Our View: Union proposals risk worsening inflation spiral

Unions and consumer organisations called on the government to set out and implement a policy to fight inflation, proposing both targeted and horizontal measures. This anti-inflation alliance has asked for a meeting with President Nikos Christodoulides to discuss its proposals and accordingly decide its next moves.

In an announcement, the alliance said it was not happy with measures taken so far by the government and demanded a “comprehensive anti-inflationary policy” as well as measures to support medium and low-income groups and vulnerable groups of the population. Only one of the measures they proposed was targeted and aimed at helping the most vulnerable – an increase in the minimum guaranteed income.

The rest of the measures the alliance wanted were across the board – subsidy of electricity bills and fuel, expansion of zero VAT to more consumer products, measure to reduce interest rates on loans, a clampdown on profiteering (whatever that means), payment of the full cost of living allowance (CoLA) (which is anything but anti-inflationary) and a crackdown on tax evasion. Presumably, the funds for the anti-inflationary measures would come from the tax evasion crackdown.

Are unions so ignorant about economics that they actually believe the measures they are proposing would constitute an anti-inflationary policy? These measures would increase the rate of inflation, by boosting demand, when the only way to fight rising prices is by reducing demand – hence the high interest rates which restrict the money supply and spending.

Unions use the same logic with their proposals as they did in supporting the restoration of CoLA. They argued that indexing of wages safeguarded the purchasing power of wage earners, when in fact this fueled inflation and made goods more expensive for the low-income earners, who were not entitled to CoLA. It is ironic that the public sector unions claimed they wanted to protect the low-income earners.

While Christodoulides, on Wednesday night, reemphasised that measures for dealing with high prices could not be horizontal, the following day Finance Minister Makis Keravnos did not rule out the possibility of reintroducing the subsidy of electricity and fuel, contradicting the president. He said new measures would be taken after the approval of the 2024 state budget.

Was Keravnos offering some hope to the people in order to ease the pressure the government was under? Apart from the unions, opposition parties and media commentators have been lambasting the government, demanding more measures for cost relief, including subsidies for electricity and fuel. So far, the president is standing firm, even though his finance minister appears to be cracking under the pressure.

As there is no doubt that many people, apart from the pampered public sector workers, are currently struggling to make ends meet, the government needs to maintain fiscal discipline, despite the political cost, because if it fails to do so it will make a bad situation worse.