Trichet: In the event of a decision by the governments leading to a selective default or a default, which, again, we are warning against loud and clear, the governments would have to take care that the Eurosystem is presented collateral that it could accept. FTD: When it comes to deciding whether a default has occurred, will the ECB rely, as it has until now, on the rating agencies, or might the decision not be dependent on what they say? Trichet: Again, it is not the working assumption of the Governing Council. FTD: Let’s talk about the crisis management of the euro area governments. The Heads of State and Government and the finance ministers give the appearance of being a chaotic bunch. They often create such a cacophony that it inflames the crisis rather than dampening it. What needs to change? Trichet: There is an absolute need to improve “verbal discipline”. The governments need to speak with one voice on such complex and sensitive issues as the crisis. It is, of course, complex to take into account the need for sound, shared management of the Economic pillar of the Economic and Monetary Union, whilst fully respecting the functioning of the 17 democracies of the euro area. But speaking with one voice in a period of crisis is of essence. And, after all, it is what was possible after Lehman Brothers at the end of 2008.
He suggested the design of a body that “would exert direct responsibilities” in a number of domains, including “the rigorous surveillance of both fiscal policies and competitiveness policies with the capacity, in exceptional cases, to take decisions immediately applicable in a particular economy that puts the euro area financial stability in danger”.3 Where does Malta’s fiscal situation and more generally the broader Maltese economy, fit into all this? Malta’s fiscal deficit ratio followed a generally downward path during the last decade, though the decline was interrupted during two particular years – 2003 and 2008 – each explained by particular events. More recently, the budget deficit ratio has fallen each year since the high of 4.6% that was recorded in 2008. A large outlay was incurred during that year for the restructuring of a government-owned enterprise. This outlay however brought to an end the provision to the same enterprise of further government subsidies, which would otherwise have added to future deficits. The ratio eased to 3.7% and 3.6% in 2009 and 2010, while the latest government projections, as indicated in the Pre-Budget Document, refer to a deficit of 2.8% in 2011 and 2.2% in 2012. Since 2009 the deficit ratio for Malta has been below the euro area’s average, but it has to be pointed out that this average is heavily affected by the high deficit levels of the Member States facing difficulties (Chart 2).