Balancing social and economic policy of Europe during the first European

Semester

Petru Sorin DANDEAVice president NTUC “Cartel Alfa”

BrusselsSeptember, 2011

Romania – solutions for alleviating crisis effects, fighting against poverty

and boost employment

Presentation Structure

Main important effects of the economic crisis

Commission recommendations - IMF stand by

agreement

Measures implemented by government

Effects on poverty and employment

Possible solutions for combating poverty and

boost employment – trade union view

Main important effects of the economic crisis

o From a +7.8 increase of GDP in 2008 to -7.2 GDP in 2009

o More than 300000 new unemployed from the beginning of 2009 (unemployment rate raised from 4.2 in 2008 to 7.5% in 2009 and remained steady up to the middle of 2011 )

o State budget deficit forecast for the end of 2009 about -7.2%

Main important effects of the economic crisis

Difficulties in the payment of wages and pensions in the pubic sector

Arrears in payments of the government debt to the private sector - more than

2 bln Euros

More than 29000 SMEs bankrupt from the beginning of 2009.

IMF Stand by Agreement (EC recomandations)

• Stand-By Arrangement (SBA) for a period of 24 months in the amount equivalent to SDR 11.443 billion (€12.95 billion)

• In conjunction with support of €5 billion under the EU’s balance of payment financing facility

• Other multilateral commitments of some €2 billion (WB branches)

IMF Stand by Agreement (EC recomandations)

• Strengthen fiscal policy further to reduce the government’s financing needs and improve long-term fiscal sustainability, thus preparing Romania for eventual entry into the euro zone (CBD 4.2 in 2009 and 6.1 in 2010);

• Maintain adequate capitalization of banks and liquidity in domestic financial Markets;

• Bring inflation within the NBR’s target range and maintain it there;

• Secure adequate external financing and improve confidence.

The SB agreement – main components

IMF Stand by Agreement (EC recomandations)

Conditionalities

· Public employment and the compensation system: pay scale harmonisation;elimination of bonuses; targeted reduction in wage bill.. The public sector wage bill is targeted to be reduced by 2% of GDP by 2015.

· Fiscal responsibility: independent fiscal council; binding medium‐termbudgetary framework including expenditure, deficit and debt rules. · Pension reform: changes in pension indexation; increases in retirement ageand minimum contribution period; expansion of the contribution base.

· Tax administration reform: new legislation to improve tax collection, which is poor by EU comparison.

· Reinforcing banking sector: measures for strengthen capitalization rate and reducing risks faced by banks.

The SB agreement – main components

IMF Stand by Agreement (EC recomandations)

Measures implemented by government – 2009

(i) foregoing public sector wage increases (totaling 5 percent) scheduled for 2009 or equivalent further cuts in employment;

(ii) reducing public employment, including by replacing only 1 of 7 departing employees;

(iii) frozen pensions at the level of previous year (iv) 15 days compulsory non paid holyday for all employees from public sector

(v) 20000 dismisalls in the public sector

The SB agreement – main components

IMF Stand by Agreement (EC recomandations)

Measures implemented by government – 2011

(i) continuing reducing public employment below 1.2 mln, including by replacing only 1 of 7 departing employees;

(ii) frozen pensions at the level of previous year and introduction of compulsory contribution for health insurance by 5.5% for all pensioners

(iii) 20000 dismisalls in the public sector (SOE)

IMF Stand by Agreement

Measures implemented by government – 2010

(i) a 25 % cut in total wages, bonuses, and other compensation paid to all public sector employees;

(ii) a 15 % cut in pensions and all social allowances (replaced partialy by a 5% increse in VAT, after CC declared the measure unconstitutional);

(iii) 75.000 colective dissmisals from public sector

(iv) cuts in transfers to local governments;

(v) further reductions in heating subsidies.

IMF Stand by Agreement

Dialogue with social partners

• Regular meetings with IMF, WB and EU representatives during the assessment missions (9 meetings from April 2009 to June 2011)

• Two day seminar organized by IMF for representatives of TU organizations from ECE (January 2010 - Vienna)

• One day seminar organized by IMF for Romanian TU representatives (October 2010 - Bucharest)

Effects on poverty and employment

People at risk of poverty after social transfer

2007 2008 2009 2010 2011

Romania

24.8 23.4 22.4 26.2 27.0

EU 27 16.7 16.4 15.9 15.9 n.a.

Severely materially deprived people

2007 2008 2009 2010 2011

Romania

36.5 32.9 32.2 36.1 36.3

EU 27 9.1 8.4 8.1 9.2 n.a.

Effects on poverty and employment

Relative poverty rate in 2010 – 18.5%

Most affected by poverty population categories

Effects on poverty and employment

Employment rate

2007 2008 2009 2010 2011

Romania(20 – 64)

64.4 64.4 63.5 63.3 62.2

Romania(15 – 64)

59.5 59.7 60.0 60.1 58.0

EU 27 70.0 70.4 69.1 68.6 n.a.

Unemployment rate

2007 2008 2009 2010 2011

Romania 4.4 4.2 6.9 7.0 7.3 (1q)

EU 27 9.5 9.8 10.0 9.6 10.0 (1q)

Possible solutions for combating poverty and boost employment – trade union view

• Combating fiscal evasion, corruption and informal labour market

• Amending fiscal regulation for making it more equitable and replacing flat tax with progressive tax system • Reinforce administrative capacity of the Managing Authorities responsible for European Structural Funds in order to speed up the funds absorbtion (more than Euro 27 bln still available up to 2013)

• Do not deregulate the labour market by introducing hiden free hiring and firing procedure

• Do not decupled pensions from salaries by changing the pension indexation mechanism

• Inteligent restructuring of human resources in the public sector, staring with an realistic evaluation of the real needs of the public bodies in terms of human resources

Possible solutions for combating poverty and boost employment – trade union view

Year 2010

 2011

 2012

 2013

 2014

 Average monthly gross wage (ROL)

 1970

 2150

 2335

 2530

 2650

 Minimum wage (ROL)

 670

 860

 1030

 1190

 1325

 Minimum wage against average wage

 32%

 40%

 44%

 47%

 50%

National framework agreement on minimum wage

Minimum wage progression

Total taxation including SSC as %GDP

Taxes and SSC Other revenues

Compliances effect – SSC reduction and flat tax

SSC (% gross wage) Total taxation (%GDP) Labour Taxation

Thank you !