Malta Expected to Avoid Europe’s Debt Crisis

MEDIA ROOM

Malta is not expected to be affected by Europe’s debt crisis, which flared up in the past few days following the Greek financial collapse and the lowered credit ratings of Portugal and Spain.

Speaking to The Malta Business Weekly, the Maltese Member of the European Parliament, economist Prof. Edward Scicluna, said he does not foresee Malta being affected by the contagion that is spreading across Europe.

“Malta managed to reduce its deficit, at least on paper, and this should ensure that the local economy is not affected. I do not agree with the way the deficit was reduced, especially when considering the higher utility tariffs, but the fact remains that the deficit was lowered.”

Last week, Greece made a formal request for aid to pay around €8.5bn worth of debt by 19 May. It is hoping to obtain loans from European Member States and the International Monetary Fund since it cannot raise sufficient funds due to high borrowing costs.

Similarly, Portugal’s borrowing costs increased dramatically yesterday after Standard and Poor’s downgraded its credit worthiness on Tuesday, signalling that Greece’s debt crisis was spreading.

Moreover, Spain credit worthiness was also downgraded yesterday by the same credit agency. Spain’s rating was revised to AA from AA+ following a construction bubble which collapsed.

Questioned about the downgraded credit ratings by Standard and Poor’s of Greece, Portugal and Spain, Prof. Scicluna said that action should have been taken fast to contain the contagion spreading among EU Member States, but the contrary happened. “When a rating agency downgrades a country’s credit rating to junk, markets react accordingly since investors are very sensitive of their investments. The problem should have been tackled by the European Council, the European Central Bank and European Finance Ministers. Nonetheless, Germany was perceived as delaying the necessary action possibly due to the forthcoming regional elections.”

Asked whether a rescheduling on debt can be expected, Prof. Scicluna said that he is expecting what is referred to as a ‘haircut’ and creditors, including the European Central Bank, will suffer a small percentage of the losses incurred. “In the short-term we can expect the problem to be exacerbated since the austerity programme will help Greece in the long-term. In the meantime, Greece is expected to go through another recession.”