there is no such thing as 'certification' of solid financial footing to be had from the direction of the EU, there are plenty of other 'certificates' that suggest the opposite of Gonzi's claims. This time they come from credit ratings agencies like Standard and Poor's - whose job (unlike the EU's) is precisely to certify the economic health of any given country.


We all saw how S&P rated Malta's economy last month. And it didn't look much like a certificate of 'finanzi fis-sod' to me.


The Malta Today