The Times - Saturday, 27th February 2010
We often use the saying that there is no gain without pain, a very useful principle in life, which we discover for ourselves from personal experience and pass on to our children. Economics and, especially, economic policy is replete with examples as well. Businesses have to shave off their prices to sell more products. Industrial sectors have to undertake unpalatable and unpopular restructuring, costing thousands of euros to remain competitive. During a slowdown, firms have to release long-time workers or use wage restraint to survive. Whole economies go through severe austerity programmes in order to become leaner and meaner in a highly-globalised world. For many disciplined countries, like certain self-disciplined persons, this comes naturally and as a matter of fact. Some observers tend to associate such people with a particular religion such as those who abide by the protestant ethic. Others stereotype the Germans or the Chinese as being sterner and less indulgent than, say, the Latino or Mediterranean people. For the latter group, which include the Maltese, we tend to hold the view that discipline has to come from above to have any effect at all: parents, Church authorities, governmental authorities. However, wherever it comes from, within or outside, pain is perceived as a precursor of long-term gain. In the macro economic sphere, especially regarding public finances, the pain economists require to deliver economic stability refers specifically to the need to ensure that political promises can be kept without causing long-term damage and to avoid wasteful expenditure. Essentially, they are the principles of living within one's means: very simple principles but very hard to maintain. Even governments that are self-restrained enough to avoid extravagance find the pressures of the welfare state hard to control. We can say that health, education and social security, including pensions, can become the three nightmares of every Administration. One has to keep an eye on the budgets available, the demographics, the cost of supplying these services and the politics. Self-disciplined governments often find the need to redesign these programmes to make them sustainable. This exercise we refer to as reform or restructuring. Malta today is passing through a very difficult and painful episode of its post-war economic history. No matter how you measure and label this general malaise, calling it absolute poverty, relative poverty or near poverty, the state of affairs is pretty much the same. Many Maltese middle-class families once again fear sliding into the hole most had managed to come out of and would have never dreamt of sliding into again. The Maltese business class has nearly given up all hope of ever winning the losing battle with rising costs and falling revenues, which it has been fighting all throughout this decade. Now many of its members, especially the small ones, are finally deciding to hang up their boots and rush into an early retirement. But all this pain is not the result of structural reform that will reap long-term economic benefits. It has been caused by a decade of economic stagnation; by two prolonged recessions in the space of a decade, by an ever-increasing national tax burden and by a lack of attention to good economic and fiscal management and regulation, especially in the area of utility pricing. Not all pain begets gain. There is so much pain in the world that begets only more pain and suffering. Some of it might have been self-inflicted through past foolish decisions or misjudgments. It is quite dishonest to point to all the economic and social pain suffered to date by the Maltese and say that it has been necessary for our economic well-being. If the government, the Central Bank or the European Commission can convince us that, during these last 12 years, Malta's price competitiveness has improved, that its public expenditures have been kept in check, that Maltese taxpayers are getting more value for money from their taxes and that the health, education, social security and pension programmes are now on a sustainable path, then we can truly state that our pain has been real worth suffering. If not, then the government should grimly admit that it has all been pain without gain.
Prof. Scicluna is a Labour member of the European Parliament.
