Europe has overtightened banking regulation, stunting economic growth, and will not have a meaningful recovery until it gets real about reform and infrastructure, Malta’s finance minister, Edward Scicluna, said on Wednesday.
Europe needs investments, new infrastructure, must cut youth unemployment, enact meticulous structural reforms and avoid the sort of shocks like the years of austerity, Scicluna told Reuters in an interview.
Saddled between Africa and Europe in the Mediterranean, tiny Malta has stood out in Europe’s prolonged crisis as it kept growth relatively high and unemployment low, even as it reduced its budget deficit and debt.
Indeed, its expected growth rate of 3.4 percent this year will be nearly twice the euro area’s average while unemployment, at just over 5 percent, is less than a quarter of Spain’s level.
Scicluna, a professor of economics, said Europe failed to keep its focus on all the big issues in recent years as its excessive efforts in bank and tax regulation hijacked its attention.
“In terms of bank regulation, we had on the table a lot of packages, for example the Volcker rule, or the issue of high salaries for executives or capital requirements, CRD IV, and so on,” Scicluna said. “And instead (of picking one), we’ve taken them all.”
“Banks are so reluctant to lend now and I don’t blame them,” he said. “When it comes to competitiveness, it’s weighing on them and also on growth.”
Scicluna said that the European Central Bank has done as much as it could for growth and it was now up to governments to do their part.
“It’s true, the central bank has run out of firepower, all the ammunition it had; all it can do now is prolong (quantitative easing), and whether the September 2016 will be the end or not is the only question,” Scicluna said.
The ECB meets in Valletta on Thursday and was expected to keep the door open for more monetary stimulus but stop short of taking new policy steps as it awaits fresh indications about the outlook for euro zone inflation.
Scicluna said part of Malta’s success has been tackling big structural issues, like high youth unemployment, low female workforce participation and the low employment rate of people with disabilities.
It has introduced incentives, like free childcare and continued benefits for women who return to work, mandatory youth training programmes in exchange for benefits, and corporate tax breaks for firms employing disabled workers.
“Taking each country in turn, especially the Mediterranean countries, there is so much room for reform, especially on the supply side, visiting Greece, Italy, Spain, Portugal, you can tell… too much manpower, old practices, overregulation,” Scicluna said.
Part of Europe’s problem is demographic but Scicluna said that migrants from the Middle East, many of whom ended up in Malta, could at least partially solve the issue.
“Honestly, I think they are helping Malta grow faster. Many people who are bold enough and risk their lives, are normally quite intelligent, resourceful people… it’s a resource,” he said.
BY BALAZS KORANYI
Editing by Jeremy Gaunt
– Wednesday, 21st October, 2015
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