The Maltese Economy…what’s next?

7th October 2010
The Maltese Economy…what’s next?

The American Chamber of Commerce in Malta, in collaboration with Junior Chamber International Malta (‘JCI Malta’), organised a joint forum entitled ‘The Maltese Economy…what’s next?’, on Thursday 7th October 2010 at the Malta Chamber of Commerce, Enterprise and Industry.

Five respected professionals from different sectors of the economy, namely Mr Frank Salt from the real estate sector, Mr George Micallef from the tourism sector, Mr William Wait from the manufacturing sector, Dr Trevor Degiorio from the gaming sector and Mr Kenneth Farrugia from the financial services sector were the guest speakers.

The forum kicked off with brief presentations by the respective speakers highlighting the impact of the global economic and financial crisis on the market sectors they represent. This was followed by a panel discussion on the outlook of the different market sectors for the next six to twelve months. The forum was closed off with a Question and Answer session which was open to the floor.

America’s growth in the decade ahead

America’s growth in the decade ahead

Although the strength of the US economy in 2010 remains uncertain, it is important to look ahead to its likely performance in the coming decade. The rise of GDP over the next 10 years will reflect the very positive effect of the eventual recovery from the current deep downturn, combined with a below-trend rise in the economy’s potential output at full employment. When I add up all the key components, I conclude that the coming decade’s annual growth is likely to be about 1.9 per cent, roughly the same as the average rate over the past 10 years – more here

October 2009 – January – October

1st October – Malta jurisdiction showcased in New York – Regular promotion is imperative – here

22nd September – AmCham Malta organises high-profile seminar in New York City – here

4th September – US Ambassador designate to Malta pays a courtesy visit to Malta’s ambassador to the US – here

4th September – Hubert Humphries Fellowships – here

11th August – Malta’s Foreign Affairs Minister, Tonio Borg reviews Malta’s evolving Mediterranean outreach in an interview with Vanya Walker-Leigh – here

11th August – US Embassy nominates Westin Dragonara Resort for corporate excellence – here

3rd July – White House announces ambassador to Malta – here

17th June  – AmCham Malta attends the annual ECACC Washington Transatlantic Business Conference – here

2nd June – Congressional reception hosted by the Honeywell Corporation in their prestigious building on Constitutional Avenue DC – here

14th May  – Tapping into Obama’s stimulus package – here

8th May – US President Barack Obama recently launched a $787bn stimulus package – here

4th May – How can Maltese companies tap into Obama’s $787bn stimulus package? – here

23rd April – ECACC Conference to convene in Malta – here

8th March – Fedex Malta partner signs deal on freight to US – here

2nd February – Ambassador Molly Bordanaro term of office in Malta coming to and end – farewell speech by Dr Anton Tabone President of AmCham Malta – here

14th January – The state of Malta-US affairs by Dr Anton Tabone – here











The state of us

Sunday, 19th October 2008

The state of us

Patrick Cooke

The US has long been known as the land of opportunity, and its ambassador to Malta Molly Bordonaro tells Patrick Cooke she does not expect the current financial crisis to dent this belief.

A prominent figure since her arrival in Malta in 2004, it is evident that the 39-year-old ambassador has resolute pride in her country and great faith in its capacity to be a force for good in the world.

She is well versed in the causes of the current financial crisis gripping the US. Indeed, from 2001 until 2004 she served on the board of directors of Fannie Mae – the Federal National Mortgage Association, which, along with fellow mortgage giant Freddie Mac, had to be bailed out by Congress earlier this year to the tune of $200 billion.

Between them, the two firms guarantee or own roughly half of all the $12 trillion US mortgage market and are mandated by Congress to provide funding to the housing market. Ms Bordonaro recognises that the US government policy of encouraging less than creditworthy people to take up home ownership has been a principal cause of the financial crisis.