27.2.10
L-Unjoni Ewropea u d-drittijiet tal-bniedem: Każ tal-“karrotta” u l-“għasluġ”
www.l-orizzont.com - Il-Ħamis 18 ta' Frar 2010
Il-Parlament Ewropew qatt ma evita li jiddibatti dwar drittijiet umani jew żamm “fommu sieket” għax beża’, jew jibża’, li jista’ jweġġa lil xi ħadd. Id-difiża tad-drittijiet umani hi l-bażi fl-Unjoni Ewropea, maħluqa bi tweġiba għat-Tieni Gwerra Dinjija – biex ikun assigurat li l-popli Ewropej jirrisolvu d-differenzi politiċi tagħhom b’dis kussjonijiet f’kull livell u mhux billi joqtlu lil xulxin fi gwerer. Illum, sittin sena mit-Tieni Gwerra Dinjija, ir-ratifikar tat-Trattat ta’ Lisbona jfisser li l-liġijiet kollha Ewropej iridu jkunu konsistenti mal-libertajiet politici, demokratici u soċjali kif elenkati fiċ-Charter tad-Drittijiet Fundamentali tal-Bniedem. Aktar minn hekk, meta l-Parlament Ewropew jieħu pożizzjoni dwar is-sitwaz zjoni tad-drittijiet politiċi u umani f’xi pajjiż mhux membru tal-UE, il-pajjiż inkwistjoni jagħti widen. Il-Kumitat tal-Affarijiet Barranin tal-Parlament Ew ropew mhux kumitat leġislattiv, imma hu meqjus mill-gruppi politiċi kollha bħala ta’ importanza kbira, bir-riżultat li l-pożizzjoni li jieħu l-Parlament Ewropew tkun dikjarazzjoni ta’ pożizzjoni qawwija. Mezz ieħor li bih jaħdem il-Parlament Ewropew fi kwis tjonijiet ta’ drittijiet umani hu permezz ta’ delegazzjonijiet parlamentari. Hemm aktar minn 30 delegazzjoni li jservu ta’ ħolqa bejn il-Parlament Ewropew u l-pajjiżi mferrxin mad-dinja kollha, li jvarjaw minn Assemblej Parlamentari Konġunti bħal m’huma l-ACP, EUROMED u EUROLAT għal Kumitati Parlamentari Konġunti mwaqqfin b’riżultati ta’ ftehim ta’ assoċjazzjoni għal tkattir ta’ koperazzjoni. Hemm imbagħad ir-rwol ta’ osservaturi, speċjalment waqt l-elezzjonijiet f’xi wħud minn dawn il-pajjiżi. Dawn id-delegazzjonijiet jsegwu mill-qrib ħafna d-drittijiet umani. Fl-1991, delegazzjoni tal-Parlament Ewropew kienet l-ewwel waħda tax-xorta tagħha li qatt ingħatat il-permess li żżur it-Tibet. Hemmhekk tqajmu mistoqsijiet dwar ksur ta’ drittijiet umani. Każ simili kien dak li seħħ f’nofs is-Snin Disgħin, meta d-delegazzjoni tal-Parlament Ewropew għar-Relazzjonijiet mar-Repubbliki taċ-Ċentru tal-Asja ħadmet bis-sħiħ u għamlet kampanja qawwija biex il-Parlament Ewropew itawwal l-approvazzjoni għal ftehim ta’ ‘partnership’ u koperazzjoni mal-Kazakhistan u Uzbekistan, kampanja li wasslet biex inkisbu konċessjonijiet qabel mal-Parlament fl-1999 laqa’ ż-żewġ talbiet imsemmijin. Sadattant, l-Assemblea Parlamentari Konġunta ACP-EU, li tagħha jien membru, fl-2002 kienet ħassret il-ħames sessjoni tagħha kawża tal-fatt li fid-delegazzjoni ta’ Zimbabwe fl-ACP kien se jkun hemm żewġ Ministri li kienu miżmumin mill-Unjoni Ewropea milli jivvjaġġaw. L-Unjoni Ewropea kif tista’ tassigura b’mod effettiv li ‘l barra mill-fruntieri tagħha jkunu rispettati d-drittijiet umani? Hu ovvju, li l-“karrotta” ewlenija tal-Unjoni Ewropea hi l-prospett ta’ ftehim bilaterali għal kummerċ ħieles mal-akbar suq fid-dinja. Imma, fl-istess ħin, il-“karrotta” riflessa fis-suq tal-Unjoni Ewropea sservi wkoll ta’ “għasluġ” biex jistimula riforma. Id-djalogu flimkien mal-“karrota u l-għasluġ” ekonomiku hu l-mod li ħadem bih s’issa l-Parlament Ewropew biex jikseb riżultat. L-akbar