Published on The Malta Independent¸ issue 31 July 2011

In a statement after his participation in the Eurozone leaders’ summit last week¸ Prime Minister Lawrence Gonzi gave one of his strongest cautions yet¸ following the announcement of Moody’s downgrading of Cyprus. He waxed lyrical on the utopian call for more competitiveness¸ increased efficiency¸ the curbing of abuse and the reduction of waste. No prize for guessing that these are some of the major challenges the island is currently facing.

Dr Gonzi was egged on by questions from reporters on the rumours from the Finance Ministry regarding the razor-sharp balance of the country’s finances. Really and truly¸ he rebutted such rumours but made the point that nobody should put their mind at rest because¸ compared to most other countries¸ Malta was in a better position. Was this a platitude or a genuine warning that grey clouds are on the horizon? We shall soon know¸ when the pre-budget document is revealed for public scrutiny.

On the wider front¸ the travails of our currency – the euro – cannot be ignored. This is a sticking point that comes out negatively in financial media particularly remembering the troubled economy of Greece and now Cyprus. Quick on the draw¸ Dr Gonzi refuted allegations that the euro was not a strong currency¸ saying that it remained strong even during the Greek crisis. This was justified by figures given by European Central Bank president Jean-Claude Trichet at a presentation to heads of government at the summit. The figures forecast that the euro would remain strong¸ although there is a need for caution in respect of events in the US¸ where disagreement in Congress on its debt limits may lead to its default next week. More platitudes were uttered by our Prime Minister¸ who said that¸ notwithstanding the fact that Malta has a strong currency¸ it was crucial to modernise¸ reform and take unpopular but vital decisions. Beyond any doubt¸ the experiment that started more than a decade ago in Brussels by launching a single currency without a fiscal union is showing fine cracks at the seams. Typically¸ Greece has just been admitted for surgery and given a second bail out.

One recalls how an emergency summit of the 17 leaders of eurozone countries discussed the merits of a magic potion concocted by the two main protagonists to aid Greece. An air of heavy responsibility and fragile solidarity was displayed¸ with the weak euro itself in the sick bay and its economic diagnosis showing that it needs intensive care and possibly resuscitation. Sceptics may record this event as a historically charged moment¸ with an ominous sense that the euro is facing a make-or-break moment. The national leaders felt the stress placed upon their shoulders¸ with the implication that they needed to be united¸ so in the end they did act decisively in the euro’s darkest hour. Germany suggested the novel idea of levying a stealth tax on banks (primarily the custodians of billions of Greek bonds) but this was resisted by others. In the end¸ the leaders agreed on a bipolar recipe or cure¸ which included a long-term Greek debt rollover stretching for decades¸ mixed with a generous dose of austerity.

Last week’s eurozone summit saw Germany’s chancellor Angela Merkel treading a fine line between showing European solidarity and keeping her