[ANALYSIS] Keeping Konrad against all odds?

Prime Minister Joseph Muscat’s decision to retain Konrad Mizzi in his Cabinet and Keith Schembri as his chief of staff, despite the political backlash of the Panama Papers baffles political observers.

As socialist MEP Ana Gomes succinctly put it, given the chance she would have asked Mizzi: “why don’t you resign in order to stop embarrassing your government?” But in the absence of Mizzi’s resignation, the other pertinent question is: why has Muscat kept Mizzi by his side? These five situations map out the hypothetical mind-map of the man most impacted by Panama Papers in Malta.

1. He believes that “demoting” Mizzi was the right thing to do

Muscat may genuinely believe that in this case his actions were proportional to the impropriety committed by his then energy minister. For Muscat did demote Mizzi to a minister ‘without portfolio’ and he also forced him to give up his post as Labour deputy leader.

As for Schembri, Muscat has consistently argued that he is not an elected public official and therefore he felt no ethical imperative to remove him. But such a course of action contrasts with Muscat’s past reputation for decisive and ruthless actions. 

Before the 2013 general election, he had no qualms in abolishing the post of secretary-general to get rid of Jason Micallef. Neither did he show any qualms in ridding himself of deputy leader Anglu Farrugia, whom he asked to resign on the eve of the election after the latter alleged a magistrate was politically biased. On that occasion Muscat claimed that Farrugia’s resignation reflected the difference in standards between the two parties, “with those within the PL bearing their responsibilities and the PN’s Austin Gatt evading a no-confidence vote till the end”.

Moreover after the election Muscat reluctantly but decisively also sacked Emmanuel Mallia from home affairs minister (despite the latter’s resistance). One may even argue that owning a company in Panama is a far more serious matter than Mallia’s political responsibility for the actions of his driver.

With this in mind, Muscat’s decision to reinstate Mallia as a minister came as no surprise, seeing he decided to retain Mizzi. Muscat was also unequivocal in demanding parliamentary secretary Michael Falzon to step down after the publication of an Auditor General report on the Gaffarena expropriation scandal.

And Mizzi’s demotion was half-hearted to the extent that Muscat was quick to use the EU presidency as a way to legitimise Mizzi’s position as de facto energy minster, by having him preside the EU’s energy council. This suggests that Muscat’s decision may have been motivated by other reasons.

2. Muscat had to stand by his men

Muscat may have calculated that Panamagate had already done enough damage to his party, and sacking Konrad Mizzi and Keith Schembri would have simply made things worse by turning what he may have perceived as a venial omission, to a resignation matter. 

He may have also feared passing on the message that his government was constantly losing pieces in the face of attacks by the opposition and in the wake of Mallia and Falzon’s sacking. Muscat may also have been comforted by public opinion polls conducted by MaltaToday, Xarabank and the Malta Independent which showed him retaining a considerable trust lead over opposition leader Simon Busuttil albeit the Panama revelations.

Moreover, personal considerations may have dictated Muscat’s course of action. Muscat may well have concluded that he can still win the election despite Panama. Schembri is a close friend of Muscat since his school days while Mizzi gained a reputation of being indispensible to the government, a troubleshooter who comes to aid wherever he is needed.

Muscat may also have been put in an uncomfortable position – for asking Mizzi to resign without making the same request to Schembri may well have created more bad blood.

3. Mizzi is too much of an asset for the government

In Labour circles Konrad Mizzi is revered as some sort of guru and indispensable fixer, a workaholic known for his intense work ethic and long hours and someone who can think outside the box.

Like him or hate him, Mizzi has delivered in commencing the epochal shift from reliance on heavy fuel oil to more environmentally friendly natural gas. Still, delays over the opening of the new power station, successive power cuts which exposed dependence on cheaper energy from the interconnector, the retention of his wife as a trade envoy in Shanghai despite a promise by Mizzi himself that she would not continue to serve in that post, and the secrecy around complicated energy deals with private interests, including Azeri kleptocrats and Chinese bureaucrats, have robbed Mizzi of his sheen as a technocrat who has altruistically lent himself to public service.