każ tal-“karrotta u l-għasluġ” huwa dak li jirrelata għad-dibatittu li għadu għaddej dwar Ftehim ta’ Assoċjazzjoni bejn l-Unjoni Ewropea u Iżrael. Bħal fil-każ ta’ Malta, l-Unjoni Ewropea hi l-akbar importatur ta’ prodotti minn Iżrael, u t-tieni l-akbar esportatur lejn Iżrael. Fis-sena 2006 in-negozju bejn l-Unjoni Ewropea u Iżrael kien jammonta għal 23.5 biljun Ewro. Għal dawn l-aħħar snin l-Unjoni Ewropea rreżistiet talbiet minn Iżrael biex jogħla l-livell ta’ relazzjonijiet bejniethom, bl-Unjoni Ewropea titlob li qabel isir dan irid ikun hemm progress min-naħa ta’ Iżrael fejn jikkonċerna l-konflitt Iżraeli-Palestinjan. Riċentement fil-Parlament Ewropew kienu dibatituti r-relazzjonijiet bejn l-Unjoni Ewropea u t-Tunezija, dibattitu profond, imma wkoll riskjuż, li jista’ jkollu konsegwenzi fir-relazzjonijiet bejn l-Unjoni Ewropea u t-Tuneżija. Kif irrimarkajt fis-sessjoni plenarja tal-Parlament Ewropew, id-dibattitu sar barra minn ħinu – fl-istess ħin li Parlamentari Tuneżini kienu qegħdin iżuru l-Parlament Ewropew, li bla dubju ħassewhom imbarazzati – b’uħud mill-kelliema jikkundannaw lill-Gvern Tunezin dwar kwistjonijiet li għandu mas-soċjetà ċivili. L-Unjoni Ewropea hi l-akbar sieħeb kummerċjali li għandha t-Tuneżija, konsistenti f’madwar 70% tal-importazzjoni Tuneżina (€9.5 biljun) u 75% tal-esportazzjoni Tuneżina (€9.9 biljun), żewġ ċifri li t-tnejn żdiedu b’mod sinifikattiv fis-snin li għaddew. Prova li t-Tunezija hi sieħeb mal-Unjoni Ewropea, toħroġ mill-fatt li meta fis-sena 2008 tneħħew it-tariffi fuq prodotti industrijali, it-Tuneżija kienet ukoll l-ewwel pajjiż Mediterranju li daħal fi ftehim ta’ kummerċ ħieles mal-Unjoni Ewropea. Waqt li kien għaddej dan kollu, riċentement kien hemm ħafna aktar sinjali ta’ titjib fid-djalogu bejn it-Tuneżija u l-Unjoni Ewropea kemm fuq livell ta’ Kummissjoni kif ukoll ta Parlament. Id-djalogu mal-Kummissjoni kien jinkludi l-ipprogrammar ta’ ħafna laqgħat ta’ sotto-kumitati fil-qafas tal-Ftehim ta’ Assoċjazzjoni Tuneżija-Unjoni Ewropea (nkluż s-Sotto Kumitat dwar id-Drittijiet Umani u d-Demokrazija) filwaqt li d-djalogu fuq livell ta’ Parlament Ewropew kien rifless fiż-żjara riċenti fi Brussels ta’ delegazzjoni importanti ta’ Parlamentari Tuneżini li kienet magħmula minn rappre żentanti tal-erba’ partiti politiċi rappreżentati fil-Kamra tad-Deputati Tuneżna, kif ukoll bil-laqgħa Interparlamentari Tuneżija–Unjoni Ewropea li għandha ssir f’Marzu li ġej fi Brussels. Ma jagħmel ebda sens li tkun kritikata u iżolata t-Tuneżija meta hu evidenti li sar progress f’ħafna sferi f’dan il-pajjiż. Li tikkawża imbarazzament politiku bla qliegħ tanġibbli jista’ jagħti lil xi Parlamentari Ewropej xi sens ta’ superjorità morali, imma tagħmel ftit ferm biex ittejjeb l-istatus tal-poplu Tuneżin. Ejjew nassiguraw li t-Tuneżija u pajjiżi oħrajn mhux membri tal-Unjoni Ewropea jikkonformu mal-livelli Ewopej fl-oqsma ekonomiċi, soċjali, politiċi u ta’ drittijiet umani. U ejjew nużaw il-mod tal-“karrotta” u l-“għasluġ” biex nassiguraw li t-transizzjoni lejn demokrazija funzjonabbli b’aktar minn partit wieħed tkun ġenwina. Imma ejjew nagħmlu dan bi djalogu ppjanat tajjeb u strutturat. L-ingranagg tar-riforma qiegħed jaħdem. Ejjew inħalluh jaħdem mingħajr tfixkil bla bżonn.
