Published on The Malta Today¸ issue 7th September 2011
Concerns over the sovereign debt crisis in countries such as Greece¸ Cyprus ¸ Spain and Ireland and growing deficits in Europe have prompted decisions for governments to cut social spending¸ alongside with measures to raise taxes and the pursuit of significant austerity measures. For example we see how¸ in the UK¸ manufacturing growth slowed to the weakest point in nine months. It also fell in Italy and Spain but waned in France. In Germany¸ the figure slowed but still remained relatively high. Last July saw France and Germany stay well ahead of a subdued duo of Spain and Italy¸ while Greece remained firmly in the grips of a deep downturn. Checking the Eurostat figures one finds that the economy of the 27-nation EU¸ which includes non-euro members such as Britain and Poland¸ only grew by 1.0 percent in the second quarter last year.
This contrasts to the exemplary growth in Malta of 3.9 per cent in the second quarter of last year when compared to the corresponding period in 2009. The other fast track achiever is Poland. Its second quarter revealed headline growth at 3.5% was slightly lower than ours .By sheer contrast to other ex-Communist countries Poland is faring well and aims to achieve a lower deficit to GDP ratio of 1.5% and its debt/GDP should be around 40%¸ rather than a previous level of 54% ( compared to circa 70 % in Malta ) . Poland stands out to be in pretty good shape¸ with very limited fat¸ if any (it never entered recession)¸ and is more insulated from any euro area slowdown. Poland has been vigilant and introduced serious reforms to its pension regime and boasts of a well funded first and second pillar scheme (both mandatory). Thus new entrants into its pension system contribute into a first pillar in a state controlled fund together with a second pillar which is made up of private pension funds. So far as in Malta the voluntary third pillar in still in discussion¸ likewise no decision has been taken to introduce a mandatory second pillar. By sheer comparison one regrets that any further delay in the implementation of the second pillar in Malta will only exacerbate future country debt levels.
Turning to Greece¸ it was the only nation stuck in recession with an economic contraction of 1.5 percent¸ as it battles with national protests to overcome a public deficit and debt crisis laden with severe spending cuts. Some economists claim that taking such drastic austerity measures will lead to killing the stimulus needed for a speedy recovery. Others like British prime minister reiterates that there is no gain with no pain and his coalition government is about to start implementing an emergency budget slashing costs and personnel in the public service. Yet¸ invariably history shows that turning the screws on jobs at a time of a recession can jeopardise the very recovery we are trying to achieve. Opinions differ but most agree that such measures will certainly slow down job recovery in the short run. Despite a fragile economic recovery¸ according to the ILO global unemployment is at its highest level ever¸ at more than 210 million¸ and nations will need to create 470 million new jobs in the next 10 years to absorb new entrants into the labour markets. This is no mean feat. Youth unemployment has reached unacceptable levels shoring. Perceptions of social injustice – once seen as mainly a problem of the developing world – are spreading fast in many developed countries. Tensions and social unrest