“When Americans began to default on their mortgages – and only six per cent of Americans have begun to default – the mortgage-backed security marketplace collapsed

“We will either have the first African-American president, or the first female vice- president. That speaks volumes for America as a society” – Molly Bordonaro. Photo: Matthew Mirabelli.

and went down to zero. Anyone who had these types of assets on their balance sheets had tremendous disruption and as a result stocks began to go down.”

So why did the US government encourage such practices?

“Social policy – implemented by the Clinton administration – first required institutions like Fannie Mae to take on more risk. What (Bill) Clinton did was increase from 30 per cent to 50 per cent how much he mandated Fannie Mae and Freddie Mac to purchase of the mortgages that were being underwritten to low- and moderate-income people.”

To meet these targets, legislation had to be implemented to allow individuals with less than creditworthy status to apply for mortgages with very little down-payment. Didn’t Ms Bordonaro recognise the potential problems of this when she served on the board of directors at Fannie Mae?

“Yes… it was very, very difficult to manage credit and meet this requirement that was put on us by the (Clinton) administration. When I was on the board, we had to report every quarter… We were very conscious, we argued about the fact that this was very difficult, but the regulation under the Bush administration did not change, despite the fact that we argued that this was going to create problems.”

stateofusSo the Bush administration ignored warnings about what could happen?

“They did not change it (regulations)… they did not… they’re culpable as well, but the problem was that by the time the Bush administration came to power, these types of mortgages had already been created and so the investment banking community had flooded the marketplace. By then it would have been difficult or impossible to regulate anyway.

“A lot of the policies were put in place in the 1990s, but the Bush administration could have done more to try to regulate and ensure greater capital reserves be kept.”

President George Bush has faced some criticism for his response to the financial crisis, even from some prominent members of his own party. However, the ambassador praised the administration for taking action to address liquidity and allow for access to credit in the marketplace, as well as engaging with the international community.

The financial crisis has caused governments around the world to dabble in the financial sector to prevent financial services providers from collapse and causing further chaos. This has led to much debate about the merits of American-style capitalism, which hands over power to the markets with minimal regulation and interference. I put it to the ambassador that the current financial crisis might signal the end of unfettered, American- style capitalism and the emergence of a different financial system.

“We’re definitely going to see changes in the financial system, there’s no question about that, but I think it is debateable what it’s going to look like. Obviously, access to credit and liquidity and loans is what makes the economy flow, businesses can’t expand, families can’t buy a home, and American families can’t send their children to college unless they have the ability to borrow.

“The question is, can the US, can Europe, can the rest of the world, provide regulations that increase capital reserves, change some accounting principles to prevent something like this happening, and tighten some of the underwriting requirements without choking up the flow of capital in the marketplace?”

But has the American capacity for global leadership been in some way undermined, since the US was always a driving force – particularly in developing countries – of deregulating markets and keeping government out of the financial industry.

“Let me just say that I think that free enterprise has spoken for itself in terms of what it has done to lift people out of poverty, create middle classes around the world and generate tremendous wealth over the last half century. I don’t think that any country that has embraced free enterprise is going to move backwards. It hasn’t been the US that has been the global leader pushing free enterprise, but it’s been every man and woman throughout the world who has participated in a free enterprise system that has allowed them to have a better opportunity at life.”

But isn’t there an appetite for more regulation of the markets?

“The US has always had, and has always advocated, a strong regulatory framework, not just for banking, but for consumer protection in almost every industry in the US. The US does not advocate a non-regulatory capitalistic marketplace… that’s far from the truth.”

Some political commentators are suggesting that the free-market creed has collapsed and the era of American global leadership, dating from World War II, is over. Instead of arguing against this, Ms Bordanaro responds with a resolute defence of US actions in the world.

“The US has demonstrated time and time again, since World War II, that it will continue to try and expand opportunities and freedom and democracy for people around the world, in a very altruistic way. Our government will continue to work towards a better future for Americans and for others around the world.”

