Against an uncertain economic and political landscape, our vision should be to turn challenges into opportunities to sustain economic growth in the long term. Factors underpinning Malta’s remarkable resilience The Maltese economy has been vibrant, showing remarkable economic resilience in the face of the unstable economic environment elsewhere. In fact, the theme “Vibrant Malta” has been chosen for the European Cultural Days at the ECB in Frankfurt, which this year focus on Malta. Earlier this month, we launched a cultural programme aimed to enhance awareness of Malta’s cultural heritage. The theme reflects not only the current cultural scene but also our vibrant economy. Malta is the most open economy in the euro area, having exports and imports of goods and services each over 150% of GDP. Despite this challenging factor, the Maltese economy has managed to outperform its peers, with GDP growth consistently above that of the euro area average. A good perspective to this positive outcome is given in Chart 1, which is an update of a Chart I used in last year’s presentation; since the onset of the global financial crisis in 2008, Malta’s GDP increased by 18%, whereas that of Germany and the United Kingdom rose by just 5%, while that of the euro area as a whole contracted by 0.5%. BIS central bankers’ speeches  1  Chart 1: Real GDP growth by group of countries  Chart 2 shows the unemployment rate in the stressed and non-stressed euro area members and Malta since 2005.
I take such credibility risks extraordinarily seriously. The 1930s were an episode of even worse Fed policymaking. This was a period of far greater economic dislocation and hardship. When thinking about the 1930s, I find it useful to turn to the wisdom of Milton Friedman and Anna Schwartz from their book titled A Monetary History of the United States, 1867–1960. Friedman and Schwartz discuss how monetary policy in the early 1930s actually contributed to the contraction, despite the fact that bank reserves increased significantly over that period. Broad monetary aggregates contracted, even though bank reserves were higher, because 1) banking panics and the weak real economy led the public to hoard cash and 2) banks wanted to increase reserve ratios as insurance against liquidity shortages and runs. As a result, the amount of lending supported by a given level of reserves fell dramatically, and the U.S. economy experienced a period of deflation. However, the Fed failed to see that it was running a restrictive monetary policy. One reason was they were striving to stay on the gold standard, which dictated policies to counter gold outflows. In addition, the Fed interpreted the excess reserves on banks’ books and the associated low level of money market interest rates as signs of an accommodative financial environment and so did not aggressively loosen monetary policy.