This is encouraging and suggests that the reforms implemented in recent years have made the economy more resilient to external shocks. There is, however, no room for complacency, particularly at this time of renewed financial market turmoil. It is clear that further difficult policy choices remain to be made. The lessons from the ongoing sovereign debt crisis should serve as a stark reminder that the benign neglect of accumulating imbalances, especially in the context of a monetary union, will have serious economic and social repercussions, sooner rather than later. Allowing short-term considerations to delay the timing of reforms, therefore, only serves to make the inevitable corrections more painful. This challenge should be faced with pragmatism. Rigorous fiscal consolidation and structural reforms may well cause some pain and even keep growth subdued, but this is a temporary phenomenon as the ensuing gains in efficiency and competitiveness should improve the economy’s ability to take fuller advantage of new export opportunities. On their part, businesses need to respond flexibly to changes in global demand, especially in a likely scenario in which foreign markets will be characterized by more efficient competitors and more cost conscious consumers. In these circumstances, innovation and the quality of human capital will be of paramount importance. Malta’s ability to compete internationally will depend increasingly on a more cost-effective use of human and physical resources and sustained efficiency gains in both the public and the private sectors.
Finally, at an EU level, the efforts of individual countries to correct macroeconomic imbalances – and Malta is not alone in facing such a challenge – would be greatly facilitated by an early completion of the Single Market project, particularly in the area of services, and by a strengthening of the economic component of EMU, including the Stability and Growth Pact. In this regard, it should not be forgotten that the economic rationale of a monetary union foresees an important role for surplus countries as well in redressing imbalances within the Union. BIS Review 73/2010  5