Godfrey Grima and Ross Tieman
Economy, politics, industry, tourism and getting ready to join the European Union. After a 12-year marathon 01 stops and starts, Malta is at last on the home straight to joining the European Union on May 1 2004. The final details of the accession agreement are set to be signed at the Copenhagen summit of European leaders on December 12-13.
Prime Minister Eddie Fenech Adami will then have only three more not inconsiderable hurdles to overcome before his place in Malta’s history is assured.
First, he must complete the accession talks. Second, he hopes that his electorate will vote an overwhelming ‘yes» to joining the EU in next spring’s referendum Third, he must also win the subsequent election next autumn if he is to ensure EU membership is realised on schedule.
The opposition Labour party has not yet announced whether it will campaign energetically for a «no» vote or boycott the contest. Like their leader, Alfred Sant a former prime minister Labour MPs believe Malta would do better pursuing free trade policies outside the EU. Many Maltese think he may be right.
So, although the terms of Malta’s membership are almost settled, there remains an outside chance that the country may yet be absent from the 2004 enlargement, when the EU is scheduled to take in 10 new members from southern and eastern Europe.
The accession of Malta, which has a 1,500-vessel merchant fleet on its maritime register, together with that of Cyprus, which also offers vessel ownership structures advantageous to shipowners, would make the EU a powerful voice in maritime affairs.
Nestled in the central Mediterranean, about 90km south of Sicily and 290km from the coast of North Africa, it is unsurprising that Malta has a strong maritime and trading tradition, It is made up of three main islands and two tiny ones of which the largest Malta spans just 27km. Yet, as the fourth most densely populated country in the world, it boasts a population of about 394,000, made cosmopolitan by successive waves of occupation. The Carthaginians, Romans, Arabs, Spaniards, French and British have all left traces, with the British the last to pass through. For 149 years, until independence in 1964, the Grand Harbour in Valletta, Malta’s capital, was home to the British Mediterranean fleet. At its peak, the British armed services employed 30,000, creating a pool of skills that laid the foundations for the development of the country’s post-independence economy.
The outward signs of British rule red phone booths, driving on the left and chronically lossmaking ship repair yards are overshadowed by the intangible benefits of a well-founded legal system, respect for the rule of law, universal command of English, a free healthcare system and a parliamentary democracy.
During the past 38 years, despite few natural resources and some political turmoil, Malta has prospered outside the European Union.
But although GDP growth during the past decade averaged 5 per cent annually, the nation is by no means a rich one. GDP per capita in 2001 was only Dollars 15,000, about 45 per cent of the EU average, compared with 82 per cent for Cyprus and 62 per cent for Slovenia, both of which are also preparing to join the EU in 2004.
Tourism is today a key contributor to the island’s prosperity and it has become a popular package holiday destination, particularly for Britons and Germans seeking solace in sun, sea, sand and lively nightlife.
However, the global slowdown in tourism in the wake of the September 11 terror attacks in the US has hit Malta hard. Tourist numbers are expected to fall 9 per cent this year.
According to one of the country’s leading hoteliers, this downturn is being made harder by a drop in room rates of between 10 and 15 per cent.
Manufacturing industry, which employs 30,000 in a workforce of 147,700, has felt the weakening of its export markets. Overall, GDP in 2001 fell 0.8 per cent and is expected to have remained soft this year. So far, employment has held up.
According to the Central Bank of Malta’s quarterly review last June, unemployment, at 5.5 per cent, was only 0.4 percentage points higher than the previous year.
But the process of economic liberalisation pursued by Mr Fenech Adarni’s government to comply with the EU’s rule book has resulted in a succession of liberalisation moves. These include lifting levies on imported products which are manufactured in Malta, something that has begun to precipitate job losses.
The disposal of a stake in the national post office and restructuring of the shipyards are set to result in job cuts and substantial state costs. Sell-offs have helped to cut the budget deficit. When Mr Fenech Adami came to power in 1998, the deficit was 11 per cent of GDP more or less at the same level he left it two years before.
At ease in his office in Valletta, the prime minister insists the deficit is no longer a cause for concern. «We have managed to bring it down again this year, to around 4.5 per cent,» he says. «By 2004 we shall be within the 3 per cent limit.» A slight, dapper, 67-yearold, Mr Fenech Adami says he is confident his party, campaigning with the slogan «A choice for our children», will win the referendum on EU membership next spring.
«I think the referendum will be carried, comfortably, with a minimum ‘yes’ vote of 53 per cent. In Maltese terms, that is a landslide,» he adds. Should he lose, Mr Fenech Adami says he will retire from politics. A handpicked successor, Lawrence Gonzi, the deputy prime minister, awaits the opportunity to take over.
However, the referendum must be followed by a general election, due to take place by September. Mr Fenech Adami will be hoping for a further term in which to see through the EU project to completion, and exchange Malta’s stable currency, the lira, for the euro at the earliest opportunity in 2005.
Listening to Labour party leaders, one gets the impression this will not be easy.
The party charges Mr Fenech Adami with failing to carry out most of his election pledges, including a promise not to increase taxation.
For Mr Fenech Adami, EU membership is essentially an act of faith. He believes it will encourage investment, particularly by foreign companies, while the wholesale adoption of the EU rulebook, on everything from financial services regulation to gender equality, will provide a legal framework for both economic and social modernisation.
Yet the only guarantee given by Brussels in its membership negotiations is that, in budget terms, Malta will not be worse off than it would have been outside the EU.
The fountain of hand-outs that watered the development of an earlier generation of southern EU members has run dry. Without concessions, Malta would wind up as a net contributor to the EU.
Yet its roads are dilapidated and its environment under pressure, not least from the challenges of waste disposal. The country needs a minimum of Dollars 700m to update its infrastructure.
Malta is, in essence, a poor conurbation joining a system designed to benefit poor rural communities. As a net food importer, it will benefit little from the Common Agricultural Policy.
That is why Richard ‘Cachia Caruana, Malta’s chief EU negotiator, is still battling for a derogation that will allow Malta, like Britain, to continue exempting food and pharmaceuticals from value added tax, and for continued protection for its few successful agricultural exports, especially tomatoes, spring potatoes and wine.
The terms of the financial package that will offset Malta’s contributions with aid for infrastructure and other improvements have also still to be settled.
Mr Fenech Adami is selling the EU to his voters for their children. But winning over the doubters will be a good deal easier if he can wring eve-of-Copenhagen concessions that will benefit the parents as well.
The key issues:
ECONOMY: Although it has experienced a relatively tough year, Malta continues to attract big-name investors and is pushing for more.
POLITICS: While the ruling Nationalists have been urging that joining the EU would be beneficial, the opposition Labour party has been preaching an opposite view.
INVESTMENT: Malta Enterprise, a government-backed organisation, was launched recently with the specific brief of sharpening the island’s image as an industrial base.
TOURISM: In the aftermath of September 11, the number of visitors has fallen and some hotels have cut their rates.
Financial Times (London), November 25, 2002