Is the era of the US as the sole global superpower coming to an end?

“It has never been the United States’ desire to be the single global superpower; that’s why we spend billions of dollars to try and build up a country like Iraq, so they can be an independent global nation. That’s why we’ve been so supportive of the idea of the EU from the beginning. The US has always believed in a multilateral, cooperative world, and that is how we see the future of the world.”

When asked what kind of legacy George Bush will leave behind when he leaves office this year, the ambassador declines to respond, saying that giving opinions on the Bush administration is not within her professional obligations. Ms Bordonaro was on Mr Bush’s campaign team before he won the presidency.

With the US election taking place on November 4, both candidates are emphasising their capacity to bring change and reform – what changes, if any, are needed in US politics?

The ambassador says there is no question that the American people would like to see some change, but she diplomatically avoids addressing the question directly.

Polls indicate that Barack Obama is the overwhelming choice of Europeans; does the ambassador feel that Obama’s popularity overseas will have an impact on American voters?

“No, Americans will make their decision on who they think will be the best leader, and who will address the economic problems. They’re really attracted right now to who is going to be able to show the best leadership, in terms creating more confidence and hope in America to create a better future.”

Can Ms Bordonaro pinpoint why Obama is more popular in Europe than he is in the US?

“I think that has to do with the campaign he has run on change. There is no question that the Bush administration has made tough choices on foreign policy during his eight years that have left people in Europe without a favourable opinion of the Bush administration.”

Are the hopes of Europeans on this matter justified, or will they ultimately end up disappointed with the foreign policy of a President Obama?

“I think it’s too early to say what a President McCain’s or a President Obama’s foreign policy will be. They’ve certainly laid out some goals and visions and specifics, which are not vastly different from President Bush’s, but I can’t predict what their ultimate decisions will be.”

The great unknown about the forthcoming election is to what extent the issue of race will affect voting behaviour. According to the ambassador, it will have no effect whatsoever.

“I think the US is beyond the racial issue, the same way we are beyond the gender issue. That makes me more proud about this election than anything else. This is a race between two great candidates, that are discussing ideas, and Americans will vote for who they think is the better leader, not based on race, and not based on anything else.”

When probed further about whether at least some people will vote on race, or whether people would cite racist tendencies if Obama lost, she responds in the negative.

Ms Bordonaro is also dismissive of the suggestion that there has been an excess of negative campaigning in the election campaign, saying she was unaware of the McCain campaign’s recent attempts to link Obama to Bill Ayers, a former domestic terrorist.

“I think this campaign has been a phenomenal discussion of really salient issues that are on the minds of the American people, and quite frankly, on the minds of people around the world. Dating back to the primaries, we have had more than a year of discussion about foreign policy and healthcare, education and tax policy. This is good for democracy and good for America.”

Like vice-presidential nominee Sarah Palin, Ms Bordanaro is a working mother in a position of great responsibility. While the ambassador would not comment about Sarah Palin in a political sense, she is pleased to see that the US is calling on all its talents.

“I think it’s a great thing that a woman with children is doing so well. No society can be strong without calling on all its members to help build a nation, and that includes women and mothers, so she’s wonderful in terms of representing that.”

Ms Bordonaro goes on to hail the historic diversity of the two presidential tickets.

“I think what’s great about this presidential election is that, whoever wins on November 4, history will be made. We will either have the first African-American president, or the first female vice-president. That speaks volumes for America as a society. It shows that we not only espouse the values of equal opportunity for everybody, but we actually embrace them whole-heartedly when electing our leaders.”

Moving on to a more general issue, the ambassador is asked whether she has detected an increase in anti-American sentiments over the past eight years.

“No, I would say that, especially here in Malta, I have greatly appreciated the Maltese being able to separate where they may differ on policy from the American government, but not have that spill over into anti-Americanism, or dislike for the American people.

