CYPRUS MAIL Wednesday, January 9, 2013
13
Opinion
Re-hiring of retired central bank staff is unjustified IN ITS last issue, the Sunday Mail carried a report about the Central Bank re-hiring, on contracts, employees who had opted for early retirement. Three of them benefited in this way, collecting their retirement bonus, without paying income tax as will be the case for all public employees who retire from this year onwards, and having their monthly pension calculated by the old method, that was scrapped at the end of 2012. The Central Bank’s employees had every right to opt for early retirement, in order to ensure the maximum bonus and pension, but to re-hire them on short-term contracts was totally unjustified, at a time of record unemployment. How peculiar that these practices are taking place under a government, which vehemently opposed the extension of the retirement age, so jobs would open up for youngsters in the public sector. Hiring retirees does not exactly fit in with this government’s philosophy. These decisions were justified in the view of the significant number of personnel that opted for early retirement the Central Bank said in its defence, adding that it was the only way to ensure the smooth operation of its departments at a time of increased responsibilities. “It became necessary to offer a small number of work contracts of a limited time period until procedures to hire permanent personnel are completed,” the Central Bank said. Of course the Central Bank’s committee, to which the applications for early retirement are submitted, was not obliged to approve them. It could have turned down the applications of people who were still needed by the service, instead of being so obliging. It is also a bit difficult to understand why the procedures for hiring replacements were not put in motion as soon as the requests for early retirements had been approved. And if there was not enough time for the long-winded procedures, the bank should have turned down some of the applications to ensure its smooth operation was not affected. Under the circumstances, suspicions that the re-hiring of retirees was politically-motivated cannot be ruled out, especially knowing the level of control the government and AKEL have been exercising at the Central Bank in recent months. It would surprise nobody to hear that the ‘short-term’ (nobody knows how shortterm these are) contracts were given to the retirees at the behest of the government, which has always looked after its ‘own’. But whatever the reasons, it is unacceptable to reward the lack of loyalty of public employees, who have chosen early retirement in order to maximise their pension and bonus incomes, with new contracts, no matter how ‘short-term’ these might be.
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No doom scenario but gloom deepens Comment Alan Wheatley
I
T WOULD be fair to say that US hedge-fund manager Kyle Bass does not expect the explosion in global debt in recent years to turn out well. “This ends through war,” Bass, the founder of Hayman Capital Management in Dallas, said. “I don’t know who’s going to fight who, but I’m fairly certain that in the next few years you will see wars erupt, and not just small ones,” he told a recent conference. http://www.youtube. com/watch?v=JUc8GUC1hY&feature=youtu.be But while many investors have, like Bass, bet heavily on chaotic sovereign default in countries such as Greece, three years of dogged diplomacy in Europe have so far wrong-footed the doomsayers. And while some popular protests have erupted into violence, notably in Greece, the mystery for many analysts is why Europeans have not fought harder against escalating job losses, social spending cuts and tax rises. Unemployment in Greece and Spain has reached 25 per cent. Bass bases his apocalyptic view on his calculation that credit market debt has reached 340 per cent of global output, saying the world has never lived in peacetime with such a burden. He says some societies will not withstand the social strain when trillions of dollars of debt have to be restructured, inflicting hefty losses on millions of investors. War in the euro zone - which Bass does not expect to survive in its present form, if at all - looks far-fetched, to put it mildly. Europe’s political elite demonstrated in 2012 its determination to preserve the euro. Prophecies that doom has merely been delayed could well prove yet again to be wide of the mark. But it is reasonable to ask how much those caught in the cross-fire between creditors and debtors will stand for as the euro’s battle for survival drags on. Take Portugal, now into the third year of recession, where the president has asked the Constitutional Court to rule on the legality of unprecedented tax increases. Adelino Maltez, a political scientist at Lisbon Technical University, said Portugal “got drunk on Europe” during the boom years. “Now for the first time we have the feeling that we have nowhere to go,” he said. “For 2013 the Portuguese lack a sense of mission. There is a recognition of collective powerlessness.” In other words, with scant prospect of a swift return to growth, the risk in 2013 is less
Protests have failed - except in Greece - to translate into a big shift in votes for radical parties outright conflagration in the single-currency area than a fraying of social and political ties and an insidious erosion of hope. Jean-Dominique Giuliani, who heads the Robert Schuman Foundation, a pro-European think tank in Paris, says difficult reforms must continue because the crisis shows no sign of going away. “Changes will now be constant and will demand a great deal of populations, overturn societies, surprise political leaders and unsettle experts,” he said in a commentary on his group’s web site. Charles Robertson, chief
‘Europe’s political elite demonstrated its determination to preserve the euro. Prophecies that doom has merely been delayed could well prove yet again to be wide of the mark’
economist at Renaissance Capital in London, is among those wondering how much more voters are prepared to sacrifice. He expects Greece to quit the euro this year and says Spain might follow by the end of 2014. Spain has already endured one year of unemployment above 25 per cent but will probably have to manage three more in order to meet the financial targets set by its international creditors. “No economy (as far as we are aware) has ever sustained this unemployment rate and maintained a peg to a fixed exchange rate,” Robertson said in a report. Most damaging of all, he said, was the absence of hope: “For households, wages are still likely to fall to boost competitiveness. Households are deleveraging and defaulting, not borrowing more to fuel consumption.” A vibrant black market and a still-generous welfare state mean unemployment is probably sustainable at higher levels, and for longer, than ever before, Robertson acknowledged. Still, by 2014, Spanish voters will have had time to conclude that the reforms introduced by Prime Minister Mariano Rajoy, whom they elected in 2011, have failed to deliver prosperity. “People may then take to the streets and demand change,” Robertson argued. Even though the consensus has swung towards the euro staying intact, many economists fret about the broader ramifications of protracted austerity. A possible explanation suggested by Deutsche Bank for Europe’s relative social peace to date is that the bur-
den of adjustment has fallen disproportionately on young people. In Spain, for example, the employment rate for the under-25s tumbled from 39.1 per cent in mid-2007 to 18.3 per cent in mid-2012, a fall of 20.8 per centage points. For the 35-49 age group, with a higher level of protection against layoffs, the drop over the same period was 8.9 per centage points. This mix of “youth sacrifice” and relative economic security for the bulk of the population might be why street protests have failed except in Greece - to translate into a big shift in votes for radical parties, according to Gilles Moec, a Deutsche economist. But the potential economic cost is huge. With fewer youngsters working, Italy and Spain have suffered a loss in productivity of about 2 per cent, boding ill for future growth, Moec estimated. The textbook answer is to push policies that end the divide between hard-to-fire ‘insiders’ and typically young ‘outsiders’ on precarious short-term contracts. The risk, however, is that these and other structural reforms become discredited because voters associate them with declining living standards and rising inequality, according to Simon Tilford, chief economist at the Centre for European Reform, a London think tank. “The consequences are likely to be far-reaching. Not only will governments struggle to push through the needed reforms, but there is a risk of a broader backlash against the market economy and the European Union,” he said.