Thursday, December 26, 2013

End-of-Year Review: Economic Flashbacks

At the end of each year we tend look back and analyze what has happened. In this post I will rent about economics and the financial crisis again.

It has been another year when all over the news, and in society in general, the financial crisis was a constant topic. We were, again, told that even though things seems to be going a little better we are still in a crisis and we, as a society, have to endure and support each other and accept low salary, extra hours, no Christmas bonuses, and so on.

Fortunately for me, I work for an open minded and realistic company. The rules are simple, if the company does well, the employees do well. If the company doesn't do well, we, the employees will do our best to make it better. However this is not the case for most of the companies in my country, that is Romania.

In my personal opinion there was never a crisis in Romania. At least not directly. We felt the effects of the crisis as exports dropped and banks decided to not loan people and divert all the incomes to their mother countries. But that's it. There were no huge surprises or bankruptcies. There were no big companies closed and unemployment is kept in check at one of the lowest levels in Europe.

However, the curtain of the phrase "We don't have money, it's a crisis!" allowed a lot of companies and politicians to hide behind those words and affect a huge part of the country's population. We knew politicians were stealing huge amount of money, but simple citizens and the media could do little. The president itself may very well be the heart of groups making money end up in the pockets of well placed, influential people. Of course, there are little or no proof, but that's how things work. Take for example the 10 billion dollars payed by the state for a highway that was never built and the money never recovered. Money doesn't evaporate.

So, in the early years of the crisis the government, back then controlled by the democrats, decided to reduce all the salaries and even pensions (though illegally). There was less money coming in to the state's treasury since less exports and external investments reduced the growth we were used to. We, the citizens, thought it will make the politicians steal less. It did not. They stolen probably even more, thinking about the dark times to come, and took away from the people. Well, they payed the price at last year's election, finally they were gone.

2013 was the first full year with a social-liberal-democratic government. An unlikely alliance with one goal, get rid of the democrats and the actual president. They managed the former, unfortunately not the later. I am sure they are also money hungry, and making their part in all of the state's businesses, but at least we stopped hearing about briberies like 40% of a 1 billion dollars highway must go to certain people otherwise the project is assigned to another company willing to pay. We also could observe some legal changes toward a better direction. We've seen that most of the salaries and pensions were reintegrated to the values they had back in 2010 when they were reduced. Some of the illegal cuts were also payed back retroactively.

We also registered a 3-4% economic growth. A very nice figure in my opinion. And an absorption of about 30% of the European funds, compared to about 5% in 2012. A lot of money.

Even though I still do not agree with at least half of the government's actions, at least I can see some of them are good and they are starting to produce positive results.

The private sector is a totally different story. Private companies can do whatever they want and believe me, they are doing huge profits, hidden under the curtain of the crisis slogan. About 40-45% of all the employees in the private sector are working the minimum salary imposed by the law. That is about $250 per month. And from that you have to subtract about 20-30% of different taxes. At the other end of the scale, there are only 2.5% that are earning more than twice the average monthly salary, which is somewhere at 500-600 dollars.

Most employees are kept in the dark, and if they dare to ask for a rise they are simply told "It's a crisis.". Meanwhile many companies are reporting record profits. The people, a huge part of the country's working force, thinks there is no other way, they have to work for the minimum wage. They gave up ... unfortunately.

And the banks are part of all this. They are in no trouble, at least not here in Romania. They probably never were. They are doing just fine. In fact I think they feel very well. All those house loans given before the house crisis are paying off. People continue to pay them. And while in many countries the interest rates were reduced to almost zero, they stayed more or less the same here, except the effects of the mandatory EURIBOR or ROBOR interest rates, which were reduced. But the banks are actually taking more than before. For example, when I bought my  house I payed about 5% EURIBOR + 3% the banks interest rate. Now, EURIBOR 0.3% and the bank's rate is about 4-6%. Yes, I pay less than in 2008, but the bank is getting more.

So, the banks are getting richer and more wealthy while telling us that we should be happy we pay less then before ... sure.

And the proof? Simple. Basically you can not get loans now. The banks are giving only very few loans or only those that are guaranteed by the state. For example if you want to by a car and you have a salary in the top 2.5% of the incomes, you have little chance to buy anything but the cheapest cars out there (I refer to new cars). It doesn't matter you could easily pay the car in less then 2 years, they will not risk it. Why should they? They can sit back, do nothing for the next 20-30 years while all those huge house loans will be payed. Good business. They are still supporting small credits, 200-300 dollars if you want refrigerator or a new TV or a new phone, but basically that's it. And they are doing that because the risk basically is zero. If you don't pay, the law permits them to take 30% or so of your salary and they will, in a couple of years, get the money back. And if they wont, they've lost almost nothing anyway.

So, it is so sad when you can see through the curtain of the crisis and see how so many people are exploited unjustly and kept working for minimum wage just because there is a fictional crisis out there...