Peeling the ‘prickly pear’ | Peter Agius

You recently warned that the EU’s proposed €750 billon recovery fund ‘could end up being more detrimental than beneficial to Malta’. How much of this concern is motivated by the source of funding (i.e. taxation), or by the fact that much of the money will take the form of loans?

The EU COVID-19 recovery budget is an important opportunity for Malta at a critical time where we need a capital injection to counter the pandemic’s impact. Deployment of EU money can however only be judged in the full context of the medium to longer-term impact on our economy and, most importantly, on our competitiveness in Europe and the world.

I heartily welcome the €750bn package announced by the Commission last week. It is a concrete expression of European solidarity and empowerment. This is why we joined Europe.

On the other hand, however, when I read the small print I realised the ineffectiveness of the Maltese government in negotiating the criteria used to finance this package which sees an increasing role for EU taxes with potential negative impact for Malta.

EU money has to come from somewhere; we need to make sure that the EU budget supply side is also compatible with Malta’s economic model and competitive advantages.

Regarding your point that ‘Malta may become a net contributor’... isn’t that also a reflection of the robustness of the Maltese economy?

EU budget calculations change with every exercise. It is a matter of being in command of that change. Besides, Malta’s economy is still considered below EU average, as is our income per capita; not to mention the national minimum wage for our workers.

Europe is founded on a principle of cohesion among its peoples. In this context, Malta being an archipelago without a land link makes us naturally placed for EU investment to enable us to fully exploit the Union’s freedoms irrespective of the raw figures on the balance sheet.

The fund would be financed using three taxes, two of which - financial transaction taxes and digital taxes - could be ‘harmful to Malta’. Given that the EU has been pressuring Malta on this front for years: is this a case of the EU utilising the proposed fund to intensify this pressure?

Our counterparts in the European family all have their interests and objectives to push through the EU agenda. That is natural and legitimate. There is no EU design to ‘pressure Malta’, but there might be cases of a lack of Maltese design to influence the general direction of European policies.

Yet both Nationalist and Labour parties have consistently, to date, resisted European efforts towards tax harmonisation. So does ceding the EU power to impose direct taxes mean that this battle has been lost?

Europe should never be about losers and winners, but about pitching Malta’s case, making it the European case.

Malta cannot abstain from the European debate on how to finance our common European ambitions, but lead that process by giving the discussion an imperative competitiveness dimension tailored to small economies with natural handicaps like Malta. In my view, for instance, blanket tax harmonisation for financial services is odious in so far as it targets countries which strive to make a competitive advantage out of their handicaps of size and wider economic power.

Another issue where there was cross-party consensus concerned the new European transport regulations, which Maltese companies say will ‘punish island economies like Malta the most’. The EP rejected amendments put forward by Nationalist and Labour MEPs: doesn’t this suggest that Malta is at an automatic disadvantage at European level?

We are definitely at a disadvantage if we intervene three years late, once all negotiations are sealed after tens of working level meetings where we kept mum. Let me make this clear. The MEPs did their effort on this one, but they were mobilised too late. The Minister intervened in Brussels in February 2020 when the deal was already sealed with a compromise agreement in December 2019.

Malta needs to be part of compromises; not try to unravel them after they are reached. It lies squarely on government’s shoulders to scout and alert on EU developments like this, well in advance of negotiations. This is a text book case of how not to work in Europe.

While agreeing with Finance Minister Edward Scicluna’s description of the fund as a ‘prickly pear’, you suggested that government should ‘push for these funds to come for taxes such as those on plastic, carbon, cement, diesel and so on, which can help EU countries reach their environmental objectives’. But surely that would also place an additional tax burden on Malta... resulting in the same danger of becoming a net contributor?

Unfortunately, the present government has not taken EU environmental standards seriously, so we will now have a double cost to bear. Malta is still buying emission credits from Bulgaria to make up for its emissions,  notwithstanding that we should have been prepared for this since 2012. Same goes for waste recycling and renewable energies, where we remain at the bottom of the European graph.

While many Maltese have adapted their lifestyle to more environmentally conscious choices, we fail to move forward as a nation as the government only pays lip-service to environmental protection.