“I think it’s a good thing to have differences of opinion around the world, and to be able to speak out about it. And I enjoy being able to speak to people with a different opinion about American foreign policy. But I very much appreciate the Maltese for their continuing ability to say that, ‘while we may differ on policy, we still appreciate America, we appreciate the American contribution throughout history, and we like the American people'”.

Are Americans concerned about the way that the rest of the world sees them?

“One of the greatest things about the US, throughout history, is that Americans feel very strongly about doing what is right, from a humanitarian aspect, and allowing everyone to have the opportunity for freedom and democracy. So one of the greatest things about the US is that, while it’s nice to be liked, we tend to care about being right.

“We don’t mind being the only ones advocating going into Darfur; we don’t mind being the only ones to say it’s not right to have people murdered and killed by a tyrannical dictator, and we will do what we can to change the world to be a better place, to make it happen. Of course we make mistakes; tactical decisions might be wrong; timing might not be right; but America will never give up its push to see every human being in the world have as best an opportunity for freedom and democracy and a better future.”

So, what lessons has the US learnt from Iraq?

“President Bush has effectively come out and said that certain tactical decisions were not made, which affected how the war went. It’s obviously come at a great cost to the young American men and women who have lost their lives and at a cost to American taxpayers. In the end, is it better that Iraq has the chance for democracy and freedom?

Is it better that Iraq is setting up the institutions that are creating opportunities for all Iraqis, and allowing their economy to grow? Yes.”

When asked whether the US’s action in Iraq may have undermined its capacity to act so forcibly in foreign affairs elsewhere, such as Georgia, she disagrees.

“The US takes every foreign policy situation separately. For example, with the issue of Iran, we have worked through diplomatic channels. There is no one blanket policy that the US would ever embrace. I think the US continues to try to find ways to make the world a better place and contribute what it can to do so. We try to make the world safer and secure for everyone, including Europe.”

On bilateral relations with Malta, Ms Bordonaro is happy to highlight the success of the “ongoing, permanent” refugee resettlement programme.

Between May until the end of this year a total of 200 refugees will be resettled from Malta to the US and the ambassador says it will continue at a slightly faster pace next year.

“We made the decision to help because Malta asked and we recognised the fact that proportionately, it was difficult… So, we made a decision for humanitarian reasons, and also to help Malta have a more proportionate number to work with to assimilate and integrate. We’re happy to help Malta, and we made this decision for that reason.”

Address by the Hon. Tonio Fenech, Minister of Finance


Your Excellency, Distinguished Guests, Ladies and Gentlemen, Good morning.

It is our pleasure to announce that we have taken another important step in the process leading to a Double Taxation Treaty between Malta and the United States of America.

After I initialled the text of the Treaty last March with Michael Mundaca from the US Treasury, work has continued in earnest and today we are signing the agreement. This will now go before the US Senate for ratification before coming into force. It will also be published by both the US Treasury and the Government of Malta to become a public document prior to ratification.

I would like to take this opportunity to thank the US Treasury, especially the team lead by Michael Mundaca, for making this treaty a reality. This is truly a momentous event for Malta which we cherish.

A Treaty for the Avoidance of Double Taxation with the US is of significant importance to Malta for a number of reasons.

Cross border trade, commerce and investment can only foster and grow if businesses are allowed to transact with a degree of certainty, double tax treaties are economic instruments that benefit individuals and corporate entities, as well as of the partner states involved.

Double Taxation treaties have played an integral role in the development of Malta’s economy since it became independent. These international agreements have allowed tax issues with partner countries to be clarified, international double taxation to be avoided, and fiscal evasion to be curtailed. In the local context, they have helped Malta develop trade relations with other countries, assisted the flow of inward direct investment and served as an important platform for Maltese residents doing business in partner countries.

Double tax treaties have thus become a vital tool in Malta’s drive to increase the level of cross- border business not just in the export of goods but also in services and capital movement, which are good growth areas for Malta.

