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2005 - A Year of Labour Strife

Financial Mirror Online
Monday,  January 24, 2005, 14.00

The year has not started off well for labour relations in Cyprus - and its going to get worse. The country is undergoing fundamental changes which are bound to bring about further labour unrest. Until recently the priority of government as regards labour relations has been the preservation of labour peace. At times it appeared to be peace at almost at any price, The main focus of government attention was "the Kypriako". Government opposition to union demands was usually short lived, often followed by capitulation.

Membership in the EU has placed the government in a position where this approach is no longer viable. Many Cypriot organizations come to the bargaining table having enjoyed in years past a high level of protectionism. This includes not only tariffs, quotas and state industries but also numerous subsidies on everything from water to football.

A New Bargaining Environment

The new wage bargaining environment has been demonstrated in the deal concluded with the semi-government unions. The recent settlement, reflecting a much stronger stance by the government and a dose of realism by the unions, is as welcome as it is necessary.

As regards agriculture - last years’ tractor strikes were only the beginning. Agriculture in Cyprus has long operated within an environment, almost a culture, of government protectionism, grants and subsidies. These have been so pervasive that it would be difficult for anyone to estimate the true cost of Cypriot farm products. To glimpse the future, one has only to look at the similar problems the EU agricultural policies have caused for farmers in the "older" EU member countries. Tractors on the highway have long been a familiar site on the roads of France, Greece and Italy. Under the EU Common Agricultural Policy these countries, all with much larger more efficient farms, have nevertheless suffered a dramatic decline in the number of agricultural workers and farms. Can we really expect that Cyprus will be any different%3f

The lowering of tariff barriers and the opening up of freedom of movement of industry and labour across national borders also brings pressure on private industry. Private compnies cannot afford high wage settlements and labour conditions which make them uncompetitive relative to other European companies. Private employers have already stiffened their bargaining stance in anticipation. As for state managed industries such as Cyprus Airways, the impact of EU regulations restricting subsidies are just beginning to be felt in Cyprus.

Would we be better off outside the EU%3f

As members of the European Union the above changes mean that there is little choice but to continue in a direction which seems certain to lead to more labour strife. This raises the question: Would we be better off economically outside of EU%3f The entire question may be academic, since most would agree that politically we are better off within this organization. Nevertheless, the question is an interesting one for those interested attempting to anticipate something of our economic future.

Comparing Greece and Cyprus

A recent economic report in the Financial Mirror on the comparative performance of EU countries over the years 1995 to 2003 can shed some light on this question. The report makes disturbing reading. Compared to the other 25 EU countries, the economic standing of Cyprus during this eight year period has declined. In 1995 Cyprus enjoyed a per capita income that stood at 86% of the EU average. By 2003 this figure had declined to only 83% of the EU average. In other words Cyprus has grown slower than the average of the EU countries. Particularly interesting is the comparison with Greece.

In 1995 the Greek per capita GDP stood at only 72% of the EU average, substantially below that of Cyprus. Eight years later Greece has almost caught up with Cypriot economic performance. It has improved its per capita income to 81% of the EU average, almost equal to that of Cyprus (83%). If the trend continues Cypriot income per person will soon be below that of Greece. Since this report only covers up to the year 2003, this may already be the case. (These comparisons are based on data compiled by Eurostat. National GDP figures are adjusted to reflect actual purchasing power.)

The point is that the EU economic environment has been good to Greece. Contrary to the expectations of many, Greece has done much better in the EU than outside. Pursuing EU policies relating to the reduction of protectionism, privatization and the elimination of subsidies, Greece has gained economically. Cyprus with many similarities to Greece but until recently outside the EU and practising a quite different set of economic policies has fallen behind. This result simply confirms beginners class economics, ie., a more open, competitive environment is more efficient and provides greater consumer benefits than one characterized by monopolistic practices. This is a timely reminder when the government here is under enormous pressure to revert to the "old ways". Greece has in effect restructured its economy. This has not been without considerable pain and labour strife. Cyprus is just beginning the process.

By Dr. Jim Leontiades
Cyprus International Institute of Management

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