Source: The Malta Independent
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 measures to raise taxes and the pursuit of significant austerity measures. For example¸ in the UK¸ manufacturing growth slowed to the weakest point in nine months. It also fell in Italy and Spain and waned in France.
In Germany¸ the figure slowed but still remained relatively high. Last July saw France and Germany stay well ahead of the subdued duo of Spain and Italy¸ while Greece remained firmly in the grip of a deep downturn. When checking 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 per cent in the second quarter last year.
This is in contrast 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. Another fast track achiever that has bucked the trend of a contracting economy is Poland. In its second quarter Poland revealed headline growth at 3.5 per cent¸ which as stated above was slightly lower than Malta. In contrast to other ex-Communist countries¸ Poland is faring well and aims to achieve a lower deficit to GDP ratio of 1.5 per cent¸ and its debt/GDP should be around 40 per cent¸ rather than the previous level of 54 per cent (compared to 68 per cent in Malta).
Poland stands out as being in pretty good shape¸ with very limited fat¸ if any (it never entered recession)¸ and appears to be insulated from any euro area slowdown. This advantage has come about because Poland has been vigilant in controlling expenditure and particularly by introducing serious reforms to its pension regime and a well-funded first and second pillar scheme (both mandatory). Thus new entrants to its pension system contribute to a first pillar in a state controlled fund together with a second pillar made up of private pension funds. In Malta we started studying a much-needed reform more than a decade ago but so far the voluntary third pillar is still in discussion; likewise no decision has been taken to introduce a mandatory second pillar. One regrets that any further delay in the implementation of a mandatory second pillar in Malta as more delays in reforming the pension deficit will only exacerbate future country debt levels.
Turning back to Greece¸ it is the classic small nation stuck in a recession with an economic contraction of 1.5 per cent¸ as it battles to overcome a public deficit and debt crisis. The cure is bitter and includes severe spending cuts and some public sector workers being laid off.
Some economists argue that taking such drastic austerity measures is counterproductive as it could kill the stimulus needed for a speedy recovery. Others¸ like the British prime minister¸ disagree. Mr Cameron 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 recession can seriously jeopardise the very recovery we are trying to achieve.
Opinions differ but most agree that such measures will certainly slow down economic recovery in the short term. On a global level we witness a fragile economic recovery¸ which according to the ILO global unemployment is now at its