Last Updated on Friday, 4 October, 2024 at 8:09 am by Andre Camilleri
In the shadow of Malta’s 2025 Budget proposals can we hope that some parts of it mirrors Draghi’s report? Mario Draghi is a former head of the European Central Bank and Italy’s ex-prime minister.
What are the key recommendations in his report that focus on reforming the European economy, with a particular emphasis on its energy markets? The high price of energy makes Europe uncompetitive and threatens European industries, but inefficiencies in Europe’s energy markets could improve with some of the smart recommendations from this report.
Eliminating some of the intermediaries would have an immediate impact on energy prices, bringing cheers from consumers, businesses and governments. The report calls for more responsive and less parsimonious regulators, capable of anticipating where technology may go.
First, the report frequently cites excessive and burdensome regulation as an obstacle to EU competitiveness. An important way to address this challenge is to adopt practices ensuring that all stakeholders can provide meaningful input into EU regulations and directives that impact international trade and investment.
This is a way of arriving at smarter regulations that both achieve their objectives and encourage the international trade and investment that is key to competitiveness. Secondly, the report suggests an increased and more targeted use of tools to combat and protect against non-EU unfair trading practices that undermine EU competitiveness.
Are Malta’s own regulations properly mirroring the true effectiveness of EU laws? One notes how our own national debt is on a growth trajectory (currently the Commission has inflicted an excessive deficit warning) so perhaps we ought to focus more on Draghi’s carefully-calibrated comments on common debt.
Focusing on the bigger picture and despite the single market’s many achievements, persistent fragmentation in sectors like tech, finance and defence mean that the EU is unable to compete with the US and Chinese behemoths.
This has created a vicious cycle between tech and finance, in which promising start-ups leave the EU for California as they seek larger investments and partnerships with larger tech firms. At this juncture, Malta must take a closer look into Draghi’s focus on the lack of innovation. Our miserable annual spend on R&D is 0.6% of GDP. This is one sixth what other advanced European members invest. Back to Draghi. He drives for innovation and de-carbonisation as two vital themes. Essentially, he would like to see risk-takers better rewarded through government grants and private financing.
On the contrary, we can also compare and contrast what regulates markets in a socialist economic model, where the production of goods and services is either partially or fully regulated by the government – this is referred to as central planning, and the economic structure that is created is known as a command economy.
Since joining the EU in 2004, Malta has sought to avoid adopting either a purely capitalist system or a fully socialist one. We experimented on the basis of a mixed economy, falling somewhere on the spectrum between pure capitalism and pure socialism. In contrast, most ex-Communist countries prior to joining the EU, all embraced socialism and lauded oligarchs. Their means of production are commonly owned by the community or state on behalf of its citizens. Malta voted for a mixed economy.
Since joining the EU, commerce is run partly by the government through over 300 agencies, apart from a bloated civil service which in turn recruits low-wage labour from private firms for some of its needs. Currently it is subsidising in a non-discriminatory way, energy and cereals.
While addressing the deficits accumulated in recent years, which party supporters attribute to the pandemic, we must not ignore the advantages of a thriving underground economy that helped sustain many businesses. A good percentage of consumers are exposed to the black-market economy. This hidden economy points to an illegal market where transactions occur without the knowledge of the government or other regulatory agencies. Many illegal markets exist to circumvent existing tax laws.
In summary, it is often assumed that a country’s gross domestic product (GDP) is not its actual message of collective productivity because it does not take into account all the business activity conducted in underground markets.
In conclusion, the report challenges member states to collectively build up an innovation euro fund originating from investments of $750-800bn a year, equivalent to about 4.5% of the EU GDP. This fund is crucial to inculcate new benefits from enhanced innovation, AI and de-carbonisation. There is already an active debate within and between member states about whether raising this amount is feasible, or even desirable. With pressure on the public purse, the balancing act between ambition and feasibility will be crucial to the success of the report’s recommendations. Perhaps in the near future, our low investment in R&D may improve, thanks to a new resource established by a Pan-European innovation fund.
George M. Mangion is a senior partner at PKF Malta
