04 January 2006

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Business Today

Perceptions and reality

The coming of the euro is still a good two years away and many people have not yet realised the implications the changeover will have on their lives. It may be too early to speak of dual pricing but at a time when the general mood is glum, government’s task is to start acting pro-actively to allay fears and exert control to curb abuse.
It may sound stupid, but the decision by some retail outlets, mostly restaurants, to print on their bills the amount in both Maltese Lira and euro, is already making the more discerning customers edgy over the impact of the euro on inflation. In some cases the amount in euro is even printed with the same prominence as that in Maltese Lira.
A simple conversion would immediately show that some of these retail outlets are rounding up their prices in euro, sometimes with a good 20 per cent increase over what the object would have cost in euros had the Central Bank rate been used for conversion.
The Maltese currency remains the only legal tender in Malta, even so shops have the right to display prices in euro as long as the price in Maltese Lira is prominent. As things currently stand, retail outlets have the ‘freedom’ to adopt the Euro exchange rate they deem fit.
While this state of affairs has been at play for a number of years, especially in retail outlets operating in tourist areas, and is perfectly legal, the situation today is different. With government clearly giving an indication that it intends adopting the single currency by 1 January 2008, perception-wise the euro will increasingly cease to be a ‘foreign’ currency in the eyes of many.
Any rounding up by retail outlets, obviously wanting to recoup any exchange cost and possibly making a buck in the process, will be perceived as one of the negative impacts of the euro.
Inflation shot up in 2005 and there is little to suggest it will cool down in 2006. An increased cost of living is leaving its mark on wary consumers and in such a climate it is very easy for people to associate the current inflation with the introduction of the euro.
The job of the Euro-changeover committee is to provide information about the changeover in a clear and objective manner. The negatives should be outlined as much as the positives.
But information alone will not be enough. Government needs to put people’s minds at rest and if need be set up a price monitoring unit to track the movement of prices for a range of essential and mundane products and services. In this way when the euro is introduced it would be easy to weed out those who would have abusively rounded up prices.
The road to the euro is still an arduous one and public perception is only one aspect government has to deal with. There are still the Maastricht criteria that need to be met. While government looks as if it can overcome the deficit hurdle, even if at a cost on the economy and the quality of life, there are still two major stumbling blocks; inflation and public debt.
Increased fuel prices have helped to notch up inflation but there have also been a number of government-induced costs which have not helped the situation. If inflation continues to go up it will put more pressure on competitiveness as wages will have to increase accordingly.
The decision to raise VAT by three percentage points in 2004 was good for government’s coffers but a blow to the economy and the impact on inflation was experienced throughout 2005.
As for public debt it remains stubbornly high irrespective of the privatisation moneys government made from Mid Med Bank, Malta International Airport and other entities.
Official policy is that privatisation money is used to placate the national debt but year after year the debt has shot up putting further pressure on government expenditure.
Hopefully, with the deficit seemingly under control, government would be able to start hacking away at the mountain of debt which risks hampering the country’s development.

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Editor: Kurt Sansone
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