Most Maltese are interested in the amount of funds that Malta may be receiving from the European Union. After many hours discussing the proposals by the new European Commission and by the new President of the European Council, Charles Michel, the first Multiannual Financial Framework (MFF) summit failed to reach any conclusions.

They could not agree on the size of the cake, the way to slice the cake, the continuation of specific national rebates and the introduction of a Rule of Law conditionality.

Our prime minister arrived for his first summit looking lost in the melee of leaders who know each other and seemed to ignore the newcomer. He tried hard to locate himself strategically to be photographed behind Emmanuel Macron and Angela Merkel, to grab a handshake with Merkel herself and to wander around this new environment.

In order to concentrate on the final amount of funds and on the cohesion funds, Malta joined what is known as the Friends of Cohesion group of countries.

The departure of the UK created a budget gap which has to be filled by the net contributors (known as the Frugal Four – Austria, Denmark, Sweden and the Netherlands) and Germany and France. Without concessions from the Friends of Cohesion, this will not happen.

The cohesion countries beg for funds but fail to live up to the EU rules on the environment, social dumping and money-laundering. They help citizens and companies avoid paying taxes in their own countries or to launder money earned from illegal activities. They do not participate in the sharing of refugees.

This battle will only be solved to the satisfaction of France and Germany and of the Friends of Cohesion when the fourth issue mentioned above, the rule of law conditionality, is resolved to the satisfaction of its proponent Angela Merkel.

Merkel is strongly pushing for a Rule of Law Mechanism. If a country does not abide by the rule of law, nor follow the EU-agreed-upon basic principles of competition between nations or the policies of the EU, its funds will be blocked and frozen until that country falls in line.

The targeted countries are mainly Poland, Hungary and Malta, but may apply to many others in the future.

If Merkel gets an agreement for this mechanism, she and Macron will agree to increase the total contributions of the budget in order to cover the Common Agricultural Plan – that is Macron’s objective – the cohesion fund increase needed by the poorer countries in the east and south, as well as the green and research and development ambitions of the European Commission.

There will be no one per cent capping but an increase closer to the 1.11 per cent of the commission proposal. This increase is substantial. The commission proposed €162.1 billion per year, the council suggested a compromise at €156.4 billion per year and the Frugal Four are sticking to a one per cent capping of €145.6 billion per year EU budget.

The cohesion countries beg for funds but fail to live up to the EU rules on the environment, social dumping and money-laundering

 

The difference is of €16.5 billion per year. This sum would have to come from the major contributors and they would need to sell that decision to their populations. They need to show that they are getting something in return and here is where Angela Merkel’s proposal for the Rule of Law Mechanism comes in.

Failure to abide by EU policies and to apply the rule of law will block funds to some countries. Progress on the rule of law, on the common taxation across the EU, on closing loopholes on tax evasion and social dumping, will produce large fiscal revenues for the net contributors, at present lost through the intervention of the tax havens in Malta, Ireland and Cyprus and through social dumping.

This looks like a potential deal. It is much more worrying for Malta, Poland and Hungary than just the size of the Cohesion funds.

Malta may end up with zero euros for a number of years because we are in breach of the rule of law as well as in breach of the money laundering rules and will be hit by the tax harmonisation.

If we do lose our funds for not applying the rule of law, the blame falls squarely upon Joseph Muscat’s cabinet and his crony-crooked Panama Papers fraud, bribery on major contracts, the assassination of Daphne Caruana Galizia and the packing of the institutions with party insiders. It will also fall squarely upon Robert Abela uninterested in making the necessary changes.

If we lose the funds, the economy will dry up and then the present government and all of us will be in grave trouble. This is what our prime minister and our press should concentrate on.

Do not underestimate Merkel. She has probably already struck a deal with Macron and the other net contributors about these plans. She is fed up of a Europe of pick and choose, a Europe of take but do not give back.

Her population is fed up too. She has to show them that Germany cannot just keep on paying for a war that ended over 70 years ago.

It is now time to build a common Europe which works together with the same rules and mutual respect. Yes, the poorer member states have to be helped financially, but this is not a right, it has to be earned by good behaviour and by belief in the common European ideals.

John Vassallo is a Lawyer and former ambassador