The addition of the US, one of the world’s major economic players, to our comprehensive network of double taxation agreements was therefore inevitable.

This treaty is a historic accord in its own right. In 2007 we finalised our discussions for a new business taxation regime with the European Commission. This was accepted to certify, so to speak, the international acceptance of our business tax regime with international norms and requirements. This regime included various anti-abuse measures that were further strengthened in 2007 and 2008 by improving our legislation for better information exchange with tax authorities internationally to avoid tax fraud and similar crimes. We have seen the immediate effect of this as various large investors have honoured us with investments in Malta as their own tax authorities signalled their acceptance of Malta as a financial jurisdiction of repute.

This treaty with the USA furthers this recognition internationally. This double taxation agreement symbolises the good relationship Malta has with the US, regularises the investment channel and manifests the perception that Malta is acceptable as a place to do business. The USA and Malta

already have well established information exchange links through international networks and bodies combating tax fraud, terrorist financing and other forms of criminal activity.

The significance of this treaty therefore extends beyond the tax implications to improve Malta’s competitive and marketing position so that it is perceived to be clean, above board and accepted by our counterparts internationally, including the USA. We will maintain this reputation and will work with our counterparts in the USA to ensure the long term commitment to our reputation and to maintain the trust and confidence we have strived to win.

Malta’s economy has made significant strides forward in recent years with good GDP growth, the fulfilment of the Maastricht economic convergence criteria and adoption of the euro as our national currency. In the past two years alone, we have also managed to attract over US $3 billion worth of high quality FDI to our shores.

We already enjoy good economic relations with the US where we have experienced a favourable balance of trade in recent years. Exports to the US last year amounted to over €246 million. We believe that this treaty will act as a catalyst to increase trade between our countries even more. The indications are already good and we will work to continue facilitating this at different levels, even beyond fiscal frameworks.

The presence of international financial and business advisory institutions in Malta are contributing to enhancing relations with the US and facilitating increased economic activity. It is our intention to continue supporting them through our legislative and regulatory framework. The initiatives undertaken and marketing efforts of Malta Enterprise and FinanceMalta to promote Malta as an attractive location for business are to be commended.

The treaty in itself is quite unique, as there are provisions that also apply to significant Maltese communities living in other countries in particular those in the EU and Australia, so that these too may benefit from the tax provisions incentivising investment. This is an interesting development where, whilst strict anti abuse provisions to stop treaty shopping were drafted into the treaty, the US Treasury still understood the need for international trade and investment in Malta with key countries where there is a significant Maltese migrant population. This will ensure that the treaty is used for the benefit of Malta and Maltese communities abroad. Again, I must thank the Treasury for their understanding here and their grasp of the realities and economics of even a small country like Malta.

Arriving at this stage was not an easy task. I would, therefore, like to congratulate the Commissioner for Inland Revenue and our Tax Treaty Negotiating Team, the Malta Financial Services Authority, the Malta Maritime Authority, the Financial Intelligence Analysis Unit, and Ambassador Mark Miceli and his excellent staff for all their efforts and commitment to finalise this agreement. Last but not least, I thank our industry leaders for their support and assistance throughout the process.

My special thanks and appreciation go to Ambassador Bordonaro and her embassy people who have been very supportive of the negotiation process and instrumental in facilitating communication between Malta and the United States. Of course, I must also mention the continued support of AmCham and the US investor community in Malta as well as the practitioners who have supported us and consulted with us throughout the process.

I auger that this historic double taxation agreement will further strengthen relations with the US, stimulate economic activity and bring our nations closer together for the mutual benefit of Maltese and US citizens alike. Thank you.

A Treaty with a Message

A treaty with a message

Tonio Fenech

We have now achieved a new high in our economic relations with the US. A historic accord was signed last Friday, the Double Taxation Treaty between the two countries. This treaty is on its way to ratification by the US Senate for Foreign Relations after which it will come into force.

