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Michael Falzon | Sunday, 21 December 2008

Sterling’s loss... Malta’s gain?Sterling’s loss... Malta’s gain?

The news of Sterling’s dive to levels nearing one euro – it is 93p for every euro as I write – brought to me memories of the balderdash that used to be dished out before Malta became independent in 1964.
At the time leading anti-independence politicians like Mabel Strickland and Toni Pellegrini used to warn that with independence Malta would lose its link with the Bank of England. I remember Toni Pellegrini telling all and sundry that on achieving independence, the links between the Malta pound and sterling will be severed and making a back-of-an-envelope calculation to ‘prove’ the Malta pound will end up equivalent to less than half a pound sterling!
The wheel has turned full circle and a year after Malta adopted the euro, it is the value of sterling that has dwindled to less than the equivalent of what was half a Malta lira! Of course, predicting exchange rates is not an easy task, more so in these days of wobbling financial markets that are far removed from the international circumstances prevailing 44 years ago when Malta boldly took the plunge and started setting its own course as a politically independent country within the international community.
Sterling’s fall has left no doubt that in the year 2008 the sun no longer rises on the British Empire and goes on to expose the short-sightedness of the jingoistic attitude for which the British are so notorious. The big majority of the British electorate used to believe firmly that they would never even contemplate giving up their beloved sterling to join the euro. Even those British politicians who knew better dared not go against the people’s wishes, fickle though they may be.
The recent shocks in the financial world and sterling’s dive have perhaps forced a change of attitude. Notwithstanding its chequered history, of which the British are justifiably proud, Britain must now acknowledge that it is no longer an economic power that can sustain an international currency and the vagaries of sterling’s exchange rate with the euro and with the US dollar depend solely on the way the British economy is faring.
After independence and the setting up of our own Central Bank, the Maltese pound – later the Malta Lira – detached itself from the sterling one fine Saturday morning in 1967 when the Borg Olivier Government held an urgent session of the House of Representatives because of an impending official devaluation of sterling. From then on the Malta pound was loosened from holding on to its parity with sterling, although the actual take-off occurred much later under the 1971-76 Mintoff administration. Those who had savings or received pensions in sterling did not like this very much and the PN even promised a pound for pound (lira b’lira) scheme in its 1976 electoral manifesto. The idea was that holders of sterling assets would pass these on to the Maltese government who would issue bonds in Maltese pounds at par with the sterling that was given up. It was not to be – and with hindsight it does now seem that it might have been a bit of a risky business.
The Maltese pound kept on gaining strength in the official exchange rate. Many believe that the Mintoff regime kept the Maltese lira artificially high so as to ensure that the prices of imported consumer goods did not lead to a higher cost of living. The Fenech Adami administration devalued the Malta lira in 1992 – giving rise to Eddie’s plea that he opted for a hike in prices in order to save jobs (Ħa jogħlew il-prezzijiet, basta insalvaw l-impjiegi). This cry was obscenely spun by the MLP in the run-up to the 1996 election to ‘prove’ that Eddie could not care less about the cost of living!
Some four years ago, Alfred Sant had suggested that another devaluation of the Malta lira would do wonders for our competitiveness. He even touted the figure of 10% as the right figure for the proposed devaluation. It seems to be that the MLP in government was for a stronger lira so as to contain the rising cost of living while when in Opposition it felt that our competitiveness was more important… Perhaps Sant wanted a repeat of ‘Ħa jogħlew il-prezzijiet!’
With Malta’s entry into the euro zone, one would have thought that talk of devaluation is a thing of the past. Yet Alfred Sant – now no longer Labour leader – recently wrote two longish articles in the GWU’s Sunday paper, it-Torċa, in which he insisted that he had been right all along; and accused the Central Bank of having kept the Malta lira artificially high so as to kowtow to the political decision taken in favour of Malta switching to the euro!
Sant’s argument was perhaps lost in the flood of verbosity in the two articles – each taking two whole pages of print – that sought to justify the stands about the Maltese economy and fiscal policy that he publicly adopted when Leader of the Opposition. It is typical of the man to keep on saying that he was right, and explaining why he thinks so, even when what he is talking about is water under the bridge and has no relevance to the current situation as the issues he raised have now been overtaken by events.
If the country had taken Sant’s advice to devalue the Maltese currency and then stall its entry into the euro zone, Malta would have ended in a veritable mess in the present global financial turmoil, a situation that has led Britain and Sweden to consider seriously to join the euro zone – to say nothing of Iceland that used to give aid to Malta as part of its obligations that stemmed from the agreement between the EU and the European Economic Area (EEA).
But then Alfred Sant is known for his stubbornness. No surprise, therefore, about his tenacity and determination to put it on record that he is sticking to his convictions even when – by hindsight – it has become clear that those convictions were simply recipes for disaster!
Even so, not all is sunny and bright. Persistent belief in sterling also spilled over into Malta and even today there are not a few Maltese citizens who were badly hit by its recent de facto devaluation. Moreover our tourism industry will also find it more difficult to lure visitors from the British market. Yet, I cannot help thinking that Malta entered the euro zone just in the nick of time.


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