Government stuns business, pleases unions by reversing pay cuts (Update-1)

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(Updates with additional reaction in 13th paragraph)

By Stelios Orphanides

A day after the fiscal watchdog warned of serious risks threatening the economy, the government on Thursday stunned business groups by agreeing in talks kept secret from the public with unions SEK and PEO the gradual reversal of pay cuts in the wider government introduced six years ago.

“Pay cuts affect(ed) workers and pensioners in the wider public sector,” Andreas Elia, secretary of OIO-SEK, a division of SEK representing workers at state-owned corporations such as the telecoms company Cyta said. “They were imposed in December 2012, and with a second bill in 2013, in response to the crisis and avert a further deterioration. After thirteen quarters of economic growth, it was necessary to discuss restoring salaries which was the labour movement’s declared policy”.

Elia, who was commenting in an interview to state radio CyBC said that the unions were in consultations with the finance ministry “for some weeks now” in order to reach an agreement before the May 31 deadline agreed in October expired.

“We are satisfied that there was a conclusion within the timetable,” Elia continued adding that the fact that the economy’s largest employer is sending a message to the society and labour institutions in both the private and public sector.

The agreement, expected to be signed within the coming days providing for a five-year implementation period, benefits workers in the local administration, state-owned companies, hourly paid workers and school committees, who saw their wages reduced up to 16 per cent as part of an attempt to curb the government’s inflated payroll. In December 2015, three months before Cyprus completed its adjustment programme agreed with international creditors in exchange for a bailout, the parliament rejected a government bill to overhaul human resource management in the public sector.

In January last year, the unions and the government signed an agreement introducing the economy’s nominal growth rate as a cap for pay rises in 2017 and 2018. Still, unions threatened to strike months before the presidential elections which compelled the government to consent to initiate a dialogue after the elections in exchange to labour peace.

On June 2, 2017, Finance Minister Harris Georgiades who reluctantly agreed to resume at the helm of the finance ministry after President Nicos Anastasiades won a second term, told delegates at an OIO-SEK conference that the economy urgently needed modernisation as it could not operate in the same framework as in the past after conditions had changed.

The government which temporarily reduced public debt last year to below the 100 per cent mark for the first time since 2012, was forced into issuing €2.4bn in bonds in favour of the state-owned Cyprus Cooperative Bank which in turn led to a new general government debt peak of €20.8bn. The government generated last year –when the economy expanded 3.9 per cent– a fiscal surplus of 1.8 per cent of gross domestic product (GDP) and is expecting to post a surplus of 1.7 per cent this year and in 2019, when the economy is forecast to grow 3.8 per cent.

Cyprus has a non-investment grade sovereign credit rating and its banks are struggling with a €22bn non-performing loans mountain. On Wednesday, the Fiscal Council warned that the government should stick to fiscal discipline and utilise the currently favourable economic environment to press on structural reforms in the areas of pensions, education public administration and justice and privatise state-owned companies. The economy’s competitiveness is still suffering and relies on investment inflows from the government’s Golden Visa scheme as the European Central Bank (ECB) is likely to phase out its accommodating monetary policy, the advisory body tasked with monitoring the drafting and execution of fiscal policy said.

A finance ministry source confirmed the deal but said the exact fiscal impact was unknown at this point as the agreement was still not finalised.

Also talking to CyBC, a representative of the Cyprus Chamber of Commerce and Industry (CCCI), said that the business group was surprised by the news of the agreement, which came days after it had expressed its satisfaction for the generation of a budget surplus of €425m in the first four months of the year on a cash basis.

“We disagree with this decision; it goes in the wrong direction and it will cause fiscal problems,” Marios Tsiakkis, secretary general of the CCCI said adding that the pay cuts were agreed with the troika to be permanent, which finance ministry officials also confirmed.

“These cuts were made because the state could not afford the unsustainable public payroll and this correction came to contain it within what the economy could afford,” Tsiakkis said and added that the annual fiscal impact of the agreement will be up to €45m resulting in a cumulative impact of €265m a year.
Combined with incremental pay increases earned by seniority and compensation for purchasing power lost to inflation, the public payroll is expected to increase by €400m a year.

“This alone sends the message that we enter again the vicious circle of fiscal deficits,” he said.

Another business group, the Industrialists and Employers Federation said that the public wage bill remained considerably higher compared to the euro area average even after the 2012 pay cuts, now reversed.

Fiscal surpluses should serve as a cushion to protect the economy in the case of unforeseen developments upsetting the government’s budget plans, the group known by its Greek acronym OEV said in a statement on Friday.

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Stelios Orphanides is a journalist at CyprusBusinessMail.com. To contact Stelios Orphanides: [email protected]

  • Bob Ellis

    We are going to collapse someday, the just speeds the process up; the sooner it happens the better. Acts like this will confirm to anyone foolish enough to bail us out again that we need close supervision, as we cannot obviously be trusted to change things ourselves. Due to our greed and our inability to work for the common good, slowly everything will end up foreign owned so Cypriots won’t have any control of things anyway.

    • A is B

      Thats the only way forward.

      • divadi bear

        A is B
        ……….the only way forward……..
        Sell the south part of the island to the highest bidder !! But PLEASE to some Republic who has those governing it, Performing Brains (P.Bs.) because as it is presently we are paying government, government services and MPs, (including the President), a huge chunk of money just so they can hang “MP” after their names to satisfy their EGO !!

