BLOG Professor Josef Bonnici is no stranger to the Maltese-Australian community in Victoria. Between 1980 and 1988 he worked as an economics lecturer at Deakin University’s main campus in Geelong. It was at an exciting time when the university had just opened its doors. Prof Bonnici was recruited from Canada, where he was still finishing his PhD, to develop their new MBA program. Since they were using some teaching material from the academic who had been his thesis supervisor in Canada, they thought it would be appropriate to secure Prof Bonnici’s services on the project.
During his eight years in Geelong Prof Bonnici contributed to the creation of the MBA Program and its evolution to a mature tertiary education program, mostly in the macroeconomics area and quantitative economics, his areas of specialisation. This program was quite challenging and interesting and involved travelling to the main capital cities of Australia to give lectures. Prof Bonnici lived only a stone’s throw from the university.
Life in Politics
Prof Bonnici enjoyed immensely his time in Australia. At Deakin he also supervised some PhD students in economics and he was all set to have his career in Australia. Then an opportunity came up in 1988, when he was invited to return to Malta to take up the position of economics adviser to the Prime Minister and also lecture at the University of Malta as a Visiting Professor for three years. He found this opportunity to be too tempting a challenge not to give it a go. He was eventually persuaded to enter politics in Malta and eventually became a Minister responsible for investments and industrial policy, a role he played for eight years.
As a politician, the aspect that he used to enjoy most and found most challenging was the investment promotion element which fell under his ministry. Of particular note was the great achievement in attracting Lufthansa Technik to invest in Malta by re-locating the servicing of the aircraft in a joint project with Air Malta. This investment laid the foundation for growing a successful aviation industry in Malta, attracting other overseas investments.
Prof Bonnici observed that in terms of strategic value to the Maltese economy, the aircraft maintenance industry has replaced the servicing of ships which has become uncompetitive. Malta was able to move up the value added ladder. The plan was to attract other companies servicing the aviation industry, such as, maintenance and upgrading of the cabin furniture.
Prof Bonnici also had a major input into the establishment of Malta Enterprise, piloting the relevant legislation through Parliament. Malta Enterprise replaced the Malta Development Corporation (MDC), Malta Export and Trade Corporation (METCO) and the Institute for Small Enterprise and took over the functions of all three organisations.
Prof Bonnici was not really attracted to the life of a politician and he could see a time of making an exit from politics very willingly.
Part of the downsides of politics, as he sees it, is that there is always an element of negative criticism, no matter what you do. He observed that there are always risks associated with what you do. If everything was perfect and foreseeable there would be no problems, but when you are overseeing the management of so many enterprises, the management aspect is often easier said than done. You have to rely on people handling issues with unions, productivity and so on.
Prof Bonnici has seen Malta going through a big change, from a mentality when everybody used to, at one point, look to the UK as their major employer and anything one can get out of that is good to a situation where we need to be economically viable and sustain our own standard of living and its improvement.
Prof Bonnici described Malta’s journey to join the EU as a very interesting challenge. It was one of the things that motivated him to enter politics because his fear was always that, if Malta had not joined the EU, there would have been some significant risks attached to having its own currency and in a very volatile financial market it could have easily been overwhelmed, even though it had big reserves.
“We needed to anchor ourselves to a system which first of all ensured market access and provided us with a safety element that attracts foreign investors with no currency risks as we now have the Euro as our currency. EU membership also gave Malta a more stable orientation in terms of what is happening in the Mediterranean,” said Prof Bonnici.
He recalled that it was a big challenge because there was a lot of scepticism about Malta joining the EU, just as there had been before Malta gained its independence in 1964 when people were sceptical about whether we could live independently of the UK.
Appointment to EU Court of Auditors
Following his exit from politics, Prof Bonnici accepted a six-year appointment to the European Court of Auditors with some scepticism because of his background as an economist, who is monetary and quantitatively oriented at that, and not an auditor.
Each EU member country nominates one member to the Court of Auditors but members represent the interests of the whole EU and not their nominating country. If any issues arise that involves the member’s nominating country, the member steps back and someone else deals with the issue.
The Court of Auditors is similar to a National Audit Office but is managed by a Board designed along the models of Germany, France and Italy. Unlike in France and Italy, however, the Board is not a court and cannot impose fines. The EU Court of Auditors oversees the EU budget spending but, rather than impose fines, it issues reports which are sent to the EU Commission and the European Parliament, which can impose conditions on the EU Commission.
The scope of the audit is the whole of the EU budget which was about €130 billion per year and specifically how it was spent from an efficiency, effectiveness and economy perspective. In addition, to this performance evaluation, it also looks at the regularity and legality of the spending.
