Global IssuesEAST EUROPE: 'Inevitable' Budget Cuts Anger Unions
Trade unions in Romania and Bulgaria are embarking on a spring of protests in response to the governments’ anti-crisis measures involving considerable cuts in budget expenditure.
In 2009, Romania’s GDP decreased by seven percent. Faced with a budget deficit of 7.2 percent for 2009, Romanian Prime Minister Emil Boc declared this month that the governmental economic austerity plan must be strictly adhered to 'unless we want to end up like Greece'.
Similar warnings are coming from Sofia. Bulgaria was running a budget surplus when the effects of the global economic crisis reached the country. This allowed Sofia to finish 2009 with a budget deficit of less than one percent of GDP and avoid, for now, a loan from the International Monetary Fund (IMF) - a loan undertaken by neighbouring Romania in 2009.
However, the country’s GDP decreased by five percent in 2009. And, in the first two months of 2010, Bulgaria already accumulated a deficit of 1.8 percent of GDP, making economists issue tough warnings.
'The government is demonstrating an inability to control the budget deficit,' says Georgi Ganev, head of economic research at the Sofia think tank, Centre for Liberal Studies. 'If the foreign markets sniff an inability to hold the budget, the Greek scenario will unleash with full force, much easier and much quicker than in Greece itself.'
Both countries, members of the European Union (EU) since 2007, are aspiring to enter the euro-zone in the next five years, a step conditional on maintaining the budget deficit below three percent of GDP.
On Mar. 24, the Bulgarian centre-right government discussed with trade unions and business leaders its plans to increase value-added tax, by two percent, to 22 percent. The unions warned that such a measure would be a blow for the already burdened consumers.
Additionally, the government announced last week it had negotiated potential wage reductions in the public sector with the unions, in exchange for the guarantee that there would be no mass layoffs in 2010. Still, on Mar. 25, some ministers declared they would cut bureaucratic staff.
Bulgarian leaders have also been considering the introduction of a 'luxury tax' on owners of expensive houses, cars or yachts or those holding more than 50,000 euros in bank deposits. But following the Mar. 24 meeting with unions and business leaders, the measure remains uncertain.
Like their Romanian peers, Bulgarian leaders are keen to preserve the existing flat tax system, considered stimulating for economic activity.
Meanwhile, public protests and negotiations with unions over the past months forced the Bulgarian government to give up on a series of proposed revenue boosting measures, such as increasing mandatory healthcare contributions and raising social services costs for small businesses.
Trade unions around the country, including the largest industrial union in Bulgaria, Podkrepa, farmer groups and police force unions, are threatening more strikes in April.
In Romania, the government has committed to cutting 15,000 jobs in education during 2010. This measure, alongside the cancellation of promised salary increases for teachers, has sparked protests from educational staff throughout the country during March - with more protest actions scheduled for April.
Romanian farmers protested last week in the capital, asking for the payment of subsidies for 2009 - postponed by the government - and for the continuation of government aid in 2010. According to data from the National Institute of Statistics, in 2009, agriculture was the most productive sector as compared to previous years, effectively supporting the economy.
In the last week of March, Romanian legislators are discussing a draft law which would introduce taxes for the smallest businesses - including repair shops, creative arts ateliers and camping sites.
Another draft under debate proposes the introduction of charges on medical services provided by state hospitals and clinics -and that in a country with a long tradition of access to free healthcare.
A healthcare reform plan launched in Bulgaria on Feb. 1 is expected to lead to the closing down of over 20 hospitals considered inefficient, mostly in rural areas.
Cuts in education, healthcare and state administration are unavoidable, say Romanian and Bulgarian leaders.
Such measures also fall in line with the terms of Romania’s 2009 agreement with the IMF, with EU conditions for euro-zone membership, and with EU-endorsed anti-crisis plans adopted in countries like Greece and Ireland (the European countries performing worst during the financial crisis).
But are there measures indeed advisable? Do unions have any point to continue the protests this spring?
Economist Anna Coote, head of social policy at the New Economics Foundation — a British think tank focusing on quality of life research - suggests that a way to evaluate the advisability of austerity measures in Eastern Europe nowadays is to look at structural adjustment plans imposed by the IMF on various countries in the 1980s and 1990s 'with disastrous results in many cases.'
Coote told IPS that it would be better to re-focus social spending on prevention of problems rather than simply cut spending. 'Think in terms of re-gearing services towards prevention of harm, through, for example, education, childcare and housing, to reduce future needs for costly curative services such as healthcare and criminal justice (policing and prisons),' the economist suggests.
'Easy to say, hard to do,' she concedes, but insists that 'one of the problems with some public services is that they are usually about picking up the pieces - hauling the bodies out of the river downstream without doing anything to stop them falling or being pushed in upstream.'
Bulgarian economist Douhomir Minev from the Bulgarian Academy of Sciences is also sceptical about social spending cuts as a means to address the economic crisis.
According to Minev, governments should use the crisis as an opportunity to improve their tax collection systems, make the fiscal and banking systems more transparent and better regulated, and prevent illegally procured money from being taken out of the country to safe havens. Such measures would sufficiently boost budget revenues, he argues.
Moreover, 'support for the real economy should be oriented to key industries and sectors which have great economic importance, substantially influencing other economic sectors, and which have a decisive impact on poverty and inequalities,' says Minev, who gives agriculture, energy generation, education and healthcare as examples of such key sectors.
Judging by the decisions of the governments, the actions of unions and other protestors against cuts can achieve limited or no success in countries like Romania and Bulgaria. Even so, their presence on the streets and in the media is important, argues Mihai Giurgea, an editorialist for Bucharest-based business magazine ‘Standard’.
'Still, it is worth it to take to the streets,' Giurgea thinks. 'Public pressure has yielded results. It made [Romanian economic minister] Adriean Videanu give up huge bonuses in the midst of the financial crisis. This is the good side of the crisis: it makes people pay attention to how their tax money is spent. Civil society is born.'
© Inter Press Service (2010) — All Rights ReservedOriginal source: Inter Press Service