Part II: Malta's 'Mr Teflon'

VALLETTA - Prince William peers out of a black stretch luxury car as it turns down a street in Malta’s capital city, Valletta.

The car, in a caravan of six others, disappears round the corner as it heads down towards the waterfront, where the Queen Victoria cruise liner towers over nearby buildings.

The British royal was in Malta in September 2014 to celebrate its 50th anniversary of independence from the UK.

Amid the sweltering heat and fanfare are ageing British tourists; attracted by Malta’s climate and its strong ties to the former empire. Every year, some 440,000 of them descend in throngs.

Britain may have closed down its last military base on the island in 1979 but its influence remains huge.

Bilateral trade agreements with Malta generate around €500 million a year; English food is served in most restaurants; British shops appear on every other corner; the natives speak English; and the traffic, as in the UK, is left-handed.

But the Mediterranean island nation of just 420,000 people also attracts many other EU nationals who come for work.

Setting up a business in Malta is cheap and easy.

The inexpensive office space, corporate tax perks, and business friendly laws have lured major multinationals.

Financial services firms make up more than 12 percent of Malta’s GDP. Over the past 10 years, the sector has expanded by 20 to 30 percent annually.

The Malta that Dalli made

Foreign owned banks use Malta as a hub. It hosts 26 credit institutions, 31 financial institutions, 60 insurance companies, 15 insurance management companies, and around 900 licensed investment funds and sub-funds.

Only three of the 26 credit institutions are majority-owned by Maltese nationals. The others are foreign groups from places including Australia, Austria, Belgium, Finland, Germany, Greece, Kuwait, the Netherlands, Portugal, Turkey, and the United Kingdom.

Five of the biggest banks are alone worth more than 211 percent of Malta’s GDP.

The man credited with making it happen is former EU health commissioner and Malta’s former economy and finance minister John Dalli.

“He was the godfather of the financial sector services in Malta, which grew into a major contributor of the economy,” one senior Maltese source told this website.

But despite his past successes, the 66-year old politician had a turbulent career before he ever set foot in Brussels.

In the mid 1990s, his introduction of a VAT system which crippled small businesses led to a political backlash that cost his Nationalist Party the elections in 1996.

Up until then, he was described as dynamic by people who knew him and as a minister with a good reputation capable of delivering reform.

In 1998, the ruling Labour party collapsed and the Nationalist Party was back in power.

Dalli set about reforming the VAT mess and things settled down until his ambitions grew bigger in 2004, the year Malta joined the EU.

He stood for a leadership election in the Nationalist Party in the hope of becoming prime minister.

Insiders say he had little chance: some still held grudges over the VAT debacle; others say he had grown irrascible and suspicious that people inside his own party were out to get him.

In the end, Lawrence Gonzi won by a landslide, but he gave Dalli a top portfolio as minister of foreign affairs.

'Mr Teflon'

Soon afterwards, things began to unravel.

Dalli had set up a travel agency with shareholdings in the name of his daughter and his personal chauffeur.

Accusations surfaced that he diverted airline bookings from the ministry of foreign affairs to the family-owned travel agency - Tourist Resources.

Dalli denies any wrongdoing, but when the affair blew up, he resigned and his relations with Gonzi hit at an all-time low.

An investigation was launched into the affair. But by the time the probe was completed in 2007, the term of office of the lead investigator had lapsed. He then refused to sign the final report despite not having found anything incriminating.

Today, Dalli maintains he was forced to resign as FM due to a report alleging his wrongdoing in a public procurement contract for building materials for a new hospital in Valletta.

"They forced me to resign as foreign minister because of these false reports," he said at a press conference in 2012 in Brussels.

The report was ultimately declared a fake, although no reference was ever made to it in the run-up to his forced dismissal, nor in Dalli's own letter of resignation.

Someone had indeed sought to ruin him.

The Tourist Resources affair and the fake hospital accusations were not the first time Dalli had battled harmful allegations.

His enemies have tried to link him to shady goings-on in a 1990s bank privatisation, in the sale of Malta's airport in 2002, in a contract with the Islamic Republic of Iran Shipping Line in 2004, and in the collapse of a ponzi scheme in 2007.

Dalli denies it all and none of the allegations stuck, earning him the nickname "Mr Teflon" among some Maltese journalists.

Before taking up the EU post in February 2010, he was pitted against Malta’s EU ambassador in Brussels, Richard Cachia Caruana, for the commissioner spot.

There are conflicting reports on how Dalli got the EU job. He says Malta wanted to get rid of him by sending him to Brussels. Others say he wanted the post.

Despite his Teflon coating, Maltese sources close to Dalli told EUobserver the non-stop corruption allegations and the intrigues inside the Nationalist Party slowly fed a sense of insecurity.

The past intrigues give an insight into the psychology of a man, who, in the 2012 EU tobacco case, claimed he was the victim of yet another plot.

Part III - Actors assemble for EU melodrama - will be published on Wednesday 5 November

Part I - From Peppi's to Barroso's - was published on Monday 3 November