Il-Parlament Ewropew qatt ma evita li jiddibatti dwar drittijiet umani jew żamm “fommu sieket” għax beża’, jew jibża’, li jista’ jweġġa lil xi ħadd. Id-difiża tad-drittijiet umani hi l-bażi fl-Unjoni Ewropea, maħluqa bi tweġiba għat-Tieni Gwerra Dinjija – biex ikun assigurat li l-popli Ewropej jirrisolvu d-differenzi politiċi tagħhom b’dis kussjonijiet f’kull livell u mhux billi joqtlu lil xulxin fi gwerer. Illum, sittin sena mit-Tieni Gwerra Dinjija, ir-ratifikar tat-Trattat ta’ Lisbona jfisser li l-liġijiet kollha Ewropej iridu jkunu konsistenti mal-libertajiet politici, demokratici u soċjali kif elenkati fiċ-Charter tad-Drittijiet Fundamentali tal-Bniedem. Aktar minn hekk, meta l-Parlament Ewropew jieħu pożizzjoni dwar is-sitwaz zjoni tad-drittijiet politiċi u umani f’xi pajjiż mhux membru tal-UE, il-pajjiż inkwistjoni jagħti widen. Il-Kumitat tal-Affarijiet Barranin tal-Parlament Ew ropew mhux kumitat leġislattiv, imma hu meqjus mill-gruppi politiċi kollha bħala ta’ importanza kbira, bir-riżultat li l-pożizzjoni li jieħu l-Parlament Ewropew tkun dikjarazzjoni ta’ pożizzjoni qawwija. Mezz ieħor li bih jaħdem il-Parlament Ewropew fi kwis tjonijiet ta’ drittijiet umani hu permezz ta’ delegazzjonijiet parlamentari. Hemm aktar minn 30 delegazzjoni li jservu ta’ ħolqa bejn il-Parlament Ewropew u l-pajjiżi mferrxin mad-dinja kollha, li jvarjaw minn Assemblej Parlamentari Konġunti bħal m’huma l-ACP, EUROMED u EUROLAT għal Kumitati Parlamentari Konġunti mwaqqfin b’riżultati ta’ ftehim ta’ assoċjazzjoni għal tkattir ta’ koperazzjoni. Hemm imbagħad ir-rwol ta’ osservaturi, speċjalment waqt l-elezzjonijiet f’xi wħud minn dawn il-pajjiżi. Dawn id-delegazzjonijiet jsegwu mill-qrib ħafna d-drittijiet umani. Fl-1991, delegazzjoni tal-Parlament Ewropew kienet l-ewwel waħda tax-xorta tagħha li qatt ingħatat il-permess li żżur it-Tibet. Hemmhekk tqajmu mistoqsijiet dwar ksur ta’ drittijiet umani. Każ simili kien dak li seħħ f’nofs is-Snin Disgħin, meta d-delegazzjoni tal-Parlament Ewropew għar-Relazzjonijiet mar-Repubbliki taċ-Ċentru tal-Asja ħadmet bis-sħiħ u għamlet kampanja qawwija biex il-Parlament Ewropew itawwal l-approvazzjoni għal ftehim ta’ ‘partnership’ u koperazzjoni mal-Kazakhistan u Uzbekistan, kampanja li wasslet biex inkisbu konċessjonijiet qabel mal-Parlament fl-1999 laqa’ ż-żewġ talbiet imsemmijin. Sadattant, l-Assemblea Parlamentari Konġunta ACP-EU, li tagħha jien membru, fl-2002 kienet ħassret il-ħames sessjoni tagħha kawża tal-fatt li fid-delegazzjoni ta’ Zimbabwe fl-ACP kien se jkun hemm żewġ Ministri li kienu miżmumin mill-Unjoni Ewropea milli jivvjaġġaw. L-Unjoni Ewropea kif tista’ tassigura b’mod effettiv li ‘l barra mill-fruntieri tagħha jkunu rispettati d-drittijiet umani? Hu ovvju, li l-“karrotta” ewlenija tal-Unjoni Ewropea hi l-prospett ta’ ftehim bilaterali għal kummerċ ħieles mal-akbar suq fid-dinja. Imma, fl-istess ħin, il-“karrotta” riflessa fis-suq tal-Unjoni Ewropea sservi wkoll ta’ “għasluġ” biex jistimula riforma. Id-djalogu flimkien mal-“karrota u l-għasluġ” ekonomiku hu l-mod li ħadem bih s’issa l-Parlament Ewropew biex jikseb riżultat. L-akbar każ tal-“karrotta u l-għasluġ” huwa dak li jirrelata għad-dibatittu li għadu għaddej dwar Ftehim ta’ Assoċjazzjoni bejn l-Unjoni Ewropea u Iżrael. Bħal fil-każ ta’ Malta, l-Unjoni Ewropea hi l-akbar importatur ta’ prodotti minn Iżrael, u t-tieni l-akbar esportatur lejn Iżrael. Fis-sena 2006 in-negozju bejn l-Unjoni Ewropea u Iżrael kien jammonta għal 23.5 biljun Ewro. Għal dawn l-aħħar snin l-Unjoni Ewropea rreżistiet talbiet minn Iżrael biex jogħla l-livell