Even MaltaToday’s surveys showed Mizzi falling from second-best rated minister to one notch above transport minister Joe Mizzi at the very bottom of the rating list.

Without any doubt Konrad Mizzi is pivotal to government’s energy policies. His influence goes beyond the energy sector, given that he is responsible for Projects Malta which presides over land deals like the one involving the ITS and other privatisations and PPPs.

Muscat may well have calculated that the cost of losing Mizzi at this stage was greater than the inevitable political backlash. Schembri is also regarded as an important cog in the party’s electoral strategy and pro business appeal. In some way, Mizzi’s indispensability is reminiscent of the awe in which Austin Gatt (who also had a reputation of a doer) was held by the Nationalist Party, despite facing allegations of impropriety.

4. Joseph Muscat had given his blessing to Mizzi and Schembri’s arrangements

One of the greatest risks of Muscat’s decision not to nip the problem in the bud by asking Mizzi and Schembri to resign is that his dithering fuels speculation that he was aware of the shady financial dealings of his close associates.

One scenario is that Muscat may have found nothing wrong when Mizzi and/or Schembri informed him of their investments. Therefore he could not later expect either of them to resign after first giving his blessing.

Mizzi claims to have first told Muscat of his Panama company three weeks before the scandal broke. When asked whether Muscat was shocked, Mizzi’s answer was “Why would he be? He would be shocked had I not declared it”. Assuming that Mizzi was saying the truth, this suggests that at that point in time Muscat failed to comprehend the ethical impropriety involved in the setting up of a company in a secretive location.

Still Muscat is known to change his views after weighing public opinion. Inevitably his unwillingness to sack his closest associates in government has given the Opposition fodder for speculation.

5. ‘Muscat is Egrant’

In this case the Opposition’s speculation is also rooted in the inevitable suspicion raised by documents unearthed in the Panama leak, which suggest that a third company called Egrant formed by Nexia BT – along with the two other companies formed by Mizzi and Schembri five days after the election – belonged to someone more important than Schembri and Mizzi, given that the owner’s details were communicated by Skype.

Nexia BT, itself a beneficiary of government contracts, such as the social impact assessment for the new American University of Malta, insists that Egrant remains a shelf company which never had a beneficial owner.

Brian Tonna also claims that the Skype call referred to in leaked emails between Mossack Fonseca’s Panama office and Nexia partner Karl Cini, was not about Egrant. In the email, from March 2013, Cini wrote that “the ultimate beneficial owner will be an individual” and that he will “speak to Luis on Skype to give him more details.”

Tonna’s clarifications on Egrant have not dispelled doubts. As Green MEP Sven Giegold observed: “Tonna says he is the ultimate beneficial owner of Egrant, but the indications are that there were other intentions for the company.” But despite these doubts it remains hard to believe that Muscat would have taken the risk of lending his name to suspicious transactions.

The very suggestion that the Prime Minister himself owned a company in a secretive location belies the high trust rating he still enjoys among the electorate. In fact one may also suspect that the Opposition’s main aim in fuelling speculation about Muscat being Egrant’s ultimate beneficial owner could be that of denting his trust. 

Still even if Muscat was in active collusion with Schembri and Mizzi, would he have been so stupid as to risk his reputation by lending his name to such a transaction?  Even kleptocrats like Vladimir Putin and Ilhem Aliyev have been careful in putting their name to transactions involving close associates and family members.

Moreover Muscat is also concerned with how history will remember him. Would he have risked his legacy by colluding is shady financial dealings in secretive locations?

But one also has to consider the fact that companies in secretive locations are set up under the impression that their ownership is never revealed and in this case it was only revealed because of an unlikely leak. So Muscat – like Mizzi and Schembri – may well have thought that nobody would ever know about the opening of companies in Panama.

Even if the Prime Minister was not involved directly, the perception of a triad in Castille, which operates a government within the government, has seeped in and Muscat has done very little to address it.