Crisis? What crisis?

greva_generalaSomething strange happened to me last week.  I was at the recycling bins with my 7 year old son Luca (who likes to practice karate chops on chunks of polystyrene) when a garbage truck pulled over. Two fat guys got out, wandered over and helped us to load our Ikea waste into the containers. I couldn’t understand it, what on earth had got into them? I’m used to garbage men being morose and sarcastic, reluctantly moving the waste they’re hired to shift but never lifting a finger to do more. Why were they suddenly being helpful? Could it be because of the crisis? Are they afraid for their jobs?

To me this was the first sign that public sector workers were aware that their jobs might be at risk.  There is a sense of timelessness when it comes to public sector jobs in Romania; they are hired for life. And this is backed up by legislation.  It’s almost impossible to fire public sector workers, and considering each administration hires a new cohort of officials you can imagine the scale of the problem. Even private companies are obliged by law to use unlimited contracts (i.e. a company can’t hire someone for a limited period of time).  By trying to save jobs, Romania has created a massive bureaucracy that costs billions a month and is now bankrupting them.

If you look at our original footage from 1990, you will see that people then were more worried about the future than they are now.  In 1990 Romania was in the grip of a much more serious economic crisis: the Communist system had just been overthrown and people were not sure what would replace it. Would their jobs survive? Would the foreigners buy everything and turn them into serfs? Would they starve?  There was fear as well as uncertainty and it took much of the nineties to establish a sense of confidence in the economy that subsequently emerged.  Despite the usual corruption, chaos and incompetence – the Romanian Government trademark, so to speak – things went pretty well until 2007: jobs were created, investment was coming in, people could leave, unemployment was low and the bubble was big. Life was pretty good, considering.

In my view things started to go wrong as soon as Romania joined the EU. Not only has Romania been unable to benefit from EU Structural Funds, but the political parties seem to have lost their moral compass as well as their strategy. Leading up to 2007 all political parties were agreed on one thing — and one thing only — that EU integration was a good thing. This gave them focus and direction and strategy and Adrian Nastase ran a disciplined (albeit corrupt) government that managed to keep the ministries under control and get the legislation through until Brussels signed on the dotted line.  But ever since Romania joined the EU, there has been a striking lack of focus, direction and strategy; the government and opposition just react to the various crisis as they happen.

Romanian politicians used to promise people big improvements after EU integration, including the raising of salaries.  In order to sustain the impression of bounty and success after 2007, successive governments increased both salaries and the number of people hired by public authorities – despite having no new money to fund this.  The minimum wage was increased and pensions for all were introduced.  It all seemed to be sustained by EU Structural Funds (which nobody seemed to notice were blocked), public works, increased investment (which of course has dried up recently), the property bubble and massive international borrowing.

For much of 2009 Romania tried to ignore the financial crisis. I was told a few times that Romania would weather the storm much as China has done, and the government showed no inclination to consider austerity measures (last year the opposition Social Democrats demanded teachers get a 50% wage hike) and it is only now that the problem has hit home, the private sector is contracting rapidly and they suddenly announced a massive 25% cut in all public sector wages.  This cut is fair for the fat-cat generals, diplomats, ministry workers and directors – grossly overpaid by Romanian standards – but terrible for the teachers and nurses whose salaries never increased much in the first place.

Romania is not suited to austerity measures.  Romania is a Latin country that likes to show generosity and largess, especially to family and friends to whom jobs and public contracts can be quietly given.  Until President Basescu announced his decision to cut salaries by 25% there was no talk of cuts, only increases, and even now there isn’t much talk of cutting waste, of saving energy bills or avoiding duplication (which is where huge savings could be made).
It’s interesting to note that President Basescu announced these cuts; they seemed to come out of the blue; and why were they announced by the president and not the government? It is rumoured that even the Prime Minister is not in agreement with these cuts, but what is clear is that there was no public relations exercise carried out before, or even after, the announcement and this is plain stupid as if the people had been informed, if the issue had been debated, there would have been a lot more understanding of the problem and the necessity for this kind of solution. But that is not the style of government in Romania, where they place no value in debate or partnership or raising public awareness (except at election time).

There is a sense of entitlement in Romania (in other words, the expectation that the state will provide everything) that the politicians have built up over the last 20 years. Until recently I can’t think of a single politician who was saying that we have to cut costs, we can’t keep borrowing and spending beyond our means.  And as a result the people are now furious that such big cuts have been forced on them.  The unions have made several attempts to organise massive strikes to try and intimidate the government — but to no avail because the people have grown fat and comfortable (especially the union leaders) and these protests are more like carnivals; they lack the anger that I saw on the streets in 1990. The so-called “General Strike” of 31st May 2010 which was supposed to stop Romania was a damp squib; the only people who came out were the pensioners.  Britain’s General Strike of 1926 is etched in the memories of all Brits as the country was literally stopped and the army had to come out and run the emergency services.