ta’ relazzjonijiet bejniethom, bl-Unjoni Ewropea titlob li qabel isir dan irid ikun hemm progress min-naħa ta’ Iżrael fejn jikkonċerna l-konflitt Iżraeli-Palestinjan. Riċentement fil-Parlament Ewropew kienu dibatituti r-relazzjonijiet bejn l-Unjoni Ewropea u t-Tunezija, dibattitu profond, imma wkoll riskjuż, li jista’ jkollu konsegwenzi fir-relazzjonijiet bejn l-Unjoni Ewropea u t-Tuneżija. Kif irrimarkajt fis-sessjoni plenarja tal-Parlament Ewropew, id-dibattitu sar barra minn ħinu – fl-istess ħin li Parlamentari Tuneżini kienu qegħdin iżuru l-Parlament Ewropew, li bla dubju ħassewhom imbarazzati – b’uħud mill-kelliema jikkundannaw lill-Gvern Tunezin dwar kwistjonijiet li għandu mas-soċjetà ċivili. L-Unjoni Ewropea hi l-akbar sieħeb kummerċjali li għandha t-Tuneżija, konsistenti f’madwar 70% tal-importazzjoni Tuneżina (€9.5 biljun) u 75% tal-esportazzjoni Tuneżina (€9.9 biljun), żewġ ċifri li t-tnejn żdiedu b’mod sinifikattiv fis-snin li għaddew. Prova li t-Tunezija hi sieħeb mal-Unjoni Ewropea, toħroġ mill-fatt li meta fis-sena 2008 tneħħew it-tariffi fuq prodotti industrijali, it-Tuneżija kienet ukoll l-ewwel pajjiż Mediterranju li daħal fi ftehim ta’ kummerċ ħieles mal-Unjoni Ewropea. Waqt li kien għaddej dan kollu, riċentement kien hemm ħafna aktar sinjali ta’ titjib fid-djalogu bejn it-Tuneżija u l-Unjoni Ewropea kemm fuq livell ta’ Kummissjoni kif ukoll ta Parlament. Id-djalogu mal-Kummissjoni kien jinkludi l-ipprogrammar ta’ ħafna laqgħat ta’ sotto-kumitati fil-qafas tal-Ftehim ta’ Assoċjazzjoni Tuneżija-Unjoni Ewropea (nkluż s-Sotto Kumitat dwar id-Drittijiet Umani u d-Demokrazija) filwaqt li d-djalogu fuq livell ta’ Parlament Ewropew kien rifless fiż-żjara riċenti fi Brussels ta’ delegazzjoni importanti ta’ Parlamentari Tuneżini li kienet magħmula minn rappre żentanti tal-erba’ partiti politiċi rappreżentati fil-Kamra tad-Deputati Tuneżna, kif ukoll bil-laqgħa Interparlamentari Tuneżija–Unjoni Ewropea li għandha ssir f’Marzu li ġej fi Brussels. Ma jagħmel ebda sens li tkun kritikata u iżolata t-Tuneżija meta hu evidenti li sar progress f’ħafna sferi f’dan il-pajjiż. Li tikkawża imbarazzament politiku bla qliegħ tanġibbli jista’ jagħti lil xi Parlamentari Ewropej xi sens ta’ superjorità morali, imma tagħmel ftit ferm biex ittejjeb l-istatus tal-poplu Tuneżin. Ejjew nassiguraw li t-Tuneżija u pajjiżi oħrajn mhux membri tal-Unjoni Ewropea jikkonformu mal-livelli Ewopej fl-oqsma ekonomiċi, soċjali, politiċi u ta’ drittijiet umani. U ejjew nużaw il-mod tal-“karrotta” u l-“għasluġ” biex nassiguraw li t-transizzjoni lejn demokrazija funzjonabbli b’aktar minn partit wieħed tkun ġenwina. Imma ejjew nagħmlu dan bi djalogu ppjanat tajjeb u strutturat. L-ingranagg tar-riforma qiegħed jaħdem. Ejjew inħalluh jaħdem mingħajr tfixkil bla bżonn.
Europe’s response to the financial crisis – some success, but much more to do
The Malta Independent - Saturday, 13th February 2010
My first Rapporteurship as an MEP drew closer to success this week following the committee vote on my report on the performance of the European Central Bank (ECB) in 2008 and 2009, as the ECB, EU and Member States battled to limit the damage caused by the financial crisis. The result, with the draft report approved by 35 votes and just 2 against, demonstrates, I hope, that a good balance was found. Of course, while the political negotiations in the Economic and Monetary Affairs committee have been concluded, they will resume again in February when my report is debated with President Trichet and then voted in Parliament. The work is far from over. I have found