In our first interview with PL MEP candidate, James Grech (read interview here) we have discovered his views on plenty of issues currently challenging the European Union. Here we discuss further the hurdles facing the EU’s financial institutions, and what, as a prospective MEP, does James seek to bring to the table…
The Euro has just celebrated its 20th anniversary – what is your personal view of the common currency? With hindsight, do you believe that overall it has been a successful endeavour?
On a positive note, the Eurozone has led to significant benefits in terms of facilitating and encouraging trade and investment and it has become the second most used currency in the world. The introduction of the Euro has also contributed to lower inflation in various countries. Nonetheless, these first two decades were characterised by very important events impacting the Eurozone. It is worth noting that the currency experienced an existential threat whilst still in its relative infancy following the 2008 financial crisis which spilled over to a sovereign debt crisis in Europe. Yet the common currency survived.
However, in my view, there remain fundamental weaknesses in the Eurozone which need to be addressed. Following the crisis, reforms have been implemented, for instance as regards its economic governance and the banking union. However, more work needs to be carried out to ensure that the Eurozone is also an economic and fiscal union and that it is democratically accountable. In my opinion, we should take advantage of the current period of relative stability to make further progress on proposals on these aspects which are still under discussion.
The Eurozone is made up of nineteen-member states, do you think that the sheer number of members has a bearing on the Euro’s volatility as a currency? And if so, do you believe that this impact can be minimised in some way?
Rather than the number of its members, it is their diversity which has a bearing on the smooth functioning of the single currency area. The Eurozone consists of countries which are different in size, with different economic structures and also different institutional set-ups. This diversity implies challenges for the ECB’s single monetary policy union, since it is not effective to deal with different economic conditions in different parts of the Eurozone. In this context, whilst the proposals on the future of EMU which are currently under discussion are important, it is also critical that the member states of the Euro Area implement reforms to ensure that their economies are competitive. A sound fiscal position is also vital, so that they are able to use budgetary policy to help their economies to recover in times of recession.
In our previous interview you have stated that given that the EU’s financial institutions need to cater for the financial needs of a bloc made up of twenty-eight very different member states, with very different economies and legislative frameworks, it is difficult for these institutions to execute their mandate. The process is even more complicated for Eurozone members. In your opinion, is there an easier integration process which obviously facilitates and enhances their effectiveness?
Integration is not an easy process – it involves that countries harmonise their institutional set-ups and substitute national frameworks with common EU systems. In the Eurozone, such integration in the financial systems is even more important given the single monetary policy and single currency. At the same time, integration also involves gains and losses which can be distributed unequally among the countries involved. Thus, it is important that the benefits of integration, at a Euro Area level, are clear to all member states and that if necessary, support is provided to those countries that suffer unduly from the integration process.
In a local scenario, a few weeks ago, during a launch of a seed investment scheme, the Prime Minister has stated that “Banks should not be glorified safety deposit boxes”. As a member of the local banking community, how do you view this statement? Is it a correct assumption? And how can this issue be realistically tackled?
In my opinion the Prime Minister’s statements precisely reflects the sentiment of many depositors and investors who are truly experiencing a more rigid approach by domestic banks when it comes to general banking services. This is often the result of a very intrusive regulatory environment which unfortunately treats European banks, particularly those classified as systematically important, with a one-size-fits-all approach. It is important to establish the right balance between regulation in order to ensure that banks are financially sound and that prudent practices are followed, whilst at the same time, ensuring that banks support the economic growth by providing the requested banking services to emerging and innovative sectors.
You have stated earlier that while taxation is an essential aspect of the competitiveness of the Maltese economy, we should continue to identify and develop new niche sectors. Any predictions and/or ideas regarding these new niche sectors and how they will benefit the Maltese economy?
I think the government is doing an impressive job in making Malta the first port of call for new global industries. Distributed Ledger Technology or Blockchain is a case in point but not just that, the country is doing significant inroads in attracting Fintech companies, and entities involved in artificial intelligence. Apart from the technology side, the proactive approach embarked upon by this government has produced avant-garde legislation in new industries such as medical cannabis. Targeting these new sectors opens up new growth opportunities for the Maltese economy. At the same time, it will also contribute towards a more diversified economy, thus addressing the vulnerability inherent in small economies due to dependence on a few economic sectors.
In an interview last December, IMF deputy head, David Lipton has warned that “The storm clouds of the next global financial crisis are gathering”. Eleven years have passed since the last global financial meltdown – Do you believe that the EU’s financial institutions could effectively combat another crash? And more importantly, how would another crisis impact our country? Do we have the necessary safeguards in place?
One has to appreciate that economic growth moves in cycles. In this context, our economy has been relatively anti-cyclical in a sense that whilst the European economy seems to be slowing, domestic growth is impressively resilient. Furthermore, both at an EU level and also domestically, various reforms have been implemented to identify risks to financial stability earlier and also to have in place the necessary mechanisms to deal with financial crisis, if and when they arise. Nevertheless, it is important, in my view, to be continuously vigilant and to mitigate against financial risks so as to reduce the possibility of what is termed as a hard-landing in an economic cycle.
Let’s talk about the advent of emerging technologies within the financial industry. How do you believe this relatively new phenomenon is impacting the financial sector, both on an EU as well as a local level?
This is an important structural change which has been progressing for a number of years now. Banks need to accept and adopt new technologies like they did in the past. ATMs, Internet Banking and Card Payments, were revolutionary during their initial years. Can you imagine a bank operating without such services today? Blockchain, Artificial Intelligence and any technology which enhances the quality of the client’s experience is indispensable for banks. Local banks need to be rapid, as nowadays competition is not restricted to the domestic jurisdiction, but Maltese banks are exposed to competition at international level. There is an ancient Chinese proverb that states that when the winds of change blow, some people build walls and others build windmills. The financial services industry definitely needs to build windmills.
As a prospective PL MEP you have said that you intend to substantiate your defence of our financial jurisdiction within EU fora. How would you go about this in real terms?
Priority should be given to the clear stating of facts in all fora. So, it is extremely important to get the message across, through increased communication at the European Parliament with the respective groups and committees. Being a small country, Malta needs to defend its jurisdiction against misinterpretations, half-truths and mud-slinging by others who simply cannot replicate our hard-build economic model.
As an MEP I would definitely continue with the push-back of one-size fits all policies which are harmful to small member states. We must protect our competitive advantage including that offered by our tax system, by for instance liaising with MEPs from other countries that face similar challenges but that perhaps to date have been less vocal in the discussion on tax harmonisation. This is particularly important in the context of Brexit.
Finally, with the fast looming EP elections, what is your final message to the electorate?
We, as Maltese have always worked hard to ensure prosperity for our families and future generations. Both mainstream parties have in the past designed and approved legislation which ensures Malta’s financial system is sound, robust and geared for growth. If elected as a Maltese representative in the European Parliament, I promise that I will work hard, every single day to promote the country and protect its hard-earned reputation.
Interview by Giselle Scicluna