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Our View: Long-term economic interests should come before the re-introduction of CoLA

The president's letter did not include any confidential information, the government said on Monday

The notorious Cost of Living Allowance (CoLA), which was suspended in 2013 as part of the assistance programme, would be re-activated soon the new general secretary of SEK unions Andreas Matsas said on Tuesday. Speaking on the CyBC’s morning radio show Matsas made it clear that Co-LA would be re-introduced, pointing out the Troika had not insisted on its abolition in negotiations with the government.

This was another example of the government’s failure to use the assistance programme and the presence of the Troika to get rid of the market distortions that were undermining the economy’s competitiveness. It was a missed opportunity, the Anastasiades government choosing to keep the un-ions happy rather than taking a decision in the long term interests of the economy at a time when nobody could have protested. The only minor improvement is that the automatic adjustment of wages would take place once instead of twice a year.

CoLA, which exist in no other EU country because of its inflationary effects, ensures that wages are automatically adjusted to reflect any increase in the cost of living index, supposedly in order to maintain the purchasing power of wages. But everyone seems to ignore the fact that the measure fuels inflation, undermining the competitiveness of an economy that depends, to a large extent, on tourism as well as attracting foreign businesses.

The big irony is that for the three years that CoLA was suspended the cost of living index had been on a downward path which would have led to cuts in wages. This may have been a reason the unions were not bothered about its re-introduction, whereas now, with the record numbers of tourist arrivals, higher demand has been pushing up prices and the cost of living index may have started rising. What better time to bring back CoLA?

Union bosses and politicians also fail to take into account the negative effect the re-introduction of CoLA would have on employment. By pushing up wages, through automatic indexing, fewer businesses would be willing to hire staff. In times of high unemployment measures that push up in wages will exacerbate the problem. It would be similar to the totally absurd Christofias government’s decision to raise the minimum wage when unemployment was on the rise. Then again such economic lunacy was expected from a communist government whose president boasted that he had saved CoLA while ignoring that he had bankrupted the state.

The Anastasiades government has no such ideological excuses and should try to persuade the unions to put aside any thoughts about the re-introduction of CoLA, which would also push up the public payroll. It is the sensible thing to do even though there will be resistance from the unions and opposition parties, but the long-term interests of the economy must come first.

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