Guest post: How we might have ended up had Fate not intervened
The chickens are coming home to roost in Greece – a country which shows how we might have ended up had we not changed direction in 1987. Years of Greek cronyism (‘bazuzlizmu’) and public sector eve-of-general-election job bonanza frenzies by one government after another, whether it was Andeas Papandreou’s Socialists or the New Democracy of Mitsotakis and Karamanlis, have bankrupted the country.
Now Malta is lending money to Greece. Who would have thought it?
Greek mainstream politicians and economists now admit that the country’s public sector is bloated. The number of state employees must be hacked right down and they should be paid less. They’re paid 14 monthly salaries a year, and that’s not counting the bonuses and the pension they get when they retire ahead of everyone else.
But Greece is plagued too with rampant tax evasion. The common boast which justifies this is that they’re damned if they’re going to pay tax to bankroll the overmanned public sector.
The psychology is understandable: it’s next to impossible to persuade people to do their civic duty and pay their taxes when those taxes are going on salaries for state employees rather than roads, schools and hospitals.
So Greece has had a double-edged crisis leading to bankruptcy – not enough taxes and too much spending on the public sector payroll.
Greece also cooked the books to join the Eurozone. It used very sophisticated international financial instruments with securities firms (swaps similar to those used by Lehman Brothers to hide its true debt levels) to mask the size of its public debt and deficit and find a way around the Maastricht criteria.
Greece is now bankrupt and has only been saved because it is a member of the Eurozone. Otherwise it would have gone the way Argentina did eight years ago. Many Maltese know what that means because they lost millions in investments when Argentina defaulted in 2002.
Compare and contrast Greece with Malta. In early 1987, Malta’s Labour government went on a jobs-for-votes spree, putting 8,000 of its bazuzli (naqdu n-nies taghna ha nirbhu) on the public sector payroll. And once they were on it, they couldn’t be removed.
Multiply 8,000 by Lm2,500 (the miserly annual earnings of most at the time, plus bonuses and NI contributions) and you have a bill of Lm20 million a year.
Multiply that by all the years that have gone by since, factor in salary increases, and you have the crippling amount the state has had to find to pay for Labour’s irresponsible largesse with its cronies.
A billion euros would probably understate the real cost. You would have to factor in perks such as overtime and allowances and the loss to the state coffers of the taxes and NI contributions these people would have paid had they stayed in the private sector.
In 1987 we didn’t just change the party in government, but changed our ways by electing a government which started doing things differently. It did not need to dress up as the Christmas Fairy and dish out jobs mal-gvern in exchange for votes so as to win a general election.
In 1987, the new government found 55,000 names on the public sector payroll. This meant 45% of the total workforce. The private sector employed 67,000.
The last figures we have are for October 2009, Those names on the public sector payroll have been whittled down to 41,000, or 28% of the total workforce. The private sector now employs 103,000.
Even in 2008, when Labour peddled the fiction that the government was on some kind of drive to hand out jobs in the public sector before the general election, the number of state employees actually fell by 800.
The dramatic decrease in the number of state employees over the last 23 years was brought about in part by the privatisation of state corporations. This shows the Nationalist Party’s way of doing things. Workers in the private sector face an altogether different ethos which is not what the bazuzli want.
Then there’s tax evasion. Since 1987, reform after reform has brought into the tax net ever more income that can be taxed at lower rates. Was that popular? No, it wasn’t. Was it right? Yes, it was.
In 1996, Labour rode the VAT issue by harnessing the Maltese aversion to paying taxes. It wasn’t VAT itself that was the problem, of course – it was the income tax that had to be paid once every transaction was recorded and subject to VAT. Alfred Sant won that election, but just five months later, his finance minister could see what was going to happen to government revenue without VAT.
The Nationalists have been shifting taxation from direct tax on income to indirect tax on consumption. This works. It isn’t always popular, as Joseph and Michelle Muscat demonstrated by leading the campaign to take back the tax they paid on their Alfa Romeo and Kia Sportage.
