Issue link: https://maltatoday.uberflip.com/i/1471699
maltatoday | SUNDAY • 26 JUNE 2022 9 INTERVIEW must; but target the right people' sanctions-list; but because the economic operators involved, were under pressure to abide by those sanctions… so whenever they saw the name 'Iran', they felt they had to be extra-cautious, to ensure that they were doing busi- ness with legitimate companies. Are you suggesting, then, that the sanctions on Russia are tar- geting the 'wrong' people? Let me put it this way: [former Russian Opposition leader] Na- valny gave them [the European Commission] a complete list of whom they should be targeting. The problem, however, is that they seem to have miscalculated the effects of the sanctions. I've already mentioned one of these effects: the delay caused by the implementation of those sanc- tions, as economic operators struggle to adapt to them. Another problem, however, is that the sanctions themselves are limited only to commodities that Europe isn't totally dependent upon. The most obvious example is that… the EU is still import- ing gas from Russia: for the sim- ple reason that many European countries are still dependent on Russian gas. Meanwhile, they imposed sanctions on oil – even on the sea-borne transportation of oil: which was aimed at halting ex- ports to third countries, such as India and China. But it seems that India and China had both stockpiled oil, well in advance of the sanctions; and in any case, Russia is still exporting oil to In- dia and China, regardless. Clearly, then, the sanctions did not deter either the Russian in- vasion in the first place; nor did they stop Vladimir Putin from continuing to advance, even into the eastern part of Ukraine… Apart from the efficacy of sanc- tions, however, you also seem to be suggesting that they may have a political impact on Eu- rope. Pointing towards French President Macron's recent woes, for instance, you argued that: "I hope populism doesn't rise in Europe as a result of peo- ple not having enough food to eat." How realistic is that pre- diction, based on current indi- cators? If you look at history, and see what happened in the 1930s: the problem was that people were increasingly finding it difficult to 'put food on the table'. And that, ultimately, is what fuelled the populism that led to the rise of a tyrant in Europe. The rise of Hitler was not – as famously suggested by Austrian economist F.W Hayek – because the German government 'grew too big', and became too 'inter- ventionist' in its approach, that it evolved into a dictatorship on its own; on the contrary, it was mostly down to the effects of the Great Depression: poverty, and the inability to feed one's own family. Now: what we are seeing today is a similar rise in the same pop- ulist narrative, also as a result of the same economic pressures. We see it in Italy, with Matteo Salvini; we're seeing it France, with the renewed popularity of Marine Le Pen; and we see it every time there is a financial crisis, too: such as in 2008, for instance. This, incidentally, is why it is also in Vladimir Putin's inter- est to have a protracted war in Ukraine. It would continue to di- vide Europe, politically: and that will create further tension, on the ground… on top of the existing economic pressures to keep up with inflation. So if the European people are going to end up with not enough money, to maintain a decent standard of living – and let's face it: there are European countries where people are already resort- ing to food-banks, today – then, yes: what happened in the 1930s, could happen again. Earlier you mentioned the pos- sible impact, 'especially on lower-income brackets'. Can you be more specific? What sort of economic impact are you expecting here in Malta, for instance? To be honest. I don't see the problem being directly related to Malta, myself: partly because – unlike other European countries - Malta is not dependent on Rus- sian gas; and partly because the government is actually stepping in, to subsidise most of the affect- ed commodities: including fuel, wheat, and so on. So the problem, as I see it, concerns Europe, and the rest of the world… We are, however, dependent on imports for pretty much everything else; and if inflation affects all countries – not just Russia – the cost of imported goods (including all foodstuffs, etc.) will surely be expected to rise here as well… But that's what I meant. Infla- tion-wise, Malta has not, so far, been as badly hit as elsewhere: but only because, when it comes to wheat, fuels and other com- modities… the prices spiked to a point, where government had to intervene, and subsidise the inflation. And obviously, that comes at a gargantuan cost to the public coffers. So to come back to your ques- tion of how Malta will be af- fected: in the short-term, the problem is being addressed – at enormous cost – by government intervention, to cushion prices. In the long-term, however, the bigger concern is 'imported in- flation': because there is no way to control the cost of importing goods and services from abroad. You're saying it yourself, though: the only reason in- flation hasn't been higher, is because it is subsidised by government. Surely, however, there is a limit to how long the Maltese government can afford to absorb those price-hikes it- self… Not really, no. As long as the economy keeps growing, it shouldn't be problem. Because when you take the debt/deficit- to-GDP ratio… it's just a ratio, at the end of the day. So if the economy keeps growing, and you maintain a constant debt, or deficit, relative to that economic growth: you can carry on indef- initely… Indefinitely, perhaps. But sus- tainably? It is sustainable. If your rate of economic growth remains high- er than the rate at which your debt is growing: you can keep that ratio on a constant down- ward path… OK: but all that means in prac- tice, is that we would be sat- isfying the criteria of the EU's 'Growth and Stability Pact'. We would still have to depend on 'indefinite economic growth' in future, though. How sustaina- ble is that? The problem, as I see it – espe- cially with the way some econo- mists reason – is that they want to balance the books, 'by the end of the year'. I see it differently, myself. You can also 'balance the books' over a cycle: of five years, or seven years, for example. You can have a short-, medium-, or long-term plan. In the EU, for instance, we have the 'Multian- nual Financial Framework': a seven-year plan, which sets ceil- ings for how much governments can spend… So if the government has a plan, which involves increasing public debt, yes; but also sustain- ably growing the economy, by providing the price-stability that gives peace of mind to future in- vestors… I see no problem with it, myself. Because let's face it: if we kill the future sentiment… we would be killing the invest- ment of today. And obviously, if you kill future investment; you will also be lowering your eco- nomic growth. So basically, I don't see it as a question of sustainability… pro- vided, of course, that the subsi- dies are targeting the right peo- ple. Who would those right people be? Personally, I believe that the upper-to-lower middle class shouldn't be left out of the equation: because it would take longer for them to recov- er. I think that – after the low- er-income brackets, of course: government first has to think of pensioners; students; min- imum-wage earners, and so on – that is where the funds should be channelled… because normally, the upper-middle in- come bracket tends to get hit hard, as well. Higher-income earners, on the other hand, are better-posi- tioned to withstand the effects of inflation. When you compare the actual effects of an 8% infla- tion – bearing in mind that is re- gressive inflation: which has the 'double-whammy' effect of both higher prices, and lower income – proportionally, it impacts the middle-income bracket far worse. And besides: they are, after all, the people who support the economy the most, by paying taxes (often, at 35%)… whilst arguably, getting the least in re- turn…