After a break of four years CoLA (Cost of Living Allowance), one of the most harmful and irrational economic measures, is set to return in 2017. The social partners met labour minister Zeta Emilianidou on Monday to discuss its re-introduction and although there was disagreement on how it should be calculated, neither the employers’ representatives nor the minister proposed scrapping it, which would have been the sensible thing to do.
CoLA, which ensured the automatic adjustment of wages every six months to keep them in line with the cost of living index, has always been a sacred cow for the unions and the political parties. We still remember Demetris Christofias boasting at the end of 2012, with the state and banking sector on the brink of total collapse, that he had saved CoLA by refusing to sign a memorandum with the troika. Delaying the signing of a bailout by four months – President Anastasiades was forced to do it immediately after his election – may have cost the economy an extra billion euro but he saved what he liked to refer to as “the institution of CoLA”.
This measure was implemented in many countries in the previous century, but it is now in force nowhere in the EU because it is inflationary and, contrary to the collective wisdom of Cypriot union bosses, does not maintain the purchasing power of wages. What it does achieve are constantly rising prices which erode the competitiveness of the economy, discourage foreign investment and make the island more expensive as a tourist destination. We would expect the clueless communists of Akel, who emphatically proved their ignorance of how to run an economy while in government, to support this measure but what is the excuse of the rest of the politicians?
Why has the Anastasiades government not taken a stand against a practice that has been proven to erode an economy’s competitiveness? Is it because it trusts the economic advice of clueless union bosses rather than that of highly-qualified ECB and IMF economists? Emilianidou gave an incredibly superficial justification for the government’s support of CoLA on Monday when she said: “Everyone expressed their will to seek a solution that will benefit both workers and businesses, and beyond, that of the country as industrial peace must be maintained as it was preserved all these years through the goodwill and responsibility all sides exhibited.”
This was complete nonsense, because it will benefit neither workers nor businesses when it erodes the economy’s competitiveness by ensuring constantly rising prices. A responsible government would have made this clear instead of pursuing a measure that it knows would harm the economy on the grounds that it preserved industrial peace. Of course there is industrial peace when the unions get their way. But perhaps Emilianidou should consider that a little industrial unrest is a small price to pay for safeguarding competitiveness.