Successive Nationalist governments also did away with state subsidy after state subsidy, opposed by the brazen cheek of politicians like Charles Mangion, Karmenu Vella and John Attard Montalto – Euro millionaires one and all – and their leader Joseph Muscat, who expect the government to subsidise their electricity consumption rather than use subsidies cost-effectively to help only those who actually need it.
Unbelievably (or perhaps not) Labour has the effrontery to snigger at the par idejn sodi which kept Malta from hitting that brick wall long before Greece did. We’re in good enough shape, with a deficit of just 3.8% of GDP last year, to be able to lend money to the Greeks at a profit, being able to borrow at less than the 5% interest we’ll be charging.
Greece is bankrupt because when its government wanted to borrow, it couldn’t find anyone willing to take the risk of lending money to a country with a public debt of 115% of GDP (and growing) rather than the 60% permitted by the Maastricht criteria, and a deficit of 13.6%, which is more than four times the 3% allowed by the Maastricht Treaty.
But when the much reviled gONziPN!!!!???!!! wanted to borrow money for Malta, the market came up with two-and-a-half times as much as they asked for.
The moral of the contemporary Aesop’s fable being played out on the streets of Athens is that the Greeks are now a wretched example of how we might have ended up had we not changed our ways in 1987, and had we not confirmed those new ways every general election since, except for that infamous and ill-fated episode in 1996.
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One BBC correspondent reported this week that the Greek government did not have correct statistics of the number of people working with the civil service. So the Greek government did not know exactly who worked for it.
I think that many Maltese people watching what is happening in Greece are starting to understand that the state cannot keep subsidising their consumption for ever.
And without wanting to be controversial, Wednesday’s events in Greece are a stark reminder of the true colors of the Communists.
Click on this link http://www.independent.com.mt/news.asp?newsitemid=105592 and take note of this paragraph:
Despite a sneering attitude to central authority, Greeks love state jobs and the security they provide, hence the bloated public sector and labour unrest that have dragged down the economy. Greeks had seemed content with the status quo for years, unwilling to deal with their debt or strip away early retirement and other cushy benefits of a state grown soft.
you did not mention corruption and jobs for the boys as part of the greek tragedy……here corruption is everywhere and WE know about it but is accepted….our poiticians are such saints ! In every democratic country in the west many are caught and brought to book…here they are so saintly never ever one gets caught…..they are all in it, together ,both sides …..and we the stupid great unwashed waste our time voting for them !
Dear Mr.Farrugia,
With all due respect, I’ve never understood a stance taken such as that in your post. If corruption is festering within this country (on both sides as you claim), it is only the fault of the complacency or apathy (choose which you will) of the individual. As Einstein is noted to have said: The world is a dangerous place, not because of those who do evil, but because of those who look on and do nothing.
Yet we ”the stupid great unwashed” do nothing. Which begs the question: if you’re not going to bother taking an active role in fighting corruption (grumbling doesn’t count), why do you keep voting for those corrupt politicians time after time?
Many people, especially those with Labour tendencies, seem to be blinded by this political outing, when they seem to accept as absolute truth the allegations made by their party. A classical example of this ”shit-stirring” which usually emerges around election time – Dr.Muscat has pulled out the metaphorical bunny out of the hat early this time though – is in a Xarabank episode a couple of years back when Dr.Alfred Sant sat on the panel along side Dr. Gonzi.
Just to refresh your memory, Dr.Sant pulled out the corruption bunny, stating conveniently that someone told an acquaintance who told an acquaintance who turned up in his office about some corruption, and when Dr. Gonzi politely challenged him to go to the police with the case, as the Maltese adage goes ‘waqgha l-ass (ghass/azz?)’.
Surely if those allegations were true, it would have been in both the Labour Party and the country’s interest to have these supposedly PN ‘boys’ prosecuted at law, thus having the judiciary system justifying their claims. There would have been no other more credible way to assert their claims!
