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| THE SALARY INCREASE CRISIS 28/10/2008 |
| (2008-10-28) |
| Last updated: 2008-10-28 17:53 EET |
The government, trade unions, employers’ associations and parliamentary parties in Romania, except for the Liberal Democrats, have agreed to draft and submit to Parliament, within six months, a law on public sector salaries agreed upon by all sides. Labour Minister Mariana Campeanu says the gap between the lowest and highest pay in the State sector will be bridged in the future law, given that salary disparities have given rise to tensions between State employees. Mrs. Campeanu detailed the stages for the new legislation to be drawn up:
“We have two principles left to rethink out: linking salary increases with the economic performance and the deadline for project implementation. All other principles were agreed on and developed during the talks. We agreed that by Monday all parties involved should come up with suggestions on those two principles. Then in two days' time we will draw up the final bill, and submit it for signature.”
The government's talks with social partners and employers’ associations take place against the backdrop of controversies sparked off by a law providing for a 50 per cent pay rise for the teaching staff. Shortly after the law was passed, other public sector employees demanded similar increases, facing the Liberal-dominated government with a dilemma. They warned that such high salary increases might unhinge the budget and drive inflation and unemployment rates to over 10 per cent. But the Liberals' political opponents, the Social Democrats and Liberal Democrats, demand that the government enforce the law. Most analysts urge politicians to prove prudence and responsibility, instead of rushing to meet all demands in a populist manner.
The political parties' enthusiastic quest for votes was not deterred by the bad news coming from the financial rating agency Standard & Poor's, which downgraded Romania's rating for long-term hard currency loans and short-term loans. That reflects the growing risks for the country's real economy, triggered by the great vulnerability of the private sector and dependence on ever more uncertain foreign resources, the Agency said. S&P also notes that Bucharest overlooked those challenges and focused on the forthcoming election.
As a result, the economy has overheated, the debt has gone up, and so has unions' pressure for pay raises. S&P also announced a negative trend, which means it may further cut ratings, should the international financial situation worsen. Romania is vulnerable to a sudden halt in capital inflows. Still, more coherent policies and a better post-election governance may prevent the deepening of the deficit and governmental debt, S&P analysts conclude. But for the time being, the Romanian political class doesn't seem to take analysts' warnings and recommendations seriously.
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