Issue link: https://maltatoday.uberflip.com/i/1541988
15 OPINION maltatoday | SUNDAY • 14 DECEMBER 2025 JP Fabri Economist The union that tries to catch two rabbits THERE is an old Chinese prov- erb that says: He who tries to catch two rabbits catches none. Increasingly, the European Un- ion risks proving it true. It wants to be a global economic power- house while simultaneously act- ing as a regulatory superpower. It wants to lead on climate and digital transformation while holding on to fiscal rules de- signed for another era. It wants strategic autonomy yet depends on external actors for energy, technology, and defence. And in the process of chasing multi- ple ambitions with fragmented tools, it is catching none. The European Commission's recent warning to Malta on its public finances fits neatly in- to this pattern. The message is clear and familiar: Tight- en expenditure, respect the thresholds, and stay aligned with the fiscal path. According to the commission's opinion, Malta risks breaching cumu- lative expenditure ceilings by 1.5% of GDP, even if annual expenditure is within the rec- ommended limits. On paper, this is a straightforward fiscal surveillance exercise. But in the broader European context, it feels increasingly disconnected from the union's own diagnosis of its structural weaknesses. Mario Draghi's landmark re- port, commissioned by Euro- pean Commission President Ursula von der Leyen and span- ning hundreds of pages, could not be clearer. Europe is falling behind. It is losing competi- tiveness. Its industrial base is hollowing out. Productivity is stagnant. Capital is fragment- ed. Innovation is slower than its rivals. The world is shift- ing from efficiency to security, from rules to power, from open markets to industrial strategy. And Europe does not have the fiscal, financial, or institutional architecture to respond at scale. Draghi calls for a transforma- tion as profound as the creation of the single market itself; a new European growth model rooted in investment, technology, and common financing. Yet even as the union ac- knowledges the scale of the challenge, its operational in- stincts remain anchored in old reflexes. The warning to Malta is a small example of a much larger tension. On one hand, Europe says it must invest mas- sively in green technology, AI, digital infrastructure, defence, and industrial deepening. On the other hand, its fiscal frame- work continues to prioritise constraint over capacity, disci- pline over investment, annual balances over long-term com- petitiveness. It is a contradic- tion Europe has lived with for a decade, and one that becomes harder to ignore as the gap wid- ens between aspiration and ac- tion. The contrast with the United States could not be more strik- ing. The 2025 National Security Strategy reads like a manifesto for muscular economic state- craft. It directly links competi- tiveness to national power and channels public investment into climate technologies, semicon- ductors, biotechnology, critical minerals, and strategic supply chains. Whether through the Inflation Reduction Act, the CHIPS Act, or defence mod- ernisation, the US is not apolo- gising for ambition. It is using public finance as a lever for na- tional renewal. Europe, mean- while, warns member states to pull back on expenditure even as it calls for strategic autono- my and industrial resilience. This contradiction is at the heart of Europe's relevance problem. It wishes to be a ge- opolitical actor in a world of blocs, but it governs itself with the fiscal mindset of a post-cri- sis rules-based order. It speaks of sovereignty but budgets like a small open economy fearful of debt rather than like a continent seeking to shape its destiny. It wants technological leadership but remains slow, cautious, and fragmented in its approach to innovation policy. It champions productivity while maintaining structural barriers that discour- age investment, slow down de- ployment, and dilute scale. The implications for Mal- ta are therefore twofold. First, the commission's warning is real and must be taken serious- ly. Malta's expenditure path is drifting above the cumulative thresholds, and a corrective ef- fort will be required. The coun- try cannot afford complacency nor assume that continued rev- enue buoyancy will solve struc- tural issues. But second, and more importantly, Malta must understand that the European fiscal debate is bigger than Mal- ta. The union itself is wrestling with the limits of its framework. It is trying to enforce discipline while also calling for continen- tal-scale investment. It is trying to respond to China's industri- al acceleration and America's economic nationalism while re- stricting the very tools needed to compete. The lens of opportunity This is why Malta's econom- ic strategy cannot be framed solely through the lens of com- pliance. It must also be framed through the lens of opportuni- ty. The country needs to invest smarter, spend better, and pri- oritise value over volume. The quality of public spending mat- ters far more than the quanti- ty. Expenditure on innovation, skills, digital transformation, and energy resilience is not consumption; it is investment in long-term competitiveness. Draghi's report is explicit: Eu- rope needs catalytic public fi- nance that crowds in private investment, not fragmented programmes with limited im- pact. Malta must position itself within this transition, not at its periphery. If Europe is slow to reform its fiscal architecture, member states must confront the pro- ductivity question at home. Malta faces structural con- straints, but it also has struc- tural opportunities. A young labour market, strong service sectors, digital capabilities, and strategic location give the country advantages others en- vy. But these strengths must be anchored in systems that plan smarter, educate deeper, and invest more strategically. Compliance with fiscal rules may keep Brussels satisfied, but competitiveness will determine whether Malta thrives. The paradox of today's Europe is that it diagnoses its challeng- es accurately yet struggles to act decisively. It warns of declining influence while maintaining processes that limit its capaci- ty to respond. It speaks of am- bition while clinging to frame- works that prioritise stability over renewal. It tries to catch two rabbits—fiscal orthodoxy and global ambition. And as the proverb reminds us, it risks catching neither. For Malta, the lesson is not to wait for Europe to resolve its contradictions. The lesson is to align fiscal responsibility with a clear national investment strat- egy. To push for smarter spend- ing rather than simply lower spending. To build resilience through education, technology, and skills. And to advocate for a European model that enables growth rather than merely reg- ulates it. If Europe wants to remain rel- evant, it must stop chasing rab- bits and start choosing priori- ties. And small states like Malta must help shape that choice, or risk being shaped by it. On one hand, Europe says it must invest massively in green technology, AI, digital infrastructure, defence, and industrial deepening