Malta's reconsideration of the social contract in view of Maastricht criteria obligations

Abstract

Malta is moving towards an economic scenario where two important policy parameters will be given up, namely the exchange rate of the currency and the cost of capital. Besides, the fiscal tools are now being constrained in terms of obligations regarding the size of the budge deficit and the national debt. As for as economic convergence is concerned, Malta has satisfied on a sustainable basis the criteria relating to the long term interest rate, inflation and exchange rate stability, but the Maastricht criteria relating to the budget deficit and the public debt are far from satisfied. Thus the reconsideration of the social contract has to be in line with these constraints. An analysis of government's expenditure revealed that the focus should be on reducing the public sector wage bill, reforming provisions of pensions and health care, rationalising social welfare schemes, and transforming the unemployment benefit system into an effective instrument of employment creation rather than of social dependence.