Currency and Competitiveness in Europe
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Currency and Competitiveness in Europe

Edited by Klaus Liebscher, Josef Christl, Peter Mooslechner and Doris Ritzberger-Grünwald

This book combines currency matters with competitiveness considerations, with a view to raising the understanding of exchange rate dynamics and to analysing the role of exchange rates in reinforcing economic competitiveness.
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Chapter 19: Economic Challenges on the Path to the Euro – The Maltese Experience

Michael C. Bonello


Michael C. Bonello1 The purpose of this presentation is to share some observations about Malta’s journey to the euro. Let me commence with some details on the characteristics of Malta. With a geographical area of 316 square km and a population of 400 000, Malta is a very densely populated country with a very small and open economy. In fact within the EU, the Maltese economy is the fourth most open after Luxembourg, Slovakia and Belgium with average imports and exports standing at 85 per cent of gross domestic product (GDP) in 2006. In that same year Malta’s GDP amounted to EUR 5 billion. Notwithstanding these limitations, the Maltese economy was relatively well developed even before the country embarked on its journey to adopt the euro as its currency. For example Malta’s income inequality coefficient of 4.1 compares very favourably with that of the euro area, which stands at 4.8. Malta has also achieved a high degree of sophistication in the area of financial intermediation, which goes back to colonial times and has its foundation in British banking practices and institutional structures. Malta also attracts a significant amount of foreign direct investment (FDI). In fact the contribution of FDI to GDP remains relatively large and has been increasing over time (see Figure 19.1). In 2006 Malta ranked second in the EU in terms of FDI inflows as a percentage of gross fixed capital formation. Here it is relevant to mention that the decision to seek EU membership...

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