In general, most of us agree that more effort is needed to protect our environment. At this rate, we will be leaving a sick world to our children. If we can share that perspective then we need to be consistent and accept consumption taxation related to the most polluting substances tied to a strong environmental policy. The Union is leading the world by continuing to champion the Paris agreement on climate change; and now, with the new green deal. This makes me proud to be European and as a Maltese I am ready to support that extra step forward.

Certainly this will come at a cost too, but an environmental tax is much better to bear than a tax on our competitiveness. It is a fairer level playing field. The Union is also equipped to use trade tools to avoid negative effects on employment and industry in Europe, hence limiting most of the impact on Maltese companies operating in the affected areas.

Meanwhile, the plan itself requires approval by all 27 member states... but some (e.g. Austria) have already hinted that they might veto it. It is to be expected, then, that the final deal (if any) will be the result of further negotiation. What bargaining power does Malta really have in this scenario? And what do you realistically expect the final version to be like?

EU budget deals require unanimous approval by all Member States as well as the positive vote of the European Parliament. That gives us ample leverage to change the proposals on the table. In the past we managed to change proposals to factor in the Maltese dimension. To do that, however, we need to be equipped with a longer-term vision and with sound arguments.

This is something which seems to be somewhat lacking, or well-hidden, in the current setting. If there is a vision then maybe the government should dedicate more efforts to speak out about it.

We also need to cultivate our credibility around the European table. What may look as a series of seemingly unconnected developments in Malta’s track record on fighting corruption, money-laundering and upholding rule of law may, at the end of the day, nibble at our credibility and hence at our effectiveness on the negotiating table when it comes to bread and butter matters like the EU budget.

‘Next Generation Europe’ follows on from a previous Italian proposal to provide assistance in the form of ‘Eurobonds’. This was however shot down by Germany, Austria, The Netherlands and Luxembourg. Do you share concerns (expressed, among others by French President Macron) that this marks the beginning of a possible ‘unravelling’ of the EU?

At every twist and turn there are those who say the EU is breaking up soon. We heard it when De Gaulle said no to the Brits in the fifties, the when France left the negotiating table on agriculture funding in the sixties, then again every few years with different topics including recently with Grexit and Brexit.

It seems to me that the Union comes out stronger from these misadventures. I think sometimes we underestimate the resilience of the project. It is also natural when the Union faces these crossroad moments that the first proposals are tempered with the input of others. I think the discussion on Corona-bonds started on an imbalanced footing, and I believe that the recovery fund presented now addresses most of the needs but in a more balanced way between Europe’s north and south.

On the other hand, Commission President Ursula von der Leyen has urged member states to ‘rediscover the power of the idea of a united Europe.’ Do you interpret that as a call for federalisation? If so, is acceptance of this package the first step towards a ‘United States of Europe’?

‘More Europe’ is undeniably on the mind of most MEPs and undoubtedly of some ministers in Brussels. My personal view on a more federal Europe is that we should absolutely go more federal when it comes to giving Europe a stronger democratic imprint, where the European Parliament should have wider powers of scrutiny and initiative.

I do, however, have strong misgivings on branching out into new policy areas before we consolidate what we should have working by now such as the free movement of professionals and services across the Union.

Last week I helped a Maltese photographer with a French company insisting that he had to have accreditation to work as a photographer in France. Free movement of services (including photographers!) should have been a European ‘acquis’ since the eighties, and here we are still battling for its actual implementation. It’s no use expanding our remit further to then realise that we have limitations to Union rights even in the most basic of its supposed guarantees.

There is an antidote to that of course – we must be much more militant in asking for our EU rights. Maybe that’s the first thing that should federalise throughout.

Lastly, Von der Leyen also said that: ‘there are four freedoms that need to be fully restored.” This includes the freedom of movement of people – curtailed by the travel restrictions imposed by member states in view of COVID-19. Is the fund contingent on completely lifting these restrictions (e.g., by re-opening the airport)? If so, is this a case of putting economic recovery before public health?

No. President Von der Leyen justly underlines the need for coordination of border openings as this has a direct bearing on European free movement. However, this is without prejudice to the right of member states to impose limitations to free movement on the grounds of public health. The European Commission would need to take member states to the European Court of Justice to put their judgement into question in this regard. I don’t think it will come to that.