However, my suspicion is that one of the answers is that the EU has started concentrating too much – and in many areas almost exclusively – on the process of deeper and deeper political integration. It is almost a mainstream ideology which states that the answer or solution to virtually any problem in the EU is more integration. Whenever we discuss problems with colleagues in Brussels, the mainstream view typically argues: we need more EU integration to solve this. And if integration has not brought what we hoped for, it means we need even more integration. We probably did not have enough of it. Well, I have some doubts about this approach, at least as regards the impact of political integration on the economy. The concept is based on a simple idea that the bigger the state, or the bigger the economy, the bigger also the wealth of the citizens of such a state or economy. This idea fails terribly when compared with simple statistics and facts. If you take a look at the correlation between the size of an economy and a measure of well-being such as GDP per capita, you will see that on average the bigger, or more populous, economies in the world are not generally richer economies. Rather, it is small open economies (including those in Europe) that tend to be richer, the only exception to this rule being the United States. So bigger does not mean richer.
A subject that often comes up for discussion is the cost of living allowance or COLA. It has to be recognized that in Malta the allowance is determined on the basis of a basic or social wage, and COLA is a flat euro amount, granted regardless of the level of pay. This limits its impact on competitiveness. Nevertheless, the award of COLA is disconnected from productivity gains and hence may constrain firms’ ability to respond to changing market conditions. It also raises the risk of secondary cost increases after an initial price shock, which may come for example from an increase in imported prices. It may not be possible to neutralise such increases in imported prices and simply compensate for them in wages without significantly losing competitiveness of the enterprises concerned, especially if our competitors are absorbing these external shocks through an internal devaluation. It is relevant to note that the world economy is going through unusual times where some countries are undergoing internal devaluations. Malta cannot afford to be oblivious of the impact that these realities exert on its competitiveness. The list of euro area countries passing through significant corrections is impressive, namely: Ireland, Portugal, Spain, Italy, Slovenia, Cyprus and Greece. This apart from other non-euro area member states that are also going through difficult and corrective changes in their economies.