Romania's ruling coalition recently decided to increase the salaries of public employees starting this June, according to Mircea Toader, Liberal Democrat Party’s (PDL) deputies leader, quoted by Mediafax newswire. The Government will have to scare up the extra funds needed for salary increases.

Romanian President Traian Basescu said last week that Romania must find solutions to reverse the public employee pay cut by June 1, after the austerity measures taken in 2010 prevented Romania suffering the same fate as Greece.

Salaries in the public sector – including teachers – went through a 25 percent cut in 2010, with the promise that they would be restored at a later date, when budgets allowed.

Fitch Ratings, predictably averse to public sector pay rises, says increasing public spending in Romania wouldn’t just trigger a budget deficit increase, but will also amplify the risk of some indirect adverse effects by decreasing market confidence.

A slippage from fiscal targets, especially if caused by permanent measures that increase the risk of a distraction from the medium-term objectives, would be a negative development, according to Fitch analyst Gergely Kiss, quoted by Mediafax newswire.

According to Fitch, an increase in nominal wages exceeding the productivity growth will ultimately lead to inflation, jeopardizing the success of the disinflation trend noticed in recent quarters.

Irina Popescu, irina.popescu@romania-insider.com

(photo source: Sxc.hu)