Prof Bonnici’s role was to work on a model that needed upgrading used for statistical sampling of expenditure. With his strong background in statistics, he developed and set up the whole system that was used EU-wide and became the member responsible for reporting the Court’s findings to the EU Parliament and the EU Commission.
Prof Bonnici recalled that his time on the Court of Auditors turned out to be a more interesting and challenging experience than he had anticipated. So when his term came to an end, he thought it was time for him to move on. He returned to Malta and returned to the University of Malta, as he had been given unpaid leave to perform his role in the Court of Auditors. He became head of the Economics Department and then the position of Governor of the Central Bank was offered to him.
Central Bank Governor
In 2011 Prof Bonnici accepted the position of Governor of the Central Bank of Malta. While the Malta Financial Services Authority (MFSA) plays a supervisory role as the regulator of the banking system, the Central Bank’s key function under its establishing Act is to ensure financial stability. It advises the government, where necessary; provides Euro currency to the economy and manages the reserves of the Banks and of the country, consisting of significant investments. These investments finance the running of the Central Bank and each year the Bank also provides the government with between €40 and €50 million from the returns on investments. The Central Bank also issues reports on the basic economic performance of the Maltese economy as an independent and objective assessment.
Prof Bonnici explained that the role of the Central Bank of Malta had changed drastically since Malta joined the EU and it has been a big challenge for the Central Bank to participate in a European body, which is responsible for the whole EU. As Governor, Prof Bonnici is a member of the Governing Council of the ECB, which is based in Frankfurt, Germany, and meets twice monthly. He is joined by the other 16 Governors from the EU member countries belonging to the Euro Zone.
Prof Bonnici’s appointment as Governor coincided with the height of the Global Financial Crisis (GFC), the most serious and dramatic crisis since the Great Depression. The first summer after his appointment he had to participate in many European Central Bank (ECB) meetings to decide what to do to respond to the huge instability that had been resulted especially from the Greek sovereign debt crisis, and later the precarious situations in Spain and Italy.
According to Prof Bonnici, one of the key factors that helped Malta survive the GFC unscathed is the fact that the banking structure in Malta is very traditional and has preserved its financial system. Most of the funding of the local banks comes from small depositors. The fact that the loans to deposit ratio is between 70% and 80%, while in those countries that experienced problems, the ratio was above 130%, as they had so many loans compared to deposits that they could not sustain them.
Prof Bonnici further explained that another factor was that in Malta, borrowing by the government is all financed locally, unlike countries, such as, Slovenia and Cyprus, whose governments had to finance their borrowing internationally and, with some anxiety about what is going to happen, at unsustainable rates.
Maintaining links with Australia
The Central Bank of Malta has very little interaction with the Reserve Bank of Australia. However, Prof Bonnici has a great respect for the RBA and, while working in Australia, he had written an economics textbook in which he reviewed several of the RBA functions. He still follows the various aspects of the Australian economy.
While living in Australia Prof Bonnici was involved in the Maltese community often attending activities of the Maltese Historical Association (MHA). He has kept in contact with the MHA through his brother Mario who is Treasurer, providing information about the numismatic coins that the Central Bank of Malta issues. The Bank produced a La Valette commemorative medal with a DVD about Malta and has plans to issue similar medals about various aspects of the economy.
The Bank produces certain types of coins in a limited edition. These are normally produced in quantities that depend on the size of the country, and since Malta is a small country, the Bank has to produce them in smaller quantities so that become more of a collector’s item. These coins can be ordered through the Bank’s website (www.centralbankmalta.org) or by email. Some of these coins can be an investment as their value appreciates quickly.
Prof Bonnici misses Australia and thinks that the connection between Australia and Malta needs to be preserved and strengthened. According to him, in a sense, Malta has given up part of its most valuable resource, the people who settled there for various reasons and it is important that these links are kept alive, sometimes remembering that Malta may need some support in a number of ways, such as, for its development or about things that sustain the country. According to Prof Bonnici, it is a strength that Malta has such connections with certain countries and they should be appreciated more.
The Central Bank often looks for experts with experience in the financial sector with a Maltese background. They already know about Malta and understand the environment better and their exposure is a first class resource for the Bank. Knowing a bit more about what people are doing provides more possibilities for such engagements. The register of Maltese individuals living overseas that the Council of Maltese Living Abroad will be setting up will be a useful source of information.
Prof Bonnici has been back to visit Australia a couple of times since 1988. While he would like to come for another visit, unfortunately his current hectic work commitments do not allow him to make any concrete plans.