Yet somehow none of this happened or happens. Case in point Muscat’s power station corruption allegations – ”Zgur kien hemm il-korruzjoni!!!” – Auditor: ”From the current evidence there is no basis for corruption (paraphrasing)” – Muscat: ”Il-General Auditor ma cahadx li ZGURRR mhemmx! Ergo hemm il-korruzjoni”.
I am not saying corruption and nepotism does not exist in Malta, far from it, but obsessing about it will get you nowhere at all. In fact it will distract you from seeing the more important policies which are being decided upon, which as aptly pointed out in this article, surely seem to be getting something right!
There’s one thing I would like to ask about our contribution to the Greek bailout: is there a collateral to the EUR 27 million loan?
WE are the collateral. The Slovak PM was more forthright when he refused to cooperate: “I don’t trust the Greeks,” he said.
It’s a game of musical chairs. The record is totally scratched, but the music is still playing.
Brilliant article….send it to The Sunday Times for wide readership.
[Daphne – The thing is that it’s brilliant because I didn’t write it. A friend in politics wrote it as a guest post. And hey, Dave, I take exception to ‘send it to The Sunday Times for wide readership’. This blog gets more views in a day than The Sunday Times sells copies. But you’re right – it’s a different audience.]
Indeed, a very good read – and as much of a warning as it is a reminder.
Daphne: I can understand why you bang on about your impressive viewership – it’s the hard currency of the internet, after all, and blows many (most?) other Maltese online sites out of the water – but the comparison with the Sunday Times circulation is a bit apples and oranges, isn’t it? You’d need to count every person who picked up the paper for a read in homes and public places, plus all the online readers…
Cool…. who wrote it? Or is that classified information?
[Daphne – It’s classified information.]
Such a well-written and thought-out article. Can guess who wrote it, Daphne.
[Daphne – I don’t think you know him, Harry.]
the only reason malta is lending $27m is because we Malta of the eu – not a decison of the Maltese Govt – although it has gone through the motions of being raised in the house of representatives.
if you compare the argentinian case to greece – you will find that the figures are three times as bad for greece as what they were for argentina ( % of debt to gdp etc). the only reason greece survived (till now) and Argentina not was because of greece’s friends i europe and the perceived instability & corruption of the argentinian political class.
But this will not change anything – greece will go down the gurgler – its inevitable and the euro will take a hit on the world market. Time to start thinking of selling euros now or waiting to buy them when the shit hits the fan..
keep the money in the bank I say or attach the Parthenon as collateral! as a bare minimum.
So are you actually implying that cronyism and bazuzlizmu disappeared post 1987?
[Daphne: It’s a guest post. I’m not the one who wrote it. We’ll have to wait for the person who wrote it to reply.]
Daphne, you made an issue out of the fact that Malta will be lending money to Greece. The other fact is that Malta would be borrowing the money to lend it to Greece at a higher interest rate. If Greece doesn’t bust we’ll make some money out of it. Some risk but good thinking.
[Daphne – Charles, this is a GUEST POST.]
There is the Public Accounts Committee chaired by a Labour MP and if it is not doing its duty then it’s his fault. So if you have a corruption complaint go before it and present your case.
Pre 1987, there was nothing one could do but stomach the corruption which was in itself an institution.
Corruption was everywhere. If today I smell corruption like Labour does, it goes before the police, the PAC, the Ombudsman, the Auditor General, as well as the Commission against Corruption. That puts an end to your allegations. Allegations are worldwide, not only in Malta.
We are quite a bit different to the rest of the Med. At least we wear seat-belts and our machos look like clowns to the majority – we don’t look up to them.
Maybe it’s easier for us to stake out our identity and take pride in it or maybe Calvinist ethics have rubbed a bit on this Roman Catholic land. I cannot understand all the derogatory comments about Malta compared to other countries on timesofmalta.com whenever there’s an accident or mishap.
