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Ansip: time to freeze public sector salaries for sake of euro

Feb 27, 2008
By TBT staff

TALLINN - Prime Minister Andrus Ansip has said that in order to switch to the euro the government might be forced to freeze public sector salaries beginning in 2009.
"If we want to accede to the eurozone in 2011 we must resolve to curb the growth in the salaries of people working in the public sector, starting next year," the prime minister told a press conference on Feb. 21.
Ansip cited the example of Cyprus, where the public sector salary fund and recruitment of people into the public service was frozen before accession to the euro.
"These are inevitable steps also for Estonia if Estonia wants to accede to the euro zone as of Jan. 1, 2011," he added.

The prime minister was quick to add that salaries could still be increased but only in cases when savings appear as a result of worker productivity and effectiveness.
Annual inflation hit 11 percent in January, the highest level in over a decade, and economists agree that prices will continue to rise in the short-term.
MP Taavi Veskimagi said that the idea of a public sector wage-freeze was extremely late.
Veskimagi, who belongs to the right-wing Pro Patria and Res Publica Union, a member of the coalition, said it was surprising how one fine February day the prime minister woke up and realized that freezing salaries and curbing public sector expenses was important.

"But it's better to become wise later than never," he told the Baltic News Service.
Still, the former minister couldn't resist taking a stab at the head of government. "It took Ansip more time for this to sink in than those who keep a slightly keener eye on the world economy," Veskimagi said, adding that the optimal time to freeze wages was last year while discussing the 2008 budget.
He said Ansip could still show his newly found financial acumen later this year if and when the government realizes it is not meeting budget targets and revenues fall short.
"It is possible for the prime minister to show his resolve there," Veskimagi said. "We must hope that the February wisdom the prime minister acquired should not leave him as fast as it came and that it would last until it is necessary to make real decisions."

The statistics office announced on Feb. 22 that gross average monthly wages in the fourth quarter of 2007 amounted to 12,270 kroons (784 euros), 20.1 percent higher year-on-year. The government, meanwhile, said that average wages in the fourth quarter resulted in a meager 4 percent gain in productivity.
"This means that real wages are growing at double the labor productivity rate," the government said, adding that the trend could not last long since it gradually erodes a company's competitiveness.
The government said that a slowdown in wage growth was expected due to slower economic growth and a reduction in corporate profit. "In the given conditions companies are no longer able to raise employees' wages at the current fast rate, and so leveling of the wages and labor productivity is to be expected," the government said.

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