16 - 22 December 1999

Government says euro component of Malta lira set to gradually increase

by Anthony Manduca

The euro component of the Malta lira is set to gradually increase, according to the Maltese delegation that took part in the latest screening exercise in Brussels which dealt with economic and monetary union.

At present the Malta lira is pegged to the euro, sterling and US dollar and the three component currencies have the following weights in the Malta lira: euro: 56.8 per cent; sterling 21.6 per cent; US dollar 21.6 per cent. When the single currency was launched last January, the component currencies of the Malta lira remained the same. Emmanuel Ellul, the then Governor of the Central Bank of Malta, had told The Malta Business Weekly (31 December 1998) that this was done in the interest of stability and to avoid any possible movement of the Malta lira. He also said that imports from the United Kingdom and British tourism in Malta could not be ignored. Asked whether the euro component of the Malta lira would eventually be increased if the euro strengthened or if Malta's trading with euroland substantially increased, Mr Ellul had replied: "My personal opinion is that sooner or later sterling will join euroland. It could be that at some time a bilateral parity will be formed between the euro and sterling and if this is the case then the sterling component of the Malta lira can be done away with."

The British government is committed to holding a referendum on Britain's participation in the euro and is thought to be in favour of joining the single currency in the long-term and if the conditions are right.

The single currency screening exercise held on Tuesday was the penultimate screening session for this year. This chapter of the acquis mainly deals with the adoption of a single currency and the achievement of a single monetary policy. It is important to note that EU membership does not automatically imply joining the euro zone. As a matter of fact, there are currently four member States which are not within this zone. Candidate countries which become member States are eventually expected to aim at joining the euro zone.

Qualification to join the euro zone requires a number of qualifying criteria, known as convergence criteria, which establish thresholds for the rate of inflation, long-term interest rates, public debt and the budget deficit. It was reported that currently Malta fully satisfies the first three of these criteria. Malta does not yet qualify for the budget deficit criteria.

During the session, it was announced that an Economic Dialogue Structure with Malta would be set up prior to accession. All candidate countries will be invited to participate in such a dialogue on a voluntary basis. This process is also useful for candidate countries to familiarise themselves with the gathering of data as required by the European Central Bank (ECB).

With regard to the role of the Central Bank of Malta, it emerged that some minor legislative changes would be required in order to strengthen the independence of the Central Bank from government. This is another criterion for qualification for EMU. The Central Bank has to look at price stability as its main priority in the same way as price stability (and therefore low inflation) is the key priority for the European Central Bank. The Central Bank will also not be able to purchase government securities on the primary market. Statistics will also have to be collected in a way that conforms to the European System of Accounts (ESA) which is used by EU member States. To this effect, the Maltese delegation made a request for technical assistance.

The session also dealt in some detail with the technical measures that would need to be adopted and the obligations of a member State once it adopts the European single currency, the euro.

The Maltese delegation was led by Joseph Portelli, permanent secretary at the Ministry of Finance and included David Pullicino and Alfred Demarco from the Central Bank of Malta, Saviour Falzon and Dr Andrew Azzopardi from the EU Directorate. Also present was Dr Stephen Calleja from the Malta EU Steering and Action Committee (MEUSAC), Therese Cutajar from the Malta Mission in Brussels and Fabio Pirotta from the Malta-EU Information Centre (MIC).

The last screening session for this year was held yesterday and continues today and deals with the free movement of capital. The final two sessions of the screening process - on Justice and Home Affairs and Agriculture - will be held in January.