LAST Friday the head of the Association of Cyprus Banks revealed that there had been talks with the bank employees union ETYK, for several months now, regarding the reduction of wages. The union had not responded yet, said the head of the Association Michalis Kammas, while noting that the pay cuts were stipulated in the Memorandum of Understanding.
One of the provisions of the MoU was that banks would proceed with the reduction of their operating costs, a major part of which was their wage costs. This, combined with more redundancies and the reduction in the number of branches are the only ways for the struggling banks to cut their losses, at a time when there is no possibility of expansion or increasing revenues.
Profitablity (or, to be more precise, containing losses) could only be achieved through drastic cost cuts. It would certainly not be achieved by the reduction of interest rates on a selection of existing loans that was announced yesterday by two banks. Welcome as this decision may have been it did not make much business sense – it was politically-motivated – as it would further erode the margins of the banks. It had no basis in competitive practice.
The collective negotiation of pay cuts, which the Association has undertaken on behalf of all the banks, does not have any basis in competitive practice either. Collective bargaining across an industry is just another irrational practice, imposed by union bosses as it gives them monopolistic powers, including price (wage) fixing. This was why banks have been paying extortionate salaries to employees.
There is now an opportunity to abandon the collective agreements, which force all the banks, regardless of their profitability, to pay the same wages and annual increases. Why for instance should employees at a bank that is not in trouble have to accept the same pay cuts as the employees of the Bank of Cyprus, which needs to cut operational costs more drastically than its competitors?
The situation is too precarious to be left to ETYK to impose average, across the industry, pay reductions, assuming it agrees to cuts in the first place. Each individual bank should be allowed to negotiate pay and conditions with its own staff. The Banks Association could offer advice to each bank, but should not negotiate, on behalf of all banks, with ETYK. Not all banks have the same needs or problems and it is beyond ludicrous to expect them to offer the same pay structure and pay incentives.
The banking crisis is the ideal opportunity to put an end to the economically indefensible and obsolete practice of collective agreements. But the bank bosses need to demand it and fight for it because there is no way ETYK would give up its monopoly because it does not make economic sense.