By George Koumoulli
The Russia-Ukraine war has shocked the global economy. Commodity prices, including energy, have risen sharply as uncertainty about supply disruptions has risen. For example, in June last year the average price of oil was $68.50 per barrel while today it is around $110, which is an increase of 60%.
Inevitably, inflation skyrocketed: in Cyprus it reached 8.8%, that is, the prices of goods and services consumed by a representative household, increased, on average, in the last 12 months (from June 1, 2021 to May 31, 2022) by 8.8%. As a result, the market value of incomes decreased, except of course for those that increased by at least 8.8%.
Supporters of ATA (Automatic Indexation) such as PEO, SEK, DEOK believe that this institution shields their incomes and wants it to be maintained within the system of labor relations and collective agreements.
According to the ATA’s philosophy, if prices rise by x%, incomes should also be increased by x% so that the purchasing power of incomes does not fall.
In Cyprus there is an agreement between the social partners that the ATA is paid once a year, since in the second and third quarters of the previous year there is a positive growth rate and its performance is limited to 50% of the annual increase in the Consumer Price Index.
The irony is that the institution of the ATA intensifies inflationary pressures, especially today when we are in imminent danger of stagflation. It is for this reason that almost all economists, almost all EU countries, and the Commission itself reject the ATA.
The reason was explained by the famous economist Jean-Claude Trichet, former President of the European Central Bank (from 2003 to 2011) at a conference of the leading European bankers on May 22, 2010 in Athens on inflation.
He said verbatim: “Models such as the ATA should be avoided because there is a risk that upward shocks in inflation will lead to an inflationary spiral of wages and prices, with detrimental effects on employment and competitiveness.” I believe this is understandable to everyone, even if they have not been taught economics: let’s assume that initially the prices of goods increase (e.g. because of more expensive raw materials). Due to the ATA, wages are rising, but this increase pushes prices further upwards for wages to follow this path again, and so on. Another problem associated with ATA is that wages are never reduced. Therefore, if wages are now increased due to inflation and soon prices deflate (perhaps the war in Ukraine will end) then wages will remain at the same level.
Eventually the economy will inherit a huge labor cost that will be painful for everyone to manage. It is surprising – and disappointing at the same time – that some economists praise the ATA for “not disturbing workers’ peace”. It is as if a military court is ruling that officers, accused of spying for the benefit of the occupying forces, for example, should not be convicted so as not to disturb the unity and peace of the National Guard.
But there is other very serious drawbacks of the ATA that the workers’ organizations mysteriously do not discuss even though it is to their detriment.
By conceding the same percentage increase to all workers, the gap, at least in absolute terms, between the high-paid and the low-paid, that is to say between the poor and the rich, is widening.
The high-paid who will reap the benefits of the ATA will not take a breather because the “housewife’s basket” became more expensive. He will simply increase his savings and therefore his assets that will give a new boost to his total income (from work and property).
In other words, the ATA strengthens the capitalist texture of the Cypriot economy and is what everyone and, above all, the trade union leaders who so passionately defend the ATA should understand.
How I would have liked all the “underprivileged” to meet in life, that is, the enslaved and the wage-earners, in a large space, and for a charismatic leader, protector of the poor, to say that the ATA rains riches on the occupiers! How come the pontiffs of the trade unions do not perceive this disadvantage? Unfortunately for them, the institution of the ATA further intensifies the imbalance of power between capital and labour which, in the final analysis, undermines the pluralistic dimension of our society.
It was destined in Cyprus, dear readers, to witness an incredibly oxymoronic scheme! Unbeknownst to them, left-wing trade union leaders are impeaching the Leviathan of capitalism.
There are other more effective measures, besides the ATA that the government can take to combat accuracy, such as reducing taxes (mainly on basic necessities), increasing low pensions and salaries, targeted benefits, cartel control, etc.
*Opinions expressed in this article are the author’s own and do not necessarily reflect the editorial policy of CypriumNews.
