the current situation characterised by high fiscal and external deficits, moreover, the stimulation of aggregate demand would do more harm than good to the country ’ s economic prospects. living standards can only be raised on a sustained basis if we succeed in adding value to imported inputs and by providing services in a manner that is cost - effective in relation to our competitors. with regard to growth - oriented policies, inspiration can be obtained from a number of eu programmes, including the lisbon agenda for competitiveness and the stability and growth pact. although most member states have fallen behind in meeting the targets of the lisbon agenda, malta must make even more pronounced efforts to achieve them, particularly in the areas of human resource development and innovation. the national action plan for employment is a step in the right direction, but it can only produce the desired results if all social partners take ownership of it. with regard to macroeconomic stabilisation, the successful achievement of the convergence programme objectives would restore the use of fiscal policy as an instrument of economic management and lead to a better allocation of resources in the economy. it would also contribute to a smooth transition through erm ii and towards the adoption of the euro. as a small and highly open economy, malta stands to benefit significantly from the introduction of the single currency, mainly through the elimination of exchange rate risk and uncertainty and lower interest rates and transaction costs. on the microeconomic level there are a number of issues which need to be tackled to improve the efficient allocation and use of resources and to raise productivity. unlike macroeconomic policies, which tend to yield results only in the medium - term, efficiency improvements at the micro level are likely to produce more immediate benefits in terms of new economic activity and job creation. the truth is that sustained improvements in the country ’ s economic fundamentals cannot be attained without enhanced efficiency and productivity in both the public and private sectors. the achievement of such improvements requires efforts on a number of fronts. first, it must be understood that the quest for competitiveness can only succeed if it takes the form of a collective effort whose sole purpose is to boost the economy ’ s value added. without the latter, higher wages and profits cannot be paid. it cannot be an exercise in which one of the parties attempts to crowd out the other. it is clear, therefore, that a more focused social dialogue is needed that takes a stronger leadership role in identifying the policies and measures needed to improve malta ’ s international competitiveness and to ensure their implementation. second, there is absolutely no

market due to the removal of protectionist measures ; the free flow of factors of production, including labour and capital, between malta and other eu member states ; a greater availability of external financial resources ; and an enhanced degree of policy co - ordination between malta and the other eu member states, especially in the area of macroeconomic stabilisation, the promotion of economic growth and trade policy. of these, the free flow of goods, services and capital are the factors that are most likely to have an impact in the short term. they have, indeed, already left their mark on the maltese economy over the past year. the freedom of movement of labour, together with funding programmes and policy co - ordination are more likely to have medium - to long - term impacts. i shall therefore focus initially on the main opportunities and threats attendant upon the first set of factors. the longer - term consequences of eu accession will be dealt with in the context of the proposed policy orientations. the free movement of goods and services offers new opportunities for exporters, not least among them an enhanced access to an internal market of almost 500 million consumers accounting for one - fifth of world trade and one - quarter of global incomes, with a single set of trade rules and administrative procedures and free of tariff and non - tariff barriers. maltese exports no longer need to adhere to the country of origin principle, which requires a minimum amount of value added to be produced in malta, in order to benefit from preferential access to the eu. this creates opportunities for manufacturing and distribution operations, and opens up the possibility for malta to serve as a hub for trade between the eu and north africa. in addition, exporters can now benefit from all preferential third country arrangements which the eu has with major trading blocks around the world. malta also stands to gain in international trade negotiations when the eu acts to stave off threats of unfair competition originating from activities such as dumping. the sourcing of cheaper imported raw materials is another advantage, though this would to an extent be eroded by the application of the common external tariff, especially in agricultural products. as an eu member state, malta is now also automatically included in the common pan - euro mediterranean system of cumulation of origin for industrial products. this means that malta can still retain activities associated with higher - value added components of products, such as textiles, which are more cost - effectively produced elsewhere. the free flow of goods in import - competing sectors such as agriculture implies unrestricted access for maltese products to eu