The Times, 5 August 2011
In a context of economic and fiscal crisis, particularly among EU member states such as Greece, Ireland and Portugal, the European Union has adopted an economic agreement known as the Euro Plus Pact.
When the euro crisis came into being, it was made clear that EU member states that were not conforming to established financial and economic norms were “behaving badly” but when they did their punishment was just a gentle rap on the knuckles. This led to unsustainable economic and financial measures in some countries, notably those in southern Europe, to the detriment not only of their economies but also of other economies in the eurozone, the EU and the global economy. We now know that such an irresponsible approach is a recipe for disaster. As if we needed to be reminded, it is now clearer than ever that national governments have their fiscal limits and money doesn’t fall from the sky. Sustainable budgets are a must, irrespective of one’s ideological orientation.
In this regard, the EU – which is dominated by centre-right governments, a centre-right Commission and a centre-right majority in its Parliament – is opting for measures with the aim of avoiding further risks as much as possible. While one welcomes measures and policies based on such risk management, some of the measures being proposed are likely to result in slow economic growth and will mostly affect the most vulnerable groups in society.
The remedies being proposed for Greece, Spain, Portugal and Italy included reduced public spending. Even though one should commend fiscal prudence, austerity cuts are not the only option to achieve such goals and should be used in tandem with other measures. For example, progressive taxation can help balance out expenditure and revenue and thus help provide the required funds to avoid an increase in poverty, social exclusion and precariousness.
Another measure that can be implemented in this regard is to resort to harmonised eco taxes, increase tax compliance and taxes on speculative activities including certain financial transactions. The latter, in particular, can also help provide revenue that can be used for social and environmental purposes among others.
The Euro Plus Pact also provides for proper sanctioning – including fines – on member states that do not conform to regulations such as those involving public debt. In this regard, Malta’s public debt – about 68 per cent of gross domestic product – is roughly in line with EU regulations and it is definitely not in the crisis situation as is the case with some member states with public debt exceeding 100 per cent. It is however pertinent to note that a considerable proportion of government expenditure goes on public debt servicing
While one welcomes measures that aim to curb unsustainable economic and financial policies, at the same time, one would expect that these should not increase poverty and threaten employment and expenditures on education, health and the environment (including combating climate change).
The European Greens, which welcome aspects of the Euro Plus Pact but are critical of others, have proposed the setting of concrete targets and corresponding measures related to such areas. Unfortunately, the centre-right majority within the European Parliament, also comprising Malta’s Nationalist Party, blocked this proposal. This is not the first time that progressive proposals were blocked by the centre-right.
Euro Plus Pact policies relating to the monitoring of private sector debt, financial speculation and economic inequality are most welcome. In this regard, one must mention the fact that Malta, particularly the banking sector, remains over-reliant on construction and real estate. This is raising concern elsewhere (including the IMF) but, apparently, not among Malta’s policy elite. In Malta, the provision of housing by far exceeds demand. Malta’s 25 per cent rate of vacant properties is ample proof of this. One mega-development project even went as far as to issue shares and found very few buyers, resulting in the purchase of the same shares by those who issued them in the first place, possibly to avoid financial collapse. Yet, the Malta Environment and Planning Authority keeps acting in a business-as-usual manner by issuing permits for even more mega projects. Besides, to-date, Malta does not have fiscal policies that discourage property speculation. The real estate sector – already characterised by various white elephants across Malta and Gozo – can ultimately implode, unless a policy shift is undertaken. In sum, while certain aspects of the Euro Plus Pact are welcome, it would have been better if increased priority were given to economic policy based on the promotion of sustainable development and ecological modernisation.
In this regard, increased investment in areas becoming increasingly important – such as renewable energy and information technology – is essential. Investment cannot only provide opportunities as regards education and training but can also result in more green jobs. Such forward-looking investment is based on real needs rather than short-term profits and speculation. Policies establishing realistic minimum wage levels and realistic cost-of-living adjustments, while encouraging productivity, are also required.
The author, a sociologist, is Chairman and Spokesperson for Economy and Finance of Alternattiva Demokratika – the Green party