the experience as a Rapporteur to be a complex and multi-faceted role. Writing the report is the easy bit! The real challenge is the lengthy negotiation with colleagues from the other political groups, with President Trichet and other high-ranking ECB officials, and with fellow colleagues in my Socialist and Democrat party group, all of whom have political ‘red-lines’ and their own ideas. Reconciling these competing positions while still retaining the integrity and coherence of the text is a fine balancing act. The report itself, needless to say, focuses on the crisis that has engulfed European countries over the past two years. The financial and economic crisis has seen the worst global economic decline since the 1930s and the most rigorous test of the ECB since its inception. After a relatively benign period of economic growth enjoyed across most of Europe for over a decade most Member States have had their economy ‘stress-tested’, not through a simulated model but in real time and with painfully real consequences. In 2008, GDP growth across the euro area was just 0.7% and, by the time my report is voted in plenary, we will have the frightening statistics of a significant economic contraction together with a forecast of a very sluggish return to growth in 2010 and 2011. Most Member States are experiencing rising budgetary deficits and soaring government debt. The Commission’s economic forecasts in May 2009 predicted average budget deficits across the eurozone of 5.3% and average government debt of 77.7%, figures which, in turn, are both expected to increase in 2010. It may take many years for these deficits, brought about by the financial crisis, to return to the levels of 2006 and 2007. On balance, the ECB deserves qualified praise for its response to the crisis. The primary function of the ECB, according to the EU treaties, is to maintain “price stability” and, although inflation was far above the ECB’s self-imposed ceiling of 2% when it peaked at 4% in June and July 2008, inflation rates have since tumbled and are now at negative rates. The ECB has also steadily cut interest rates, from a peak of 4.25% in June 2008 down to 2% by January 2009 and the current rate of 1% in May, in a bid to re-invigorate lending and to kick-start the European economy. However, the ECB’s main role during the crisis has been to expand liquidity provisions in the form of a variety of loans amounting to over €500bn to effectively bail-out financial institutions. Without such financial life-support, many institutions holding our savings and pensions would undoubtedly have collapsed. But, this praise must be tempered. The ECB’s interest rate cuts were not as prompt as those taken by the likes of the US Federal Reserve and the Bank of England. Similarly, while the ECB’s massive cash injections have kept many institutions from collapse, the reality is that many banks have not passed on this liquidity to customers, particularly to the detriment of the small and medium sized businesses on whom economic recovery will rest. Instead, many banks have used the liquidity to buttress their own position - covering losses and, to justified public revulsion, bonus payments. However, the report is also about looking to Europe’s economic future. We need to put in place a planned ‘exit strategy’, with Member States gradually winding down their stimulus packages and the ECB drawing back the liquidity that it has provided to banks. My report concludes that such an ‘exit strategy’ in the monetary and fiscal fields should take place only after we can see a