Is the worst behind us?

Is the worst behind us?

Simon De Cesare, MBB President

This Opinion Piece featured on The Sunday Times of Malta, on 31st January 2021

Undoubtedly, in terms of public health and the economy, 2020 was one of the worst years in a century. While businesses are used to working in economic cycles, and to build reserves in good years to compensate for less good ones, nobody could have remotely prepared sufficiently to face the economic upheaval caused by the global pandemic.

Thankfully, timely intervention by EU and national public institutions addressed the rapidly deteriorating situation to somehow weather the storm. Initiatives such as the asset purchase programme by the European Central Bank was crucial to calm the markets and provide much needed stability during the peak of the pandemic.

Guarantees by the European Commission to the European Investment Bank allowed a strong mobilisation of funding to financial intermediaries, to provide much needed liquidity to companies required to access finance to keep afloat. Thanks to the EU’s strong credit rating, the Commission raised funds from international markets at a modest cost, which was passed on to member states in the form of beneficial loans aimed at preserving local employment by subsidising salaries.

Furthermore, other national measures by the government to delay tax payments and schemes to soften the impact of fixed costs such as salaries, utilities and rents, or stimulate local demand through vouchers, were felt more directly on the ground.

Further uncertainty at European level last year was created by the prolonged negotiations for a future EU-UK partnership agreement as well as for the next programming period of the EU budget and the Recovery and Resilience Facility financial package linked to it. Everyone is relieved that a deal was finally reached in the dying days, but while it is comprehensive in trade in goods, it is far less ambitious in services.

Regarding the EU budget, political issues concerning rule-of-law provisions to qualify for EU funding, opposed by Poland and Hungary, threatened the agreement that would have delayed the disbursement of the EU funding, which is so desperately needed in the current economic circumstances. Thankfully, the political bickering was overcome.


Recovery will also depend on the business-friendly economic conditions created by EU policy and legislation


Will 2021 bring about a rapid recovery taking us back to pre-crisis economic levels or will this take substantially longer? The Commission’s Autumn economic forecast indicated that the euro area economy will contract by 7.8 per cent in 2020, after which it is expected to grow by 4.2 per cent in 2021 and three per cent in 2022. Therefore, while positive that we should be bouncing back from the depths of the crisis experienced in 2020, it will take a while longer to reach the pre-crisis level.

The economic recovery will hinge on several factors. Naturally, starting with the speed by which the vaccination process of the population is expedited. Many logistical issues related to the dissemination of the vaccine are now being faced, from the transport of vials to sufficient caregivers to administer the job, to a lack of available needles. These issues must be quickly overcome, and it is key that timelines are kept and brought forward. New vaccines are key to salvaging 2021 and must be prioritised by the EU and the European Medicines Agency.

Key to economic recovery is the efficient and targeted investments by the EU Recovery and Resilience Facility, of which 37 per cent must be dedicated to green and 20 per cent to digitalisation investments and reforms. This parallel transformation of the economy will happen whether we adapt to it or not, which makes it a mandatory process to ensure that our country remains competitive. EU member states are expected to provide their draft spending plans to the Commission by April, to which I call on the government to consult with stakeholders as widely as possible.

Also, considering the interdependence of the global economy, recovery is undoubtedly linked to how soon international trade regains confidence and picks up the pace.

Recent years have been far from stable for international trade, yet indications show that the incoming administration in the US may be more committed to multilateral dialogue, including reforming the World Trade Organisation, which would ensure more stability, a key condition for trade to flourish.

Finally, recovery will also depend on the business-friendly economic conditions created by EU policy and legislation, which this year will be characterised by a very ambitious European Commission work programme. Environmental sustainability and social rights are European values that we all aspire for, but it must be ensured, particularly during this volatile period, that legislative proposals meet such objectives without undermining economic competitiveness.

It is therefore up to policy- makers and elected representatives to provide the right conditions taking into account the factors above. I have no doubt that business will then once again step in and be the catalyst of change, creating growth and prosperity for all.  Only then will the worst be truly behind us.