COMMENT: Romania's irresponsible lawmakers splurge at time of crisis

By bne IntelliNews October 6, 2008

Bogdan Preda in Bucharest -

In Romania, electoral weapons still haven't evolved enough. They don't come in the form of laser-guided missiles, but as old-style carpet bombing. Or so it seems after a majority of lawmakers in the lower Chamber of Deputies voted October 1 to increase the wages of half a million teachers and other education personnel by 50% ahead of legislative elections due November 30.

Just a week after President Traian Basescu, speaking before parliament in a pre-electoral statement, warned that the next government must control spending on wages to prevent pay rises feeding inflation and risking missing the euro-adoption target date in 2014, lawmakers defiantly decided to increase teachers' wages by a half instead of the 9% agreed by the Senate, parliament's upper house. The move didn't just belong to deputies from a certain party, but from most parties, especially those opposing Basescu: the Social Democrats, the Conservatives, and nationalist Greater Romania Party and even from some of the governing Liberals. The same Chamber of Deputies, the larger of the two chambers, on September 23 voted to increase state pensions by 25% to 50%, a measure that the government has already contested with the Constitutional Court.

Economy Minister Varujan Vosganian, a Liberal, warned that if signed into law by Basescu, the measure would be a disaster for Romania's economy because the spending effort would more than triple the budget deficit next year to 7% of GDP from a targeted 2%, while also completely slash all the much-needed infrastructure investments. Vosganian, who even asked for an urgent meeting of the country's Supreme Defense Council to debate the issue, warned that, "the situation could cause a conflict among state institutions" and is prone to trigger similar demands by all other employees paid from the public budget. The decision indeed started spiraling out of control as the Public Clerks' Trade Union demanded a similar increase of their wages and threatened to stage a general strike if their demands wouldn't be met.

Vosganian warned that the EU might halt all funding to the new member state if such measures are approved. Romania's membership could even be at stake, he earned. Prime Minister Calin Tariceanu, one of President Basescu's foes, also stated that such an increase is not realistic and "wouldn't be sustainable."

An immediate consequence of the deputies' decision was that the Romanian currency, the leu, plunged to 3.94 against the euro on October 6, its lowest level since December 30, 2004, according to the central bank's reference rate. The fall occurred as the combined result of a lack of trust in the loose economic reasoning of Romania's politicians at a time of global financial crisis. Analysts said investors would abstain from spending on new projects in Romania under such circumstances and the market reacted promptly by betting low on the leu. Economists and financial analysts all warned that the measure would not only boost consumer spending and prices, but also perhaps force Romania into a serious financial crisis.

In a statement delivered together with PM Tariceanu October 6, National Bank of Romania Governor Mugur Isarescu admitted that the bank stepped into the market to buy lei in order to halt its plunge, which he said was also the effect of unwise economic decisions over wage increases that threaten to worsen the country's macroeconomic indicators at a time of nervousness on the international financial markets.

What's at stake?

The lawmakers' actions are nothing less than an extremely dangerous electoral game. In televised interviews, most of the opposition's Social Democratic Party lawmakers didn't openly criticize the size of the increase, but argued that teachers needed to earn more and live better.

The aim of the vote is in fact that of helping leftist opposition parties, mainly the alliance made of the Social Democrats and the Conservatives, garner a majority of ballots in legislative elections. Lawmakers from other parties, however, followed their lead, hoping that they would also gain some popularity ahead of elections.

But popularity in this case is not the only name of the game. It's rather mass manipulation as part of sheer "political gambling." The entire episode is in fact a bluff against President Basescu and the Liberal Democratic Party supporting him. Opposition lawmakers are playing political poker: they hope to gain more poor and disgruntled Romanians on their side by putting up a show depicting them as generous saviours, while also singling out Basescu as the opponent of such a measure. Since Basescu is associated with the Liberal Democrats, the scheme is in fact aimed at weakening that party's chances. It is also aimed at weakening Basescu's popularity before presidential elections due next year.

The Liberal Democrats still have the lead in most polls, with about 35% of votes if elections would be held today. They're followed by the alliance made of the Social Democrats and the Conservatives, who would get between 25% and 30%. The governing Liberals would get about 20% of votes, according to the same polls. The figures, regardless of the affiliation of certain polling organizations to political parties, show that if the Liberals would join the Social Democrats and the Conservatives after the elections, the Liberal Democrats would face a tough time.

Thus far, Basescu made no clear statement about whether he would sign the measure adopted by deputies into law, although it is widely expected he won't. Nor did National Bank of Romania Governor Mugur Isarescu, who for many years has repeatedly warned that sudden wage increases and a lack of structural reforms and investments to drive labour productivity, would eventually hurt Romania.

After all, the leftist opposition's action may hurt its own interests if Romanians, following strong warnings of economic disaster by the government and hopefully by Basescu, come to realise that their welfare is being put in jeopardy ahead of what looks will be one of the dirtiest the electoral campaigns in Romania since the fall of communism in December 1989.

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COMMENT: Romania's irresponsible lawmakers splurge at time of crisis

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