Many seem to have an excessively rosy view of other countries. Granted we still have a lot of work to get to the ethical standards in Germany and Scandinavian countrie
I’d like your correspondent to tell us how s/he views the trade deficit and government overspending of the 1990s wasn’t that a big risk that could have put us into Greek territory?
Most probably the derogatory comments about Malta are done by people who never went abroad.
But why isn’t everybody relieved that we are in a position to lend money rather then borrow it?
David,we are borrowing to lend to Greece. That leaves me neutral. With our structural deficit we are in no position to lend money.
What you’re claiming is nothing but the truth; 2 decades of socialism literally destroyed this island!
However, after 1987 the Nationalists continued the development of many socialists’ ills. They expanded the public service, expanded the welfare state, raised and introduced new taxes and plunged public finances into massive deficits.
Only the sheep like minded nationalists actually believe that our country’s situation is like some heaven on earth. If the government doesn’t get real with fiscal responsibility, if they want to continue to spend more than they take in, soon they would need to add an M to the definition of Europe’s most irresponsible states; PIGS (Portugal, Ireland, Greece and Spain)
How do you “get real with fiscal responsibility”? Please explain.
According to RAI, the people causing the trouble and deaths in the Greek protests are a small group of anarchists of about 100 “black bloc” hoodies who are anti captailism and anything American.
That’s why MacDonalds gets torched but Nico’s Hamburgers is left unscathed.
Is there a competent, unbiased and professional economist out there who can lay it down where we would be to day if we had kept the Maltese lira?
Devaluation would have been certain.
I firmly believe that this article should be published in the newspapers, both in Maltese and English, mainly to target those who do not make use of the internet.
Another similarity (which only came to pass after the post was written, I assume) between Greece now and Malta pre-1987 – the violent rabble in the streets, which has so chillingly killed three very unfortunate people; burnt alive simply because they worked for a perceived enemy.
It’s only chance that prevented the same thing happening in October 1979 in Malta when the ‘Times’ building was burnt down.
That’s what the Nationalist party saved us from but if anyone wants to go back to that hell, simply vote PL.
In 1988 I started working as a consultant with one of the larger parastatal organisations in Malta. I asked for a staff list. They did not have one.
Why are people so negative and full of doom and gloom. For years, according to some, we seem to have been standing at the edge of a financial abyss, and yet we never fall in.
Is it not obvious that our debt/GDP ratio and our unemployment rates are nowhere near those of the EU countries that are in trouble? Or are these fake numbers conjured up by the spin doctors?
I am confused.
If the PI(G)S want a loan are we ready to do the same thing we did to Greece?
@vonmises
You really have no idea how bad the financial situation is in the PIGS states. Malta’s budget deficit at 3.8% of GDP and total debt at 67% of GDP are only marginally higher than the Maastricht allowed thresholds of 3% and 60% respectively. Greece’s total debt will exceed 150% of GDP within 3 years.
Even the UK had a budget deficit of 11% last year, and its total debt will soon creep up to 70% – notwithstanding all its North Sea revenues in the past.
Malta is nowhere near the mess the PIGS countries are in.
vonmieses was referring to the roaring 90s under the PN, not now.
“But when the much reviled gONziPN!!!!???!!! wanted to borrow money for Malta, the market came up with two-and-a-half times as much as they asked for.”
And when the Spanish government issued 5-year debt this morning, the cover ratio was almost double that in the previous auction. Your guest contributor seems to conveniently forget that cover ratios say absolutely nothing about the soundness of government finances.
He also seems remarkably self-assured about the Maltese economy, perhaps by more than is warranted by the current uncertainty around making gross generalisations about countries being in “good shape”. In a speech just six months ago, Greek PM Papandreou also thought Greece was in good shape: “…salaried workers will not pay for this situation: we will not proceed with wage freezes or cuts. We did not come to power to tear down the social state” (Dec 11, 2009). We know how that one turned out.
Your ‘guest contributor’ can cherish Malta’s change in direction in 1987 all he wants. My grandparents cherish the end of the Second World War. But they stopped comparing 2010 with the forties a long time ago.
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