There is also another Romanian tendency that has contributed to their crisis; the tendency for grandiose, superficial and irrelevant projects.  The classic example of this is Casa Poporului, the House of the People, the biggest building in Europe. Admittedly it was built by the late dictator, costing several percent of GNP, but the post revolutionary governments finished the job, installed their parliament and continue to pay over 20 million Euro a year in running costs.  And billions have been thrown at building the Transylvania motorway which is years late and not even half built, and even in my area of Bucharest the city hall seems to be burning money on planting fancy gardens down my street, installing useless fences and laying lawns which need constant watering. Where’s all the money coming from? Why doesn’t someone shout: “enough is enough! No more showy, non essential projects!”

I come from Scotland — the birthplace of austerity — and I grew up in the Thatcher years and their deeply unpopular public sector cuts.  Even though I despised Thatcher at the time, and left the country because of her, and didn’t come back because of Blair, I now see that her approach was right: in her 1979 election manifesto she promised pain; she said the economy is in a mess and “we need to tighten our belts”.  And when she was elected in 1979, by a landslide, she simply told her ministers to make big cuts in their bureaucracies.  It was up to each minister to work out where cuts were to be made, Surely this is better than a blanket cutting of salaries because in many cases there is so much waste that huge savings can be made in things like heating and transport — not to mention the fact that these institutions need restructuring and this is an ideal moment to do so.  If you cut all salaries by 25% you’re just spreading disappointment and not resolving the issue which is that far too many people are employed by the state.  A much better approach would be to just fire 25% of state workers and bring down the top salaries from their stratospheric levels.

Britain’s new Conservative-Liberal Government has also promised cuts and within weeks of being elected said they would cut 6 billion pounds of public spending immediately.  What they didn’t say is that this is less than 1% of the public sector bill and when they really start cutting in 2011 they will start having problems with the unions.  My point is that these British Conservative Governments have won elections by promising austerity, whereas in Romania you win power by promising plenty.  And this is the basis of Romania’s problem with the crisis; the leaders don’t have a moral basis, or a political mandate,  to cut costs.

The problem now is that Romania must cut billions from its public spending – or face default and economic disaster – and the government is failing to explain to the public why this is essential.  The PM and President, as well as all the ministers, should be on chat shows every night explaining the problem of the deficit, telling public sector workers that the system is unsustainable, that they will be faced with no salary if they don’t cooperate. But no, the government went into a huff with the main TV stations and don’t bother commenting any more — leaving the field to scurrilous journalists and opposition politicians who are making the government out to be incompetent, corrupt and ridiculous (which they may well be, but its wrong not to stand up and face your accusers).

Whatever happens, Romania will survive. It may even thrive (although its hard to see how this is possible now that they’ve announced new tax rises). This country has the uncanny ability to weather all these storms (and they have been continual over the last 20 years) and while it can look like Romania is going to hell in a hand basket, it continues to function rather well.  I reckon that 20% of Romanians now live in other countries and those who read the Romanian media (which is free and very critical) tend to think this country is in complete meltdown. But it’s not. The government may be corrupt, the public sector may be hopeless, but the utilities work rather well and everyone seems to have a job (unemployment is under 10%) and there are all sorts of companies that manage to compete internationally and do great work.  An American once told me to look at the queues in the supermarkets to get take the temperature of an economy and even now – at the height of the crisis – I found that Ikea and the Romana Plaza Mall were packed.

That 20% diaspora figure is important as those people living abroad send back money – billions a year; more than Structural Funds and new investments combined.  I suspect this is what is keeping people going.  The other interesting point is how Romanians cope with crises; they tend to complain to each other – in the family, at the workplace, amongst friends – and in this way the anger and frustration is worked out of people and it doesn’t translate into street protests, or political movements that could challenge the status quo. And if things get really bad they can always go back to the villages; after all, two thirds of the population still lives in villages, which means that most Romanians have relatives who live rural.  Although the idea of going to live in a village is unthinkable to urbanite Romanians, most of whom seem ashamed of their rural roots, it is a last resort that may one day be a life saver if a real economic crisis hits (such as a Peak Oil crisis, which would devastate our food supply chain).  The rural option isn’t one that we in UK have: we lost our connection to the land hundreds of years ago and now only 2% of the population live in the countryside.