sustainable economic recovery, and calls for co-ordination on the timing of these exit strategies between Member States. Moreover, the European Commission should allow Member States to continue with their stimulus packages without forcing them to reverse this process through an over-enthusiastic early enforcement of the Stability and Growth Pact. Above all, the crisis has demonstrated that markets do not always self-correct and are prone to systemic risk. In this, I support the root-and-branch reforms to the financial architecture in the EU and, in particular, the establishment of a European Systemic Risk Board (ESRB) - a body designed to act as a ‘watch dog’ giving an early warning of any systemic risks or imbalances in the financial markets. In this regard the most immediate priority is to provide a qualitative definition of ‘systemic risk’ - it stands to reason that you cannot identify a problem if you lack a clear definition of what it is you are looking for! Creating such models must be an urgent priority for the ECB. Above all, lessons have to be learnt from the crisis, by the ECB and other central banks, financial institutions, regulators and politicians. We must restore public confidence in financial institutions through measures which include greater transparency and better risk management. We need to ensure that a crisis of this magnitude does not repeat itself again. Prof. Edward Scicluna is a Labour MEP
My first Rapporteurship as an MEP drew closer to success this week following the committee vote on my report on the performance of the European Central Bank (ECB) in 2008 and 2009, as the ECB, EU and Member States battled to limit the damage caused by the financial crisis. The result, with the draft report approved by 35 votes and just 2 against, demonstrates, I hope, that a good balance was found. Of course, while the political negotiations in the Economic and Monetary Affairs committee have been concluded, they will resume again in February when my report is debated with President Trichet and then voted in Parliament. The work is far from over. I have found the experience as a Rapporteur to be a complex and multi-faceted role. Writing the report is the easy bit! The real challenge is the lengthy negotiation with colleagues from the other political groups, with President Trichet and other high-ranking ECB officials, and with fellow colleagues in my Socialist and Democrat party group, all of whom have political ‘red-lines’ and their own ideas. Reconciling these competing positions while still retaining the integrity and coherence of the text is a fine balancing act. The report itself, needless to say, focuses on the crisis that has engulfed European countries over the past two years. The financial and economic crisis has seen the worst global economic decline since the 1930s and the most rigorous test of the ECB since its inception. After a relatively benign period of economic growth enjoyed across most of Europe for over a decade most Member States have had their economy ‘stress-tested’, not through a simulated model but in real time and with painfully real consequences. In 2008, GDP growth across the euro area was just 0.7% and, by the time my report is voted in plenary, we will have the frightening statistics of a significant economic contraction together with a forecast of a very sluggish return to growth in 2010 and 2011. Most Member States are experiencing rising budgetary deficits and soaring government debt. The Commission’s economic forecasts in May 2009 predicted average budget deficits across the eurozone