No place for dogmatism

Lawrence Zammit's article on The Times of Malta

For the most obvious and most positive of reasons, Malta seems to be oblivious to the negotiations that go on between individual member states and the European Commission on country specific recommendations that the latter makes with regard to a range of issues. This is all part of the EU’s growth strategy, called Europe 2020. The EU does make recommendations to Malta and we should take heed of them.

However when dealing with other countries, very often the EU gets stuck on economic issues, and especially the level of fiscal deficit. This is an area where we get good marks from the EU and this is why we may not fully appreciate the intricate negotiations that go on. For example it was announced yesterday that Italy could overspend by around 18 billion euros, thanks to a flexible application to the fiscal deficit rules.

The issue that concerns me in all this is the wider picture. It is interesting to note that Italian analysts (so I appreciate the bias that they may have) claimed that the European Commission had to grant Italy this flexibility because the ECB failed to meet its inflation target of 2%. Moreover the European Commission is expecting Italy to take on a significant share of the burden caused by the migrant crisis.

So to put it a bit crudely, the European Commission cannot expect a member state to meet certain targets (in this case the fiscal deficit targets), if there are factors outside its control that are contributing negatively to such a situation. Does it sound like passing the buck? It certainly does!!! Is a country correct to pass the buck when it finds itself in such a situation? I believe so!!!

We are in effect facing a situation where EU member countries need to fall in line with certain parameters, irrespective of external circumstances or other decisions that would have been taken at a EU level.

Another example of this is the new regulatory system within which banks have to operate. Banks are being criticised (even by the European Commission) for not being supportive enough of the real economy, especially small and medium sized enterprises. Banks reply that the new regulatory system of the EU and the stress tests that their balance sheet has to go through, do not allow them to be as supportive of SME’s as they are expected to be by the EU itself.

So the buck passes from the Commission to countries or institutions who then pass it back to the Commission. I believe that the reason for this happening is that political leaders and their economic advisors are still in search of the economic policy that would get the economies of the EU member states out of their current malaise.

This could be happening for two reasons, which are interlinked. The first reason is that the solutions that have been applied at a national level and at a EU level may not be appropriate to address effectively today’s and tomorrow’s challenges. Second, these solutions have been adopted in a very dogmatic manner.

It is this dogmatism that has generated the level of Euro scepticism that we have today in a number of countries, even in countries that have joined the EU with Malta in 2004. And dogmatism is being counteracted with other dogmatism. The attempt to have tax harmonisation in the EU is just one other example of a dogmatic approach, which by the way goes against one of the fundamental principles of the EU – that of subsidiarity.

All this does not make the concept of a European Union wrong or the decisions of Malta to become a member of the EU and the euro zone wrong decisions. It only means that approaches that have been adopted so far, based on strict parameters, are inappropriate for today’s economic situation.

There need to be a set of fundamental principles that are to be adhered to in economic policy, such as contained public expenditure to eliminate waste and the implementation of reforms in order to remove rigidities in labour and product markets. Using such principles as a basis, innovative solutions are required to address the economic challenges that the EU member states have.

When one talks of innovative solutions, there is certainly no place for dogmatism.

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