Maltese voters returned the incumbent government to office at the weekend. Here are some thoughts about what is at stake.

The news of the terrorist attack in London at the weekend, coupled with domestic and international coverage of the UK general election – due to conclude this coming Thursday – may have obscured another political event of the past day: Malta’s own national election. Wealth managers should pay attention, however.

The Mediterranean island, which in the past few decades has transformed itself into an international financial centre of some renown, and is now a European Union member state, held a snap election, with early results delivered on Sunday. Incumbent Prime Minister, Joseph Muscat, of the country’s Labour Party, won with a reported 55 per cent of the vote (as at the time of writing), defeating the opposition Forza Nazzjonali coalition, led by Simon Busuttil of the Nationalist Party. The country has a highly polarised culture of “red” Labour vs “blue” Nationalist. (Minority parties are very small.) The Labour Party has roots among unions, such as those of the dockyard workers and public sector employees. The country became independent in 1964 and a republic (cutting ties with the British monarchy) in 1974. (The country was a British colony and military base; it remains a member of the Commonwealth and its ties with the UK remain close.) In the 1970s and 1980s Malta’s politics moved leftward; long-standing PM Dom Mintoff was a controversial figure. The Nationalist Party took over in 1992. That party resembles the Christian Democrat political movements of West Germany or post-war Italy. Under that party, Malta voted to join the EU in 2003, joining in 2004. It is also member of the euro. Unlike some south European nations, Malta’s euro membership has been relatively positive.

Panama problems
Under the current political timetable, the election was not originally due to be held until 2018. It is worth noting that Muscat decided to go to the polls ahead of schedule amid extremely serious allegations made against himself and some of his colleagues concerning claims that they received illicit funds from various foreign deals. It is also claimed that offshore, Panama-based accounts were used to conceal funds. Muscat and his colleagues have strenuously denied the claims; an investigation continues, the end-point of which is uncertain. The claims started when the Washington DC-based International Consortium of Investigative Journalists issued the Panama Papers leak last year. That leak saw the resignation, for example, of the Iceland Prime Minister, Sigmundur Davíð Gunnlaugsson. Dozens of jurisdictions have been implicated in the leak of the Panama Papers. However, the timing of the matter has been particularly embarrassing for Malta, because the country has since January held the rotating presidency of the European Union. And with Brexit such a big deal for the EU, Malta needs to be seen to be, to coin a phrase of the UK Prime Minister Theresa May, “strong and stable”.

Being strong and stable is important for a small nation such as Malta. It has certainly come on leaps and bounds as a financial centre, and the publisher of this news service has bestowed honours on Finance Malta (see here), the organisation that is the mouthpiece of the island’s financial sector. Those awards were not just well-deserved, but a reward for years of hard work. The financial sector is thriving; the country is home to the “big four” accounting firms; dozens of banks are registered there and financial services account for a big slice of Malta’s overseas earnings. Gaming and tourism are also important, as is the country’s movie-making industry. (Gladiator, for example, was partly filmed in Malta, as was part of Game of Thrones and other historical epics as well as contemporary productions). Malta is about three hours’ flight from the UK; it is bi-lingual and enjoys the heritage of the English Common Law and continental European legal systems. As an IFC, it ticks many boxes. And to cap it all, even its famously bumpy roads have been getting a bit smoother thanks to infrastructure spending (provided to some degree from EU funds).

Liberalism by degree
Muscat has promoted a liberal social agenda since reaching office, such as on gay rights; he has loosened Malta’s old, conservative approach to issues such as divorce and abortion, although not without controversy in a strongly Catholic nation. The country has, with some issues, also dealt admirably with an influx of North African refugees crossing the seas to Europe. The economy is strong and diverse – so much so that there are skill shortages, and the strength of its economy can be seen in the amount of building construction (not all of it particularly attractive if one dislikes high-rise Modernism) that goes on.

Malta has a great prize in front of it: the ability to leverage its qualities as a multi-lingual country, with close UK and European ties; strong links to the Middle East and North Africa, and its position to act as a conduit for UK capital and business as UK firms re-think how they retain access to the EU Single Market. Brexit is in some ways a great opportunity for Malta to go head-to-head with rival IFCs such as Jersey, Guernsey and the Isle of Man, or continental IFCs such as Luxembourg and Switzerland. The key for Muscat is to keep public spending in check; promote best practice across the board, and to ensure the island has and retains a strong reputation for trust and straight dealing. IFCs are engaged in a "race to to the top" these days under relentless international pressure to show they are transparent and clean. The travails of Swiss private banking in recent times should be a warning – don’t allow problems to fester, but deal with them openly, quickly and efficiently. The fact that a snap election was called in Malta this year shows there is zero room for complacency. From now on, Muscat and his colleagues must deliver.

(Full disclosure: as well as my interest in the island as a business journalist, I also have personal connections to the country by marriage and friendship.)