For example, the tapping of new source markets for tourists in European cities that were newly serviced by low-cost airlines allowed the hospitality sector to overcome the recession-driven weak demand in already serviced markets. Similarly, the financial and other services sectors continued to expand, thanks to the right conditions for growth, including the appropriate legislative environment. There are a number of reasons for being positive and optimistic about Malta’s potential growth in the future. In contrast to various developed countries, Malta has some structural issues that, if addressed, can provide opportunities for an on-going momentum to growth. Take for example the labour participation rate in Malta. Although it is among the lowest in the Euro area (as shown in Chart 4), Malta has gone a long way in achieving progress on this issue. Over the past ten years, Malta registered the largest increase, among the Member States, in the female activity rate, which rose from 36% in 2004 to over 50% this year. The recently introduced incentives for female participation will continue to steer our labour market in the right direction, also boosting Malta’s potential economic growth. At the same time, we also observe a higher number of foreigners who are contributing to economic activity in a variety of sectors. First, it has to be remarked that an expanding labour force through this route is in itself a sign of Malta’s strong rate of economic growth relative to other areas of the EU. Secondly, it reduces the likelihood of skill gaps in the labour market.

Indeed, the financial crisis hit the European economies at a time when a number of Member States had unsustainably high public debt levels, leaving less room for demand management. Major structural reforms and internal devaluations, which included outright cuts in nominal wages, were inevitable, and these had to be effected without the possibility of complementing them with appropriate compensation on the demand side. The result is a prolonged and painful recovery with permanent effects on potential economic growth, in some countries driving a disinflationary process. A further challenge arises from the fact that in the Eurosystem the centralised monetary stance is accompanied by a fragmented fiscal effort on the part of the various national governments. This contrasts with, for example, the United States where both monetary and fiscal policies are more centralised and hence they can be harmonised towards a common goal. While these limits on national fiscal policies have influenced the slow momentum of recovery, there are still various options that can address this weakness. On the fiscal side, the recent proposal by the Commission to create a European Fund for Strategic Investments is one way of funding large scale investment projects that would promote competitiveness and boost activity in stressed areas. The Fund would be backed by guarantees from the EU budget and the European Investment Bank. A complementary policy is the switching of government  2  BIS central bankers’ speeches  expenditure to more investment and growth friendly areas, while reducing bureaucracy and other inefficient expenditure.