The social partners have failed to reach an agreement on the social pact, despite their aim to form consensus between the social partners and government prior to the budget date.
The failure to reach an agreement is a blow to the country’s prospects of achieving an economic and social revival. This failure will have lasting and dire consequences on the living standards in our country. It will hinder our competitive nature and make it that much harder to place our finances on an even keel.
The financial situation is known to all. Our annual deficit has become an entrenched feature of the economy, government spending has risen yearly, debt servicing costs are alarming, the public sector drains resources that could be more profitably used in the private sector and a good part of our generous welfare system is financed by borrowed money. In economic terms, the country’s finances need to be addressed as a topmost priority. There is general consensus on this urgent need.
Given this background, and especially with the GWU’s count-me-out attitude, government is facing a dilemma.
Government is at the crossroads and whatever road it chooses to take will be painful. The choice facing Dr Gonzi following the failure to conceive a social pact is a difficult one. On the one hand he could choose to take the economic route of taking the bull by the horns and captaining an austere economic and fiscal policy - with the clear objective of getting the finances in order. On the other, he could choose to act politically by placing his party interests first by avoiding any decisions with painful consequences for the electorate.
Whatever the route taken, the decisions will undoubtedly have financial and electoral consequences. This situation is directly attributable to bad economic management. In short, the chickens have come home to roost.
Much of the situation is directly attributable to the Nationalist government, which for years festered a ‘Money? No problem’ culture as it chose to forge ahead with a spendthrift fiscal policy. The party is over and it is now time to act.
The choice falls clearly on the shoulders of Lawrence Gonzi. This is his moment of economic truth.
He must decide whether to see the hard decisions through, and lump the electoral consequences which may follow, or else just sit back, hurt no one, and simply hope the financial hurricane will blow over.
This latter course of action, however, is now impossible, because the dynamics and the logistics of public finances are different today: What we decide to do is no longer exclusively our business, but it is also of major concern to the bureaucrats in Brussels with our new status as European Union members.
Brussels now has the clout and the right to insist on which economic path we are to follow and to ensure we take all the necessary corrective measures. It is also true that we live in a globally competitive world, where our island economy insulation has been shed and replaced by a new situation, like any other country, in which we are affected by decisions taken on a global level.
This newspaper believes Lawrence Gonzi must shoulder the responsibility of taking all the necessary decisions to place our finances on an even keel. This he must do with or without the support of the social partners and even in a situation in which one of the partners decides not to play ball. If the partners refuse to surrender their entrenched positions in the name of the national common interest, then it falls upon government to decide upon and drive its economic policy through. Governments are elected to govern. The people are expecting hard decisions to be taken and they expect painful decisions to be implemented. They insist, however, that these measures are applied fairly and that the social safety net is preserved intact. Persons with the least means must carry the least burden. Painful measures must be implemented with extreme sensitivity and social awareness. The Dar Malta and the Opera House sagas have damaged government’s sought after reputation of prudent spending.
Lawrence Gonzi must devote less attention to the finite details and improve his appreciation of the bigger picture. He must understand that before asking people to make sacrifices, he must first win the hearts and minds of the electorate. He must show people where he intends taking them. Leadership is all about carrying people with you. This is an emotional trip and he is currently falling short of exciting an electorate that is growing more pessimistic by the day and which losing faith in the future.
The future is all about making this country more European, this is at once the dream and the issue facing the Prime Minister. Achieving this also includes putting our finances in order. Lawrence Gonzi needs the support of all the social partners to achieve this goal.
But, with or without their support, Dr Gonzi must bite the financial bullet.