of 5.3% and average government debt of 77.7%, figures which, in turn, are both expected to increase in 2010. It may take many years for these deficits, brought about by the financial crisis, to return to the levels of 2006 and 2007. On balance, the ECB deserves qualified praise for its response to the crisis. The primary function of the ECB, according to the EU treaties, is to maintain “price stability” and, although inflation was far above the ECB’s self-imposed ceiling of 2% when it peaked at 4% in June and July 2008, inflation rates have since tumbled and are now at negative rates. The ECB has also steadily cut interest rates, from a peak of 4.25% in June 2008 down to 2% by January 2009 and the current rate of 1% in May, in a bid to re-invigorate lending and to kick-start the European economy. However, the ECB’s main role during the crisis has been to expand liquidity provisions in the form of a variety of loans amounting to over €500bn to effectively bail-out financial institutions. Without such financial life-support, many institutions holding our savings and pensions would undoubtedly have collapsed. But, this praise must be tempered. The ECB’s interest rate cuts were not as prompt as those taken by the likes of the US Federal Reserve and the Bank of England. Similarly, while the ECB’s massive cash injections have kept many institutions from collapse, the reality is that many banks have not passed on this liquidity to customers, particularly to the detriment of the small and medium sized businesses on whom economic recovery will rest. Instead, many banks have used the liquidity to buttress their own position - covering losses and, to justified public revulsion, bonus payments. However, the report is also about looking to Europe’s economic future. We need to put in place a planned ‘exit strategy’, with Member States gradually winding down their stimulus packages and the ECB drawing back the liquidity that it has provided to banks. My report concludes that such an ‘exit strategy’ in the monetary and fiscal fields should take place only after we can see a sustainable economic recovery, and calls for co-ordination on the timing of these exit strategies between Member States. Moreover, the European Commission should allow Member States to continue with their stimulus packages without forcing them to reverse this process through an over-enthusiastic early enforcement of the Stability and Growth Pact. Above all, the crisis has demonstrated that markets do not always self-correct and are prone to systemic risk. In this, I support the root-and-branch reforms to the financial architecture in the EU and, in particular, the establishment of a European Systemic Risk Board (ESRB) - a body designed to act as a ‘watch dog’ giving an early warning of any systemic risks or imbalances in the financial markets. In this regard the most immediate priority is to provide a qualitative definition of ‘systemic risk’ - it stands to reason that you cannot identify a problem if you lack a clear definition of what it is you are looking for! Creating such models must be an urgent priority for the ECB. Above all, lessons have to be learnt from the crisis, by the ECB and other central banks, financial institutions, regulators and politicians. We must restore public confidence in financial institutions through measures which include greater transparency and better risk management. We need to ensure that a crisis of this magnitude does not repeat itself again. Prof. Edward Scicluna is a Labour MEP
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