        • A is B

          Those in power now and the so called elite are mot fit to run anything.

  • CloudCatcher

    Cyprus politicians are happy to destroy Cyprus if they can keep their power.
    The EU knows that Cyprus is slowly falling apart.

    • Philippos

      Its the “Asil Nadir” Syndrone. After a while the line between the state and whats yours begins to blurr. Suddenly you just seem to find yourself using public assets and resources as if they were your own. A little later they are your own and then you behave only for your own benefit and enrichment and in neglect of the laws of the land and its people. Finally the “job” becomes just scouping it up as fast as you can before you get voted out / are scared to go round again for fear of being found out / are assassinated. As to Cyprus, it moves gracefully from “Our Country” / “Your Country” to “My Country” to “Mine, ALL Mine”. It comes from the Greek “Megalos” and ” Mania” 🙂

    • Neroli

      We all know not just the EU! He’s crazy and the public hospitals don’t even have a computerised filing system!!

  • Philippos

    Maybe Charis can explain to us what is the quid pro quo, or in this case what is the quo for the quid? Pre election industrial peace is one thing, but as someone who is participating in meeting the cost of this, what’s in it for me? I really do not see the point of paying Government employees, (with some exceptions) more money for doing nothing that seems to benefit the nation, its economic , nor social development.

  • almostbroke

    Beggars belief ! ‘Death by a thousand cuts ‘ . It comes from a small minority running the country solely for their own use and benefit . The object of this latest crazy ‘scheme ‘ is to buy votes with taxpayers money to allow the ‘minority ‘ to plunder and rape the coffers of the state / taxpayer in order to continue as they have always done since the States foundation , stuffing their pockets with loot from various ‘enterprises ‘ and those on the ‘inside track ‘ in the ‘golden circle ‘ .

  • Copernicus

    Not only has HG reversed his reforming zeal by giving up on privatisation he now is the obedient implementer of decisions taken by the office of the President. The state employees are the most privileged in the EU with all their benefits not being limited to healthcare and pensions. If HG has got the unions to tax their lump sum of pension then fine but if he has given up totally on fiscal discipline he should resign as he has already bloated the public debt with his mis handling of the Co Op. No one is irreplaceable in the land of milk and honey!

  • flange

    the definition of morons – they never learn!

  • cyprus observer

    Nothing….absolutely nothing would surprise me about what happens in Cyprus. It’s a surreal world in a parallel universe.

  • costaskarseras

    The price is too high to pay for any a company to be kept in business, when it has to rely on paying low wages, bad working conditions and on government subsidies in order to provide a luxury living for the owners/shareholders and misery for its workers. The working people across the world have been paying a heavy price for the capitalist economic crisis, reduction in earning, unemployment, cuts in health and education and for their efforts they are now rewarded with the confiscation of their homes and to become homeless. There is another way!

    • Bob Ellis

      Did you see what the village idiot did to the island ? even living in North London you should have seen the fallout of the other way.

      • costaskarseras

        How I wish that the economic crisis was because of the mishandling of then President Christofias but as reasonably informed people are aware, the capitalist crisis is a world wide disaster. These cheap excuses are only for the consumption of the naive people.

        Living in the UK, I can report on the condition of my adopted country, which are dreadful for many of my fellow citizens. According to ITV REPORT 2 April 2018 “Malnourished children ‘putting food in their pockets’ due to poverty Pupils putting food in their pockets to take home because they’re not sure if they’re going to get another meal’. Take a stroll in the West End of London and you will see the homeless people trying to keep themselves warm on the shop’s doorsteps. I spoke to one homeless man who was only yards away from the luxury Ritz Hotel. He was a former soldier and proudly displayed the British flag and his medals he was awarded for his military service. Now he is regarded as “spent bullets”. His photograph can be seen on my Facebook. Despite the huge deposits of the hydrocarbon of the North Sea, and unlike Norway, the UK’s National Debt is £2.029 trillion, equivalent per tax payer of
        £56.054. Do you honestly believe that this predicament of the British people is the fault of Mr Christofias who you blame for everything?

        • A is B

          Although the village idiot was a village idiot

        • Bob Ellis

          Fairly simple maths. The village idiot promised and did spend €2.5billion a year more than he had. After 4 years the country was further in debt by €10 billion triggering a national economic crisis. What happened, and is still happening, to the banks is a result of zero regualtion and control by those trusted to control and regulate (both in Cyprus and the EU) and people borrowing way more than they could ever pay back. The purest form of your dreaded capitalism is being used in Iceland since their crisis in 2007. For them the only way has been up with all of their poisitve stats being amongst the highest in the world.
          Excusing Cyprus of years of mismanagement, corruption and greed whilst trying to blame economic theory really shows a degree of niavity in itself. A question many have asked of you but you do not answer. How would you have avoided the 2013 crisis ? and how would you move forward from here ? Not theory or accusations, details please.

    • almostbroke

      Yeah Costa – as Maggie rightly said ‘ the problem with Socialism is they soon run out of other people’s money , ask the fat commie toad who ran the Cypriot economy over a cliff but ‘parachuted ‘ him self into a fat pension , state car , bodyguards and. A large police presence outside his dacha !

    • A is B

      There is some truth in what you say.

      • costaskarseras

        Please my answer to Bob Ellis above.

  • Cyprus United

    Unions are a big part of the overall Cyprus issues that need to be addressed.
    Unions need to go away. Enough of that BS.
    Call me or email me if you need help to get rid of the unions.