Government’s shock tactics for recession

President Traian Băsescu of Romania announced on 6 May a 25% cut in public sector salaries, and a 15% reduction in pension payments, unemployment and other welfare benefits. On 29 June, the government ratified the measures, except for the pension cut, which was declared unconstitutional by the Constitutional Court of Romania. Protests from the unions were unsuccessful, although the International Labour Organization said the cuts gravely violate international conventions.

Events leading up to financial crisis

The first signs of the economic and financial crisis appeared at the beginning of the second quarter of 2008.

With parliamentary elections due in the autumn of that year, national politicians gave strong assurances that the global crisis would not affect Romania. President Traian Băsescu even approved a law increasing teachers’ salaries by 50%, with effect from 1 January 2009 (RO0811019I). The act is still valid, but ineffective.

In early 2009, the economic crisis affecting Romania was formally acknowledged. In the first quarter of 2009, trade unions and employers submitted a list of anti-crisis measures to the government. However, after consultations, the cabinet ignored these suggestions and published its own agenda, which was rejected by both national trade union confederations and employer organisations.

In April 2009, the government approved the Letter of Intent negotiated with the International Monetary Fund (IMF) for a loan of €19.95 billion. This comprised €12.95 billion from the IMF, €5 billion from the European Commission (EC), and €1 billion each from the World Bank and the European Bank for Reconstruction and Development (EBRD).

The government said the loan would be used to ‘maintain the current level of employment, [and to] re-launch and support the economy, so that, in this way, indirectly, salaries and pensions of Romanians could be paid’.

In the autumn of 2009, President Băsescu was re-elected and in December he re-appointed Prime Minister Emil Boc who, together with the cabinet, had been defeated two months before in a motion of ‘no confidence’. The president and prime minister gave repeated public assurances that salaries and pensions would not be at risk.

At the end of 2009, Romania’s gross domestic product (GDP) had dropped from the previous year by 7.1%.

In May 2010, after a visit from IMF evaluators, President Băsescu informed the nation, without any consultations, that salaries paid from state public funds would be slashed by 25%, while pensions, unemployment benefits and other social security entitlements would be cut by 15%.

He said that without these cuts Romania would not be able to stay within the budget deficit ceiling of 6.8% of GDP.

Reactions of the social partners

Fearing union protests, President Băsescu asked the Economic and Social Council (CES) on 18 May to endorse the Letter of Intent with the IMF.

National trade union confederations represented on the CES voted against this and asked that the letter be amended by a tripartite committee. Employer organisations abstained from voting, and proposed amendments, while government representatives voted to accept.

The social partners demanded that any measures designed to reduce the budget deficit should be tailored to restructure and reorganise government institutions, and to diminish the wage fund, not individual salaries, without affecting the pension fund.

They also asked for measures to control tax evasion, and to enable the re-launch of the economy.

Cezar Corâci, President of the General Union of Romanian Industrialists 1903 (UGIR 1903), told Agerpres, the national news agency: ‘The employer organisations asked the government to come up with a strategy to re-launch the economy, a strategy that they do not have … and to explain to the citizens of Romania why this effort must be made.’

He added: ‘I cannot believe that the IMF does not wish to have an agreement with Romania that enjoys the support of the social partners, because this would secure peace and stability in the country. Without the unions’ acceptance of the terms of the loan agreement, we face the risk of never-ending street protests, and an instability that can only worsen the economic situation.’

Bogdan Hossu, President of the National Trade Union Confederation ‘Cartel Alfa’ (CNS Cartel Alfa), told Agerpres that the unions wanted ‘a new tax policy, but not with the burden falling again on the shoulders of the disfavoured segments of the population’.

Mr Hossu added that ‘the unions would resort to street protests and call a general strike, and they will ask for the resignation of the government, if the government sends the IMF a Letter of Intent that has not been endorsed by the CES.’

The unions staged several protests in Bucharest and other major cities. On 19 May, 40,000 public employees protested outside the government building in Bucharest for two hours. On 15 June, when the parliament was debating a no-confidence vote against the government and against the manner of imposing its anti-crisis measures, more than 20,000 union members of all the five national trade union confederations formed a human chain barring access to the parliament.

Pensioners’ organisations picketed the offices of President Băsescu and of the county prefectures.

In addition to protests, the unions also took a number of formal actions, including:

  • filing a complaint with the International Labour Organization (ILO) against the violation by the Government of Romania of the ILO Protection of Wages Convention 95/1949;
  • sending a letter to the Congress of the International Trade Union Confederation (ITUC) requesting it to adopt a special resolution regarding the situation in Romania;
  • sending an open letter to President Băsescu asking him to return to parliament for further discussion the act by which salaries and welfare benefits were reduced.

Final version of government’s measures

The bill outlining the cuts was amended by the Constitutional Court of Romania, which ruled that the 15% reduction of pensions was unconstitutional.

The government then issued Act 118/29 June 2010, with effect from 2 July 2010. This sets out:

  • a 25% reduction of the gross salaries of public workers, including fringe benefits and bonuses;
  • a 25% reduction on other entitlements due to teachers, and to defence, law enforcement and national security personnel, as well as on the monthly food allowances, subsidies for rent and other benefits granted to scientists and artists;
  • a 15% reduction in unemployment benefits, severance pay payable under collective dismissals schemes and on child benefit.;
  • abolition of holiday tickets, compensations and allowances for retirement, or decommissioning from active military service.

All these provisions shall apply until 31 December 2010.

Trade union reaction

Trade unions called for a campaign against the parliament members who voted in favour of the act, and offered free legal advice to employees who wish to take their cases before national courts or to the European Court of Human Rights (ECHR).

A delegation from CNS Cartel Alfa, backed by other Romanian union confederations, asked the 99th session of the International Labour Conference to adopt a resolution condemning the grave violation of Romanian workers’ rights.

According to the CNS Cartel Alfa website, the document proposed at the ILO conference states that the economic crisis in Romania may not be used as a pretext for wage cuts or for the reduction of other welfare rights by 25%. Cutting incomes so drastically is a serious breach of international labour conventions, of the labour law, and of all the ILO documents of which Romania is a signatory. The resolution firmly opposes such practices that violate the fundamental rights of workers, and affect social peace, without which no state can cope with the challenges of the economic crisis.

Following the complaint lodged at the ILO conference, Romania will be entered on the list of special cases requiring attention, starting from 2011.

National trade union confederations were to ask their members by the end of August what further action they wish to take.

Commentary

After the proposed pension cuts were rejected by the Constitutional Court, the government increased value-added tax (VAT) from 19% to 24%, increased the taxes payable by self-employed persons and copyright holders, introduced a tax on meal vouchers and gift tickets, and decreed the dismissal of over 70,000 public sector employees. President Băsescu said he felt that all pensions, including small ones, should be subject to taxation.

Although the money supply generated by salaries is decreasing, the inflation rate in Romania is the highest of all 27 EU Member States, at over 7%, which contradicts the theory that inflation grows when salaries grow.

With no economic growth in sight for 2010, the year 2011 may well bring further wage cuts and collective dismissals.

Constantin Ciutacu, Institute of National Economy, Romanian Academy

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