Greek 'tango' in Valletta

At the turn of the millennium Argentina was struggling with a protracted recession, a soaring deficit and spiralling debt. The crisis culminated in December 2001 when severe austerity measures requested by the International Monetary Fund led to massive protests, social unrest and looting.
Argentina increasingly found itself unable to pay back the debt incurred during the boom years of the early 1990s when politicians became complacent and adopted a lax attitude in controlling the public deficit. The country's problems were also compounded by the fact that the Argentine Peso was pegged one-on-one with the dollar, which by the end of the 1990s had strengthened and rendered the country uncompetitive.
Lower exports hit the economy bad and the austerity measures government imposed to address the debt problem only worsened an already serious situation.
The Argentine government was caught in a fix: it had to cut expenditure and raise taxes to placate the IMF and secure international financing that made it possible to repay its debt but this stifled economic growth, which meant less government revenue.
The negative cycle was broken when Argentina defaulted on its debt and devalued its currency. The twin decisions transformed Argentina into a pariah state for international investors for some time since the default meant that people and institutions that had invested in government bonds lost millions. Malta was not immune with numerous investors rumoured to have lost something to the tune of Lm300 million.
Argentina's story in many ways sounds similar to Greece's. Years of uncontrolled spending have created a mountain of debt in Greece. Fellow eurozone countries twice have agreed to bailout the country but the billions of euros given to the Greeks were no handouts. They came with conditions.
As a consequence the Greek government has had to resort to severe austerity measures. Spending has been cut, taxes raised, public corporations are to be privatised and all this has created social unrest. The Greek economy has also plummeted.
While eurozone countries may be justified in asking the Greeks to make sacrifices, not least to make the argument for bailing out another country palatable to the domestic electorate, this may only be staving off the final outcome.
Some economists argue that Greece is insolvent and not merely illiquid in which case continued bailouts will not solve the problem. But unlike Argentina, Greece cannot unilaterally decide to default on its debt and devalue its currency by virtue of its eurozone membership.
To do an Argentina, Greece would have to drop out of the eurozone, adopt the Drachma once again and devalue its currency to become competitive and stimulate growth. It is debatable whether this is the ideal scenario since it would signal the eurozone's weakness to manage its own problems but it is one that is now even being talked about in German political circles.
When speaking in Malta recently Former Italian Prime Minister Giuliano Amato argued that eurozone countries, especially Germany, were more interested in protecting their interests rather than putting a stop to the sovereign debt crisis. He argued that a more plausible solution would be eurobonds, guaranteed by all eurozone member states, which would absorb all or part of the individual country debts.
It is an argument that has gained ground. Economist Lino Briguglio in comments he gave me last month also posited eurobonds as a solution to the European sovereign debt crisis.
Eurobonds may sound like a sexy idea but the implications of such a policy decision are more than just economic. There are political implications that merit serious discussion.
Countries like Germany and France - the power houses of the eurozone - are unlikely to agree to take on the debt of problematic countries such as Greece, Portugal, Ireland, Spain and Italy unless such a policy is accompanied by greater economic and fiscal centralisation across the bloc.
In a nutshell this means the eurozone, or indeed the EU will have to transform into a US-style federation where the individual countries give up sovereignty over tax-related decisions and economic policy. Former German Foreign Minister Joschka Fischer has argued that for the EU to survive greater centralisation has to occur.
When the euro was created individual member states gave up the right to set interest rates and passed on this important policy tool to the European Central Bank. However, economic and fiscal policy - the other tools in any government's arsenal to manage a country's economy - remained steadfastly in the hands of the member states.
The current crisis in the eurozone may significantly alter that balance as time goes by. Eurozone countries may find that losing sovereignty is a small price to pay to ensure the survival of the euro and the single market. Whether this will benefit Malta is another story altogether since the country has used advantageous corporate taxation to attract foreign investment and no finance minister relishes the idea of income tax being set by a central authority in Brussels or rather Berlin.

In any case, whatever direction the debate takes, Malta will be involved. The Greek 'tango' will have to feature in the parliamentary debates in Valletta and I only hope that it will not be lost in political rhetoric that will only help to fudge the issues at stake.
More importantly our politicians have the duty to be transparent in their dealings with Brussels over the matter. When Malta joined the EU in 2004 it had agreed to share its sovereignty with other member states and people knew what they were voting for.

However, giving up more sovereignty must not be a decision politicians take on their own or behind closed doors. In the long run it may turn out to be more beneficial but nonetheless a European project that seeks greater federalisation must never come about without the consent of its people.