The Chart shows that Malta trends lower than either of the two groups. However one also notes that costs in the stressed countries have been levelling off, so that Malta’s competitive advantage has somewhat narrowed. This suggests that Malta must remain extra attentive to the factors that influence competitiveness. Over the course of the crisis, Malta’s economy was never in need of austerity measures, which in itself is a manifestation of economic and financial-sector resilience and good governance. But at this stage, we need to ensure that our competitive edge is not eroded. Structural and fiscal policies in the Euro area Turning to current policy issues at the Euro area level, one of the major challenges is the choice of the right instruments, or finding the proper balance between demand-oriented and supply-oriented policies. In view of the serious damage caused by the financial crisis, there is widespread realization that a durable solution to the current economic stagnation needs to be built around a structural reform programme. Over time these reforms would result in a greater degree of competitiveness, improving the growth potential of the economy. In the short run, however, such supply-side reforms often involve transitional costs. Hence the importance of demandside measures that alleviate the impact on those that are negatively hit by structural reforms. This would prevent deflation and high levels of unemployment. Unfortunately, the choice of policy instruments has been severely constrained by the absence of space to manoeuvre on the budgetary side.
All the curves start from a common point of 100 in 2008. Setting the Maltese economy aside for a moment, several considerations stand out. The real GDP of the Euro area has yet to return fully to its 2008 level, and the same can be said about the United Kingdom. In fact, the Euro area economy is currently 1.9% smaller than in 2008, while the British economy is 0.5% smaller. The Euro area average is composed of countries recovering at different speeds. For example, Germany is a top performer in the Euro area, though its economy has lagged somewhat behind the United States. In fact, German output is currently 4.8% higher than in 2008, while in the U.S. it is 6.5% higher. Where does Malta fit in all this? As the Chart shows, Malta compared favourably throughout the crisis and the aftermath. The contraction at the trough in 2009 was relatively moderate. The path taken in the recovery has been stronger – in fact consistently stronger – than in the other economies shown in the Chart. Output is at present 12% higher than in 2008. I believe that a number of factors have shaped the course taken by the Maltese economy. Malta passed through a liberalization and restructuring experience that saw the exit of inefficient entities and businesses mostly prior to E.U. accession in 2004.