The Governor of the Central Bank, Mr.Michael C.Bonello, made a keynote speech at the annual dinner of the Institute of Financial Services on November 11,2004.. The occasion was described at the time as “the only one when the Governor speaks in an official role in public”

He did not beat about the bush. He declared, candidly enough, that fiscal deficits had become a permanent feature of the economic landscape, which suggested that they did not reflect temporary slippages or cyclical downturns, but rather fundamental policy choices and inefficiencies. Since l990, the annual shortfall between revenue and expenditure has edged up precipitously In other words, Malta was and is still living on borrowed money .

It has to be conceded, that the Central Bank Governor did sound the alarm five years before when he warned that ”we had been living beyond our means and the day of reckoning was bound to come”

Mr.Bonello’s sally raised the question as to why he did not ring that alarm bell, with the necessary persistence, at every opportunity, seeing that he was well seized of the deteriorating situation, and why has he decided to go public with a delayed ,detailed prescription for Malta’s economic maladies ?

Or was this akin to a kite-flying exercise , taking the form of a dress rehearsal before the budget speech that was then about to be s delivered?

-- No Quick Fixes

Mr. Bonello’s speech departed from the premise that in a highly competitive global economy, there are no quick fixes or painless options that will produce greater economic efficiency, enhanced welfare and higher living standards. We must simply work harder and longer, and give more value for money, he declared.

The temptation to postpone decisive action must be resisted, he said. . In the current circumstances, sitting on the fence was not a responsible option. Not only does it become an uncomfortable position to maintain, but it also becomes less credible with time ,he insisted -- which adds logic to the question as to why Mr.Bonello had not been more forceful and persistent , with a plea for urgent government initiatives, during the preceding l4 years and after..

After all, he courageously confessed that “anybody who is not willing to be part of the solution will be perceived to be part of the problem.”

The problem had been building up as the government deliberately pursued a money no problem policy

--Sinister Albatross

The persistence of the fiscal deficit has resulted in a rapid accumulation of government debt . This heavy burden of debt has been accumulated, to a large extent, to finance recurrent spending rather than to build up income-generating assets.

As a result of this, a sinister albatross hangs around the neck of the Malta economy, in the form of annual debt servicing costs, which were estimated at E 193 million for the year 2009, and are still rising. We have reached a stage where the government is borrowing money to service its debt. In so doing, the government has been flying in the face of its presumed commitment to work towards convergence ( or conformity) with EU norms. all throughout the past fifteen years..

Not surprisingly, the European Union has been breathing down the government’s neck on this score since Malta’s accession to the EU. But the unsustainability of this situation should have been faced irrespective of EU membership. It is a question of survival in a world of unforgiving competition.

Much damage has been sustained and, sooner rather than later, the government has to pick up the pieces – or it will flounder.

Mr.Bonello indicated the remedies. :He spoke of medicine as well as surgery in 2004.Others had anticipated him, and their advice, which would have been far less painful if it were heeded in time, was brushed aside and ignored.

--Unpalatable Truth

It is an awareness of the “moment of truth” that led the Central Bank Governor to ‘‘appeal to the country to leave behind its spendthrift ways and to learn to live within its means”. He would have been more correct if he directed his appeal to the Government and its agencies.—it was the interventionist role of the government that went wrong, and incurred unprecedented public debt as a result of its spendthrift ways.

In his 2004 speech, Mr. Bonello recommended drastic cuts in spending, not only by way of civil service collective agreement negotiations, but also by offloading civil servants who are effectively redundant.

He held that the time had come for radical welfare reform and suggested that means-testing in the provision of social benefits should not be ruled out. The system for granting certain benefits should be reviewed to prevent abuse, he said, especially in the case of invalidity pensions.

Unpalatable as it may sound, he declared, the truth is that difficult but crucial

decisions must be made without delay, regarding the size and the cost of both the public

sector and the welfare state, Suggestively enough, he spoke of the need “to ask, for

example, whether the allocation of such a substantial budget to social security was

promoting a culture of dependence rather than self-help, and of reliance on the State

rather than the kindling of economic initiative”.

Many of these ideas had been mooted at one time or another. They were allowed to get

lost in the wash of controversy and official procrastination

--While the Government snores

They could have been the object of a structured government programme for discussion by the Malta Council for Economic and Social Development (MCESD)

They could have been pushed hard by the Governor of the Central Bank in the mid- Nineties. Instead, they wafted in Malta’s political hot air for brief periods, while the economy drifted and the government snored.

Belatedly, the Central Bank Governor drew up a comprehensive “reform “programme , incorporating all these proposals, and seemed to be precipitously suggesting their implementation as a matter of urgency. The State Leviathan was not disposed to listen!

Instead, Central Government debt continued to soar dramatically to cross the 4 billion euro barrier last March

Although time is of the essence, one cannot make amends for so much lost time in one fell swoop. Not unless one were to opt for imposition, instead of the democratic process of consultation and calm discussion.

The former approach would be counter-productive and its implementation objectionable.—especially so, if it were to be rammed down the throat of the social partners, whose predicament has been compounded by the government’s mishandling of the economy.

It is easy enough to talk of “difficult but crucial decisions needed without delay”. It is far more difficult to face difficult problems which have been exacerbated by folly’ that should have been consistently denounced, in a voice loud and clear, by an uncompromising Central Bank authority.