Malta PM Joseph Muscat dismisses bailout fears

By Ben Lowings
BBC World Service, Valletta, Malta

  • Published
Maltese Prime Minister Joseph Muscat and French President Francois HollandeImage source, AP
Image caption,
Joseph Muscat, the Maltese Prime Minister (left), recently had talks with Francois Hollande, the French President

Maltese Prime Minister Joseph Muscat has said his country is not immune from the eurozone financial crisis, but there is very little danger of its following Cyprus in seeking a bailout.

Malta, along with Luxembourg, has come under market scrutiny after the EU rescue package for Cyprus.

But Mr Muscat told the BBC that the country's finances were in healthy shape.

He said Malta was enjoying moderate growth and debt was under control.

Mr Muscat was speaking in his first interview with international media since his election as Malta's prime minister in March.

'Sort of firewall'

Despite war in nearby Libya, unrest in neighbouring Tunisia and economic pain for nearly all its fellow Mediterranean countries, Malta is still ranked as one of the healthiest economies in the eurozone.

Maltese treasury bonds are bought up quickly locally, therefore reducing the risk of speculative investors influencing price movements. Mr Muscat described this Maltese bond ownership as a sort of firewall.

"We don't need to go to the international markets to sell our government bonds and treasury bills. The local market is big enough to take such a demand," he said.

"That is a sort of firewall against speculation, against international market speculators," he added. "I think it protects the system. It doesn't make it immune, but it does create a sort of firewall that has resisted through the years. And one can just look at the yields to confirm that."

Malta, he said, was "duty-bound by EU directives to provide for different scenarios" as part of an "ongoing health check".

Offshore centres

There are suggestions that Malta may come under pressure to change that banking system, in the light of increased scrutiny on tax havens.

Image caption,
Malta's location has favoured growth in maritime services

"Should there be a crackdown from a European or a global perspective on offshore financial centres, that would be a challenge for the long-term business model," says Michele Napolitano, lead analyst on Malta for the international credit ratings agency, Fitch.

"Malta would be hit," he adds, if Europe or the OECD starts a "crackdown or major taxation of banks with cross-border financial operations".

For his part, Mr Muscat says: "Malta is a haven, but not a tax haven." He said this was exactly what French President Francois Hollande had told him when the two men held talks in Paris last month.

Pledge on energy shift

For the prime minister of one of the smallest sovereign states in the world, and the smallest country in the eurozone, the support of a fellow socialist European leader counts a great deal. "I welcome the additional scrutiny on offshore financial centres," said Mr Muscat.

Unlike in most European elections in recent years, stewardship of the economy - including austerity measures and balancing the budget - was not the dominant issue in Malta's poll in March. Mr Muscat attributes his general election success mainly to his pledge to end his country's reliance on oil-fired electricity.

Prof Lino Briguglio, of the University of Malta, says the economy is on a sound footing because the tradition of prudent borrowing is matched by conservative policies from one of the principal domestic lenders, the Bank of Valletta.

"Europe is eyeing these small states which have a large financial sector," Prof Briguglio says. "I don't think there's a problem with Malta. It's very prudent.

"The government is very conscious that it should keep the budget deficit under control. So I think we have all the conditions not to worry too much."

Tourism and marine services thriving

A very visible feature of the financial services industry in Malta is the red-and-white flag on merchant shipping. Malta has the largest ship registry in Europe.

But David Curmi, president of Malta's Chamber of Commerce, says this is not the only lucrative business for Malta. "There is a lot more to our economy than just our financial services," he says. "The fact [is] that our tourism is still a very important sector. The fact [is] that our manufacturing and our knowledge-based industry is so important. I think it's unfair to associate Malta with just financial services."

Image caption,
Malta caters for sea vessels both big and small

Tourism has grown and thrived along with maritime services since independence from Britain in 1964 and the withdrawal of naval forces. At the same time, Malta's location at the centre of the Mediterranean means that it can trade with North Africa just as easily as it can export tomatoes to the eurozone.

The availability of large deepwater harbourage has been a benefit, says Kevin Borg, of the Chamber of Commerce. A shoal close to the harbour entrance, Mr Borg adds, represents a "lucky bonus" for Malta, because it enables large cargo vessels to pause halfway through their voyages across the Mediterranean, anchor in the vicinity of a port and access those services, but without paying any port taxes.

Malta's banking sector is estimated to be about eight times the size of its gross domestic product, a high ratio in comparison with most economies, but a lot smaller than Luxembourg. However, its international banking sector does not have much of a link with the domestic economy, as its business is with non-residents.

Foreign banks in Malta deal with business flows from Turkey, North Africa and the Middle East. Questions have been raised about whether such a situation can be sustainable in the long term.

Mr Muscat said the division between core domestic banks and international banks was very strictly controlled. Should HSBC Bank Malta ever run into trouble, its London-based parent is likely to bail it out.

"The publicly available results of HSBC show a very healthy subsidiary," said Mr Muscat. "Honestly, I don't even conceive of a situation where this subsidiary runs into some sort of trouble."