This is an important achievement that is expected to have a very positive impact on our economic growth and job creation prospects, to the benefit of business and worker alike. This is because this treaty is not just one of the 50 that we already have with so many other countries, but is with the US, the largest destination market and source of investment.

Over the years we have worked assiduously to build the economic framework that makes Malta the successful financial and business jurisdiction it is today. We have great people who are well educated, pleasant, and English speaking. We have a really good tax regime. We have introduced the Euro, one of the most highly traded currencies on the world markets. Our banking and financial system has grown with most of the big names with a presence here. We have joined the euro payments system, placing us on the international payments network together with all other EU member states. The best known financial services providers are here.

Our regulatory regime is very well established and has grown its connections internationally. Our quality of life and standard of living is really attractive with the right resources for health, education, international travel and other ingredients modernised and in place. The word is out and robust quality foreign direct investment is being received.

We did not stop here. Our strategy is to establish at least two more ingredients to trade and economic facilitation. The first is improved international marketing and communications through FinanceMalta and Malta Enterprise. The second is our international tax treaty network to open up more cross-border investment channels.

Treaties that avoid double taxation are a critical instrument in overcoming a major barrier to trade – that of being taxed twice by two different governments. So for example, if a Maltese investor establishes a business in the US and makes a profit there, that profit could be taxed in the US and again in Malta. This treaty avoids this situation and determines the tax regime to ensure fair treatment and to encourage investment in both countries.

These treaties therefore have helped Malta develop trade relations with other countries, improving the flow of inward direct investment and serving as an important platform for Maltese residents doing business in partner countries. We now have treaties with about 50 countries, and a few nearing completion.

We have grown our tax treaties network beyond our important trading partners and have expanded this to emerging economies, neighbouring countries and other jurisdictions expected to become trading or diplomatic partners over time.

The addition of the US, one of the world’s major economic players, to treaty partner level is critical in terms of true recognition of Malta’s progress internationally. This is not only positive for the benefits that can be achieved from the US-Malta relationship, but also because it sends a very positive international message to the global market that, having passed a very demanding US Treasury regime, Malta is a recognised quality jurisdiction. This is because the value of the treaty is also largely in its perception value. A treaty means normalised political and economic relations between two countries, and acceptance of the Malta jurisdiction by US regulatory and fiscal authorities.

Malta really means business. The significance of this treaty therefore extends beyond the tax implications to improve Malta’s competitive and marketing position so that it is perceived to be clean, above board and accepted by our counterparts internationally, including the US. We have based our reputation on these quality fundamentals.

To this end, the US and Malta already have well established information exchange links through international networks and bodies combating tax fraud, terrorist financing and other forms of criminal activity. However the treaty provides another necessary component to this network. The message it sends is also quite clear – we will protect our excellent reputation by working openly with the best in the world.

Malta’s economy has made significant strides forward in recent years with good GDP growth, the fulfilment of the Maastricht economic convergence criteria and adoption of the euro as our national currency. When taking all such factors into consideration, it is therefore no surprise that in the past two years alone, we have also managed to attract over US $3 billion worth of high quality FDI to our shores.

This success is everybody’s success. Everybody benefits from this. How else could we have afforded improving tax bands, large capital projects, and continued social benefits? Everybody benefits because we are a socially responsible government and have ensured that benefits are properly distributed.

We aim to continue this run of success – with everybody’s participation. We believe that we can continue to improve our attractiveness to investors abroad. We have already attracted and continue to attract investments such as Smart City and numerous other international organisations in the financial, manufacturing, tourism, gaming and other industries. We believe that we can do this in other areas too. This way, we can also enjoy employment opportunities in a variety of fields and a diversity of investment to make the Malta portfolio a truly resilient one.

Mr Fenech is Minister of Finance, the Economy and Investment.

Transatlantic economy

Thursday, 3rd July 2008 – 00:00CET

Transatlantic economy

Anton Tabone

It is estimated that transatlantic economy between the US and Europe generates $4 trillion in total commercial sales a year and employs up to 14 million workers on both sides of the Atlantic.

These workers enjoy high wages as well as high labour and environmental standards. Over the last five years the transatlantic economy has enjoyed one of its strongest periods of growth and prosperity in decades.

This comes out in an American Chamber of Commerce to the European Union report. The chamber commissions the Centre for Transatlantic Relations Johns Hopkins University and Paul H. Nitze School of Advanced International Studies to conduct surveys on jobs, trade and investment.

 remains the top destination of US foreign direct investments (FDI), with the region accounting to nearly 59 per cent of total US investment outflows in 2006. For instance, US assets in the UK are the largest in the world, totalling $2.3 trillion in 2005, nearly one-quarter of the global total, and an amount greater than total combined US assets in Asia, South America, Africa and the Middle East.

During the same year US assets in The Netherlands were the second largest with $868 billion invested. The US asset base in Poland, Hungary and the Czech Republic was $50 billion or twice the size of corporate America’s assets in India. US FDI in Ireland in 2006 hit a new record of $13.3 billion, nearly double the amount of US investment in all of South America.

Europe’s investment stakes in the US totalled a record $1.3 trillion in 2006, a 12.6 per cent rise from 2005 and more than triple the level of a decade ago. The US remains the

primary destination of EU investment in terms of FDI flows. No other region of the world has invested as much in the US than Europe, with the latter accounting for roughly 75 per cent of total inward investment in 2006.

Switzerland ranked first as the largest holder of US assets in 2005 ($1.3 trillion), followed closely behind by the UK firms ($1.1 trillion). Of particular interest is the spread between European investment in the US on the one hand versus EU investment in China and India on the other.

In a nutshell there is no comparison – in 2005, EU investment in the US totalled €29 billion versus investment in China of €6 billion and investment in India of just €2 billion. Europe invests considerably more in California than it does in China. Texas, California and New York maintained their rank as the top three destinations of European foreign investment.

Transatlantic trade flows

While America’s trade deficit with Europe peaked in 2005 at $132.65 billion, it narrowed by 5.2 per cent in 2006 to nearly $126 billion. US exports of goods and services to Europe rose 16.2 per cent in the first half of last year from the same period the previous year, well ahead of US imports from Europe, up 5.7 per cent in the same period. Against this backdrop, the US trade deficit with Europe narrowed by nearly 27 per cent in the first half of last year, and was running at an annual rate of $100 billion.

Transatlantic portfolio flows

Last year, US capital outflows to the EU soared to $62 billion – a figure roughly five times than US inflows from Europe over the same period in 2006. In this regard, it is interesting to note that despite the high-flying stock markets of India, China and Brazil in 2007, US investors have shown a stronger preference for European equities. For instance, net US purchases of Spanish securities last year ($11.9 billion) were nearly 40 per cent larger than net US purchases of Brazilian securities. US investors sunk more than four times the amount of capital in French securities last year ($17 billion) than they invested in India ($3.8 billion).

Transatlantic jobs

Of the nine million people employed outside the US by majority-owned US companies in 2005, roughly 44 per cent were located in Europe. The bulk of these workers were based in the UK, Germany and France.

Despite stories about European companies moving to cheap labour markets in central Europe or Asia, most foreigners working for European companies outside the EU are American. European majority-owned foreign affiliates directly employed roughly 3.5 million US workers in 2005. The top five European employers in the US were firms from the UK (908,000), Germany (655,000), France (473,000), The Netherlands (442,000) and Switzerland (389,000).