You may be wondering how the crisis has affected me and why can I afford to be so blasé about the long suffering Romanians.  I can tell you that my income has dropped by over 60% in the last few years but this is to do with EU funds, which have more or less stopped flowing in Romania (one businessman told me that to get an EU grant these days you need to pay an upfront bribe of 30% to the ministry) and my EU work in Romania has dried up. Over 20 billion Euro of Structural Funds are available to Romania, but sheer government incompetence has resulted in over 90% of it being unspent.  But I have adapted, I have learned to get by on a lot less (it’s incredible how wasteful one can be when one earns a lot), and I am working for a really interesting Scottish rehab clinic which wants to expand into Eastern Europe, and the best thing is that I can now spend more time with my wonderful family.

Please follow me on Twitter @wolfemurray

9 Responses to Crisis? What crisis?

  1. Pingback: Bucharest Life | Today in Romania’s parliament, Good does battle with Evil. It really is as simple as that | Romanian Politics

  2. Emil says:

    “eople are now furious that such big cuts have been forced on them” … which people ? … the few thousands that the opposition parties manage to truck to Bucharest from all over the country for “protests” ?

  3. Anamaria says:

    Hi Rupert,

    i think that people who work on public sector were not so angry so far and did not care too much about the strike for a couple of reasons. Many have some “additional incomes” that will come anyway. Remember we have to give money to the public sector employees if we need something done w/t waiting too much? When corruption will be severely punished, and people will lose jobs because of it, then people will really be mad of not getting 25% of their income all of a sudden. Others have their jobs because they are the relative of smb and they know they will always be safe. Others have paid for the job. A nurse job in Bacau costs at least 1000 EUR. I am not one of those haters of the PS sector.I respect it as my parents are serving it for a lifetime. I do not blame them from being angry, I think they deserve more respect which they can not gain from their miserable salary. Cutting salaries and pensions is a very barbaric rule and is humiliating. As if this people are a burden and not a valuable ressource. Will we be able to change the course of events or we will close our eyes and adapt and move on…

  4. gabriella bullock says:

    fascinating, Rupert. It’s variations on the same theme everywhere, I guess – and perhaps corruption is a particular problem with countries which have known occupation for a long time

  5. Alex says:

    Great article Rupert! You are perfectly right!
    Is sad that this is a part of Romania, which I personally dislike, but this is it. I’m sure that we all got sick of all these lazy politicians and their medium to low education background, their stupid way to think and their unbelievable speeches. Is also true that in this moment Romania doesn’t have a civil society (I don’t want to imagine what could happen in France if the government was taking these decisions there). Is true that all these strikes look fakes, like a puppets show, and we don’t have the anger from the 90’ anymore and this is, in my view, because we still have our freedom (I hope that I didn’t sound like Braveheart )).
    Now matter what we are free to have our underground growing culture which keep us alive, we still have the nice underground music from clubs, we still have the nice film festivals, the really nice expos of the contemporary young peoples, now we almost have the old centre and Bucharest is finally looking alive……
    What I will do for the politicians and for Romania which I dislike? I will not go out in the street that’s for sure (as you said, we don’t have the anger anymore), I have my own way to protest. I consider myself a shareholder, like all of us for the same company, Romania, which is managed by a very bad team of directors, I don’t believe in their strategy and in their skills, I would not pay their salaries anymore; I don’t have the majority to change them, what could I do? I think that I will stop investing my money; they have to convince me that I’m wrong, only then I will start repaying my taxes….

    PS: It will be nice to have the posibility to send the articles from here to friends by e-mail directly

  6. bburghelea says:

    “Even private companies are obliged by law to use unlimited contracts (i.e. a company can’t hire someone for a limited period of time)”.

    I am sorry to say, but you are either misinformed or you are misinforming your readers. It is absolutely not true. A labour contract can be closed for a limited period as short as a day, for instance.

  7. Ronnie Smith says:

    Hi Rupert.

    Interesting article, thank you. I’m Scottish, suffered the Thatcher years as a student of politics and now live in Bucharest too. The comparisons are fascinating, between Thatcher’s hyperactivity and clear vision and the sheer lack of realistic, positive ideas among the political elite in Romania.

    One point about joining the E.U.; I’m afraid that finding someone else to take responsibility for everything is deeply ingrained in the culture. The E.U. fits the bill and I’m pretty sure that many in government are waiting for the magic pill from Brussels, notwithstanding the E.U.’s own problems of which our leaders are probably blissfully unaware.

    I can do this over beer anytime you like, by the way. 🙂

  8. Anka says:

    How it comes that you say “a company can’t hire someone for a limited period of time” ?!?!
    In which country does this happen? For sure not in Romania.
    Or was the legislation changed and I do not know? I strongly doubt about this.
    Check your information and eventually correct it for your readers, would be nice 🙂

  9. Anka, this is what business managers and accountants tell me. They say they can only use officially permitted contracts that allow for hire for an unlimited time. And due to legal controls over what kind of contract we’re allowed to use (a very communist restriction) I have problems signing a contract with my own company. This is one of thw worst countries in the world for red tape.

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