Trump, Brexit and pastizzigate

Visiting dignitaries relaxing after the informal EU Summit last week were seen eating humble pastizzi with Joseph Muscat at a worker’s café in Rabat.

Alarm was raised in certain quarters that such hospitality is cheap and politicians (even more so prime ministers) should not be seen rubbing shoulders with the proletariat, drinking tea from cheap glasses and eating pastizzi served on a nondescript napkin.

This incident gave rise to a number of angry comments that such populist gestures of egalitarianism are out of synch with the traditional custom of the intelligentsia, who prefer to pamper visitors – wining and dining them with haute cuisine in silver-service restaurants. Paradoxically, this incident backfired on such critics, as bloggers were offended that our traditional snack had been frowned upon. Brussels may be proud of their mussel soup and frites, but we are not ashamed to savour our ubiquitous pastizz.

This incident struck a chord. The penny dropped on the coterie of upper-class critics that there is no shame in occasionally sharing the food and drink relished by the proletariat –particularly if you are in the political game of trying to attract their vote once every five years. Alas, February began with a philosophical lesson – one that is teaching us to respect the will of the proletariat that is the backbone of democracy.

Moving on, surveys conducted by one of the ‘BigFour’ audit firms warn of grey clouds as tourism arrivals will be facing uncertainty due to Brexit (the UK economy is gloomy) and the continued losses incurred by Air Malta, which now seems to have fallen out of favour in the Alitalia merger deal. It is a pity that Air Malta is now offering early retirement to over 120 qualified pilots and other technical engineers and soon another brain-drain will follow.

But it is not all doom and gloom, as manufacturers and construction companies have seen a rise in full-time employment, mirroring the perception that construction is at its nadir due to the favourable policy of Mepa towards permits for large-scale projects. Again, a tightening of fiscal policy as announced in the 2017 budget bodes well for more regulated expenditure while improving the GDP to debt ratio downwards below 60 per cent of GDP.

Strict control over public expenditure (without new taxes) is good news, but as 2017 is the last year before the general election, one fears that the temptation to open the taps is irresistible. A typical example is the drive to increase the minimum wage across the board as a pretext to satisfying protests from unions, Caritas and NGOs in their collective fight against absolute poverty and the recent pledge by Joseph Muscat that the government will be forced to intervene in the rental market if prices continue to rise. Naturally, such measures have to be properly monitored as otherwise they may derail the targets set in the last budget. The good news is that included in the list of capital expenditure is a call for the design, building and operation of the Gozo tunnel and a tender for a fast ferry service between Valletta and Mgarr.

We may attract new iGaming and Fantasy Games operators if the proposed new fibre-optic link is laid between Malta and Marseille in France, thus reducing dependence on a hub in Italy. The cherry on the cake is the pledge to set up a new national oil company to kickstart our neglected drive in respect of oil exploration, particularly in the Sicily channel which is contiguous to rich oil-bearing rock. The price of crude oil is now about double the low it reached in January and augurs well for any new investment in domestic exploration.

The oil market has been driven to a large extent by the agreement last year to reduce the output of OPEC, a group that includes most of the leading oil exporters.

Turning to Europe, the Commission forecasts euro area growth of 1.5 per cent and EU growth of 1.6 per cent, which is less than the three per cent rate forecast by our Finance Minister. The euro is facing difficulties due to political uncertainties but it might get through the year unscathed if Marine Le Pen is defeated in France’s presidential vote and Angela Merkel is re-elected in Germany. Italy may go to the polls later this year and one hopes it manages to secure a safe landing for its flagging bank sector and possibly see the re-election of the energetic Renzi government.

Economic growth in the US is expected to continue at a brisk pace following the election of Donald Trump with his mantra of ‘making America great again’. Investors are expecting good economic growth, yet higher inflation and greater profits.

Expectations this year for the effectiveness of Trump’s fiscal and populous policies are mixed. He has already withdrawn the United States from the Trans-Pacific Partnership (TPP), and he plans to renegotiate NAFTA. Other elements may include border tax adjustments and targeted tariffs on Mexican and Chinese imports. For sure, it takes time for new policies to be implemented and the promised grandiose public spending especially may be stalled by Congress. Indeed, it may well be that factors such as demography and sluggish productivity make it hard to push US economic growth up to reach the target of three to four per cent by the end of Trump’s term.

The stock market rally after Trump’s election was fuelled by optimism that he would deliver on pro-growth promises, including tax cuts for small companies, higher infrastructure spending and a lighter regulatory touch. On the negative side, his approach to trade is considered to be less market-friendly, as most economists think protectionist trade policies would slow economic growth while increasing consumer prices and inflation.

Another agent of change is the interest rate hike expected this year as the Federal Reserve is rumoured to announce three rate increases in 2017. This will probably push the dollar higher and make other currencies, including sterling and the euro, look weaker by comparison – obviously rendering US exports less competitive.

Readers may ask if 2017 will usher in the general-equilibrium theory. The answer depends on the impetus Trump has promised to give to American business to withstand foreign competition from low-cost countries in Asia and Mexico. The theory assumes that perfectly competitive markets in the USA are comprised of businesses that all set prices at marginal cost. It says that in a competitive market, prices are a signal of the marginal value of goods to consumers as well as the marginal cost of goods to producers. In reality, some industries will have a fewer number of large firms because of economies of scale. Such firms have enough muscle in the marketplace to sell above their marginal cost and they can also pay belowmarket wages – something that is facing growing resistance on the part of workers.

Back home, 2017 ushered in the lighter side of ‘pastizzigate’ – this storm in a teacup being raised when a handful of foreign dignitaries were hosted by Joseph Muscat at a popular worker’s café in a break while attending the EU summit in Malta.

In conclusion, readers are already bracing themselves for a year full of surprises – following Brexit and the Trump presidency – with general elections in France, Germany, the Netherlands and Italy, all spiced with heightened local partisan bickering in the runup to elections in 2018.

So, get out of bed and join the magical mystery tour of ‘pastizzi-gate’. Let the fun begin and forget the high cholesterol level!