Devaluation

I am not a fan of Alfred Sant or the MLP, but I think their idea about devaluation of the lira should not be dismissed out of hand.

Unfortunately devaluation has now become a partisan issue, but I believe it could be economically advantageous. Devaluation at a stroke restores our competitiveness but at the same time it increases import costs and so there would be an increase in inflation. We have a mechanism that compensates for inflation, that is the cost of living allowance (COLA)

Had the COLA been perfect it would be pointless depreciating our currency, as the COLA would put up wages and pensions to compensate. But the COLA is not perfect. it can compensate for a rise in the price of food but not for a rise in, say, the price of a Mercedes.

This means that the COLA ensures that the least well off are compensated, while leaving the well-to-do to carry the burden of devaluation. Of course, if the unions make demands to compensate the well-to-do then depreciation would be pointless.