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The extent of these deficiencies was such that in its first opinion on Malta, the European Commission called for ‘a root-and-branch overhaul of the entire regulatory and operational framework of the Maltese economy’ 1 . Although the situation had improved somewhat by the time Malta’s EU application was reactivated in1998, the economy was still not fully equipped to withstand the competitive pressures unleashed by globalization. While reforms were underway, they were not sufficiently ambitious. For example, while the re-introduction of VAT in 1999 was meant to broaden the tax base and reduce the extent of unrecorded activity, the list of exempt or zerorated items was far longer than that of the other Member States. The role of different authorities having competence in the field of competition remained ambiguously defined, and in many sectors an insufficient distinction was made between the regulator and the service provider. The public sector was not only overmanned, but outdated practices and manual procedures were still pervasive. These weaknesses became fully exposed around the turn of the century when the removal of trade restrictions and other protective measures gained momentum in anticipation of EU membership. This process, moreover, coincided with two external shocks that adversely affected two vitally important industries, electronic components and tourism. The former was hit by the sharp decline in demand as result of the global downturn in the high-tech sector, the latter by the increased travel aversion in response to the 9/11 terrorist attacks.