Transatlantic growth: A rebalancing between Europe and America

Last year, the transatlantic economy underwent a rebalancing of sorts. Significantly, the

one-time transatlantic economic laggard, Europe, has pulled ahead of the perennial transatlantic growth leader – the US. The US economy has been battered and bruised by a housing recession and attendant sub-prime credit squeeze that has constrained economic activity. On average, the US economy expanded by roughly 2 per cent in the first half of last year, following 2.9 per cent annual growth in 2006. Prior to 2006, US economic growth easily outpaced that of Europe.

The global earnings of US corporations have taken an added importance this year on account of weaker-than-expected growth in the US.

Simply put, strong global earnings staved off a US profit recession last year.

Without the overseas boost o earnings last year – with Europe at the forefront – US earnings would have been far weaker than reported, adding even more uncertainty and volatility to the US financial markets.

Given the depth and breadth of US-European trade and investment linkages, both economies are so tightly linked that when things go awry in one market, the effects are felt in the other. More often than not, a problem in either the US or in European economies becomes a transatlantic problem.

The UK, France, Ireland and Spain were the markets of choice for US investors last year, with many investors actively adding more global securities to their portfolios as a hedge against a US market downturn and a weaker US dollar.

The transatlantic services economy continues to deepen

The services economies of the US and Europe have become even more intertwined over the past year, with cross-border trade in services and sales through affiliates posting strong gains in the past year. By sectors, transatlantic linkages continue to deepen in financial services, insurance, education, telecommunication, utilities, advertising and computer services.

Other services – such as aviation, are gradually being liberalised and deregulated, albeit slowly. Services represent the sleeping giant of the transatlantic economy, or the one key area where significant opportunities exist to strengthen and deepen the transatlantic economy.

No commercial artery in the world is as large as the one binding together the US and Europe. No two regions of the global economy are as economically fused as the two parties straddling the Atlantic, making the transatlantic economy the largest and wealthiest in the world.

It is foreign investment – the deepest form of global integration – that binds the transatlantic economy, not trade. Trade, which involved the cross-border movement of goods and services, is a shallow form of integration and often associated with early phases or stages of bilateral commerce.

In contrast, a relationship resting on the foundation of foreign investment is one where both parties are extensively embedded and entrenched in each other’s economies. The transatlantic economy epitomises the latter. American affiliates in Europe are

increasingly indistinguishable from local firms. The same is true for European affiliates in the US. Europeans and Americans literally own each other.

Malta posts positive trade balance with US

Tuesday, 10th June 2008

Malta posts positive trade balance with US

Ivan Camilleri, Brussels

Malta registered a positive trade balance with the US last year although both exports and imports shrunk drastically when compared to 2000 levels.

Trade statistics issued yesterday by Eurostat, the EU’s statistical arm, prior to today’s EU-US summit being held in Slovenia, showed that last year Malta registered a positive trade balance of €113 million. In fact, last year, Malta exported €241 million in goods and services to the US while importing €128 million.

The situation seven years before was very different. Eurostat said that in 2000 Malta’s exports to the US reached €727 million in value and imports were valued at €393 million, leaving a healthy trade balance of €334 million.

Malta’s trade with the US involves primarily products of ST Microelectronics.

Overall, trade between the EU and the US is growing at a healthy pace. Eurostat said that the most notable feature of EU-US trade in goods over recent years has been the growth in the EU27 surplus, from €32 billion in 2000 to €80 billion last year. This increase in the surplus is due both to an increase in the value of exports to the US (from €238 billion in 2000 to €261 billion in 2007), and to a decrease in the value imports from the US (from €206 billion to €181 billion).

EU trade with the US is dominated by manufactured goods. Last year, more than two-fifths of EU27 trade flows with the US were machinery and vehicles, while chemicals and other manufactured articles each accounted for more than a fifth of imports and exports.

Among the EU member states, Germany was the largest exporter to the US in 2007, with €73 billion in value, followed by the UK (€45 billion), France (€25 billion) and Italy (€24 billion).

The UK (€39 billion) and Germany (€35 billion) were also the largest importers, followed by the Netherlands